Ark Restaurants Corp. (ARKR) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Ark Restaurants Third Quarter 2013 Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, August 19, 2013. I will now turn the conference over to Bob Stewart, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Good afternoon, and thank you for joining us on our conference call for the third fiscal quarter ended June 29, 2013. With me on the call today is Michael Weinstein, our Chairman and CEO; and Vincent Pascal, our COO. For those of you who have not yet obtained a copy of our press release that was issued over the Newswire last week and is available on our website. To review the full text of that press release, along with the associated financial tables, please go to our homepage at www.arkrestaurants.com. Before we begin, however, I'd like to read the Safe Harbor statement. I need to remind everyone that part of our discussion this afternoon will include forward-looking statements, and that these statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We refer everyone to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on our operating results, performance and financial condition. I will now turn the call over to Michael.

Hi, everybody. This quarter was influenced dramatically by weather on the East Coast again. We just haven't had the season that we had last year. Our outlook have [indiscernible] was not as useful [indiscernible] last year. But despite that, we had very deep results in New York. We had a little bit weaker results in Boston, in Washington, D.C. Washington, D.C. states [indiscernible] that they reconfigure detail in the mall [indiscernible] hampered by that a little bit. [indiscernible] last year in Washington Harbour, we were one of the few restaurants opened because in the prior year, there had been some flooding, half of the restaurants were closed. This year, they were all open. So we have more competition. And although we have lost [indiscernible] in that facility, we believe that our business has been impacted by [indiscernible] offering. In Las Vegas, it was down in the quarter something like 1.5% to 2% [ph]. Las Vegas remained relatively flat, slightly weak in various operations we have. We believe that Las Vegas has -- while it may have recovered somewhat, in the number of visitor shifts coming into the city, there is more capacity in Vegas than there was in 2007, which was a premier year there and then it started to fall apart. But as Las Vegas comes back, demand hurdle has to be overcome for us to see the benefit greater than it was in 2007, because there was just that many more restaurants. So again with that, 1.5% there. We are doing better in Connecticut, still have some problems there. And we're certainly doing much better in [indiscernible]. We've opened 1 restaurant in the quarter, which -- Broadway Burger Bar. This is our third Burger Bar. This one is doing very, very well out of the box. We are very satisfied with the results. We are profitable. Of course, it's still not quite in line with where we would like them to be, but they will get in line [indiscernible] Good at that. [indiscernible] employees, but that will be overcome. So we're very happy with that. And that's basically what the company looks like right now. We are involved in discussions [indiscernible] significant development deals. As you all know, we -- equity [indiscernible] in the Meadowlands Racetrack in Secaucus, New Jersey. We made that investment for 2 reasons. One was, we think the possibility of Keeno [ph] being attached to that racetrack and us having ownership in that casino are favored greatly and may take 2 or 3 years. But we think that's going to happen. Two, as part of our equity ownership in the racetrack, we kind of put the price [indiscernible] beverage at the casino and at the racetrack. It will be a very good business. With that, I'd like to turn it over to questions.

[Operator Instructions] And your first question will come from the line of Paul Andrews [ph].

I just wanted to [indiscernible] down a little bit more on the metal [ph] field [indiscernible] investment. So if a casino was to get approved there and built out kind of -- what sort of cash flow would you guys be looking at going forward putting into it?

All right. Well, right now, we have about $4.2 million involved, slightly less than 10% ownership. Obviously, we are within 3 months of opening a new grandstand, which is part of the deal with [indiscernible]. The New Meadowlands Racetrack LLC signed a 40-year lease for the acreage and for the racetrack operations. The best investment that we have made briefly for ownership of that slight investment, 10% of the equity. But we do have exclusive rights to the food, but we have no capital outlay for the food and beverage operation. That is the buildout by the Meadowlands Racetrack LLC, new corporate entity with the [indiscernible] building all the food and beverage operations out. We have a slight decline -- small management fee for overseeing the food and beverage. But we have -- it will not impact our profit and loss statement. Either direction, we are doing this just -- the profit and loss of the food operation in the racetrack for the time being will be on the P&L of New Meadowlands Racetrack LLC. If there were to be a casino there, obviously, that casino has to be financed. Our $4.2 million investment would either be diluted if we didn't come up with our portion of additional capital for support of the construction of the casino. And in the casino, our philosophy would be different. We would operate in the casino for profit. And we would make those investments necessary, restaurants, fast food and catering operations, to be able to do that. What those investments would be, quite honestly, are not quantifiable right now because we have not set out the terms of what those leases would be, how much of a [indiscernible] improvement allowance would be received from the landlord. And we are on both sides of that transaction, obviously. So the agreement has to be -- now is we would have leases and tenant improvement money in those leases similar to other casino deals that we have done in the past. All right? And those casino deals are pretty much the ones we already have, we'll pretty much dictate what the terms of our tenant improvement allowance will be, as well as lease conditions.

