Ark Restaurants Corp. (ARKR) Q4 2017 Earnings Report, Transcript and Summary

Greetings, and welcome to the Ark Restaurants Fourth Quarter and Year-End 2017 Results. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Bob Stewart, President and Chief Financial Officer for Ark Restaurants. Thank you. You may begin.

Okay. Thank you, operator. Good morning, and thank you for joining us on our conference call for our fourth fiscal quarter and full year ended September 30, 2017. With me on the call today is Michael Weinstein, our Chairman and CEO; and Vinny Pascal, our Chief Operating Officer. For those of you who have not yet obtained a copy of our press release, it was issued over the Newswire yesterday 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. Happy holidays. The last conference call we had, I tried to give an EBITDA expectation for the current year, which we now end. I like to review that with you and tell you where we stand. We think that, that guidance is still very much intact. The 2017 EBITDA was $10.830 million. We had a gain in that year from the sale of our Jupiter property of $1.637 million and we also ended our lease at Canyon Road in New York where we had a $178,000 gain. That was not an operating profit. That was a gain on sort of an assignment of the lease. So, the EBITDA was somewhere around roughly $9 million. We add to that this year what we think are pretty solid numbers. Sequoia, because it was being renovated last year had - and had terrible delays in the renovation. We had $2.270 million EBITDA loss. The year before, we made $1.5 million. So, there was a $3.770 million swing, which we think is certainly numbers we can count on that will be added back to the $9 million EBITDA. The Jupiter loss last year before the sale was $281,000. So that's an add back. The Rustic Inn had always - the year before the bridge was taken down that connected the Rustic Inn to the main highway and caused a 3-mile detour, that bridge is now complete and operating, a little later than we thought. We thought we'd have it in September, it became operational last week. But we think we can add $700,000 of EBITDA increase with the bridge being up. The minute the bridge went down, our EBITDA dropped from about $3.4 million to $2.6 million, $2.7 million. We are projecting another $263,000 that we wrote off as part of the acquisition cost of the Alabama properties and then we think our catering numbers improved, and we think Durgin-Park improves, that's another $400,000, $500,000 between the two of them. And that all adds up to $14.432 million if we take back those add-ins. What we are not giving any credit to is strong business that seems to be occurring in Las Vegas. From the news we're following the reports of Las Vegas companies, that market is probably one of the strongest economies in the United States right now. Our sales in Las Vegas were up 3.3% last year. We, last year, renovated America, which is a big restaurant in New York, New York. We’ve also made some changes at Yolös at the Aladdin. So, we think we're in great position there to see continued headcount growth and probably EBITDA growth there as well, but that's not in our projection. So, there are no excuses for us now. We have no leases expiring. We don't have any bridges down. Sequoia is completely finished and open to the public in all areas. Shuckers, which had extreme weather last year and we were - and the building next to us, which sort of access a feeder to the restaurant when it's a timeshare building, that building was being repaired last year. So, half the units were not available. That building is done as of the couple of weeks ago. Clyde's had construction in the building it occupies that blocked our entrances. That construction is complete. So, from the point of view of being able to do business to generate revenues uninterrupted by any outside factors or by our own factor, we have a clear path in front of us. The only issue that we have, especially in New York, is minimum wage legislation. We think we figured that out by working around the edges again. We've done things in the past to help us. This is the third bump that we're facing in minimum wage, which is sort of baked into the legislation. We've done things to help offset those labor costs in the past by charging taxes at the bar, raising administrative fees on private events, not accepting credit cards in payment of private events unless the party doing the private event gives us 3% to cover our credit cost fees. When you're doing $10 million, that 3% represents several hundred thousand dollars. We worked all the edges to what we thought we did to sort of ameliorate the - or mitigate the additional minimum wage legislation, but we found a couple more. So, in January, we get another bump. I think that bump would cost us about $0.5 million if we did nothing about it in New York. But we found things to do, and we don't think on this bump that it's going to be any negative impact to our EBITDA projection. So that's it. Again, we got a clear path in front of us. I think we're going to do well. The December quarter, we're seeing good results. We don't have those numbers yet, obviously, but the results have been pretty good. And we think we're on a good path. I'll take questions now.

Thank you. [Operator Instructions] Our first question comes from the line of Bruce Geller with DGHM.

Hi, good morning Michael. Happy holidays.

You too Bruce, thank you.

So, it sounds like things are pretty much back on track across the board, which is great to hear. What - how are the early results you're seeing at Sequoia now that everything is fully up and running? Are they meeting your expectations?

So that's a complicated question, but the answer is we're seeing very positive results. Let me tell you why it’s a little complicated. First of all, we got the outside opened - partially opened just as the season was ending. So, the comparisons to the year before on the outside were weak because we only had a couple of levels open and the bar wasn't completely finished. And so, from that point of view, we were seeing business, but we just didn't have enough supply seats to capture what we would normally capture. The inside, we didn't start - it was - even though we had renderings and made an effort to sell the inside for events, especially for the holidays, we had a lot of difficulty selling those event spaces. We added