And then, as part of the investment, you -- if the casino got improved, you guys would have the exclusive rights to all food at the casino?

With one exception, which is public knowledge that the Hard Rock people have made a $10 million investment in the casino. And there is, in fact, as well, thinking this may become a casino. And they have the right to do a Hard Rock Cafe. But with that one exception, we have all the food and beverage rights. And may I add, so that there's no confusion. We have enlisted the assistance of another food and beverage operator in Manhattan to do a barbecue and some event space. And that other person, who we will oversee as part of the racetrack business, as part of the racetrack is in this for profit. But we didn't think an investment in food and beverage in the racetrack at this stage of the maturation of this development was a worthwhile endeavor to risk [indiscernible]. If there were a casino there, we may come back and revisit our arrangement with the racetrack and may decide that we want to do this for profit as well. But our focus has been the racetrack, getting it open, helping them with food and beverage. But our focus on a P&L basis...

Absolutely. And then if I could just -- so in just thinking of the timing, obviously, [indiscernible] said: "Come with the offer in February." And I think you guys announced this in March. And when I think about this, I mean the potential is, if it gets approved as a casino would be -- it would be pretty big relative to the size of the company. So how would you guys think about this going forward in an acquisition? Would the casino ownership be spun out to shareholders? Would an acquirer -- I mean how would they think about putting a value on this for you guys?

Well, I don't know how we would put a value on it quite honestly. When offers come, and I don't want to be politically correct here. I mean that's not what I'm trying to do. If an offer would come, it would be complicated. First of all, there is a provision in our current agreement that if another casino company would come and try to acquire us or make a tender for us, then their ability to influence the investment in the casino was to operate food and beverage in the casino would be strictly limited. Where we have the rights now to create our own brands or put in brands that we think are appropriate, if there was a casino there. If it was another casino company, obviously, Hard Rock and New Meadowlands Racetrack LLC would be wary of sharing marketing data with another casino company. So that Landry's bid would be a very complex bid even analyzed. And not that they would be prohibited, but I think there would be enough hurdles and obstacles to overcome that I don't think the casino company going to make [indiscernible]...

Understood.

Based upon a casino being at the Meadowlands, They may want to make it, based upon other things. But [indiscernible] Meadowlands. I think that becomes a big hurdle to overcome. Look, we feel here, as the general answer to your question, that there is, apart from the Meadowlands, apart from the Meadowlands, a strong balance sheet here, a good creative team here, a good management team here that should be able to build significant shareholder equity over the next few years. And the types of developments we discuss tend to take a long time. We're excited about -- like a New York, New York when we did that many years ago or a Bryant Park. Bryant Park took us 11 years to become [indiscernible]. New York, New York, we were involved with that 3 years -- 2.5 years before they put a shovel in the ground. The Meadowlands, obviously, is the same type of situation. We have other situations like that that we are in negotiation with -- where the shovels aren't in the ground yet. But they're exciting. And if we were to get them, we think what we're building in these situations is some type of exclusivity where if a person walks into the facility, they have to do business with us. And those are the situations we like. Even in the place of the Burger Bars, which they're all doing very well, there are only 3. We intend to do more. But 2 of them -- all 3 are in casinos, and they're all very well placed within those casinos, in terms of location. So we try to do things where there are hopefully a lot of feet walking in front of our doors. And we'll get our appropriate percentage of those people that walk into our doors.

Yes. I mean I think I'll agree you did a great job. I mean really excited to see this investment. I was just -- it would be really weird for an acquired to be able to put value on it. And before I get back in the queue, I just have to let you guys know that I went to Clyde's a couple of weeks ago and loved it. So keep up the good work guys.

I keep saying this to a lot of people. I don't think it's helping me very much. But we have a restaurant at the Museum of Art and Design, Robert, which is a very, very hot venue. I mean we started it some 3.5 years ago. It's on the 9th floor. Nobody knew it was there. It's become one of the hot destinations in New York. I literally could probably close the place 5x a week for private events, but we don't. We're open to the public. We close it a couple of times a week. And on Travelocity, which we do look at, and OpenTable, which we do look at. The reviews on OpenTable are extraordinary. And Travelocity has moved this restaurant way up in terms of eating destinations. The restaurants you must go to when you're in New York. The review, I think, we got 4.7 in terms of -- Robert, [indiscernible].

I think it was 4.5.

Robert, it was 4.5 out of 5 on OpenTable in terms of the food review, just the food review. Clyde's is 4.6. What, 4.7. now?

So we got huge. We're doing everything right there. The place looks great, the food is great, the service is good, people love it. There just aren't enough people walking in yet. But it will happen. And Clyde's there every day in New York. He's amazing. So he's been a great partner as well. So we hope that it continues to do better. We hope that we continue on the up slope there. But thank you.

[Operator Instructions] We have no further questions at this time.

All right. Well, thank you, all. We'll keep continuing to try to do a good job for you. I appreciate your participation today. And we'll speak to you in 3 months.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating, and please disconnect your lines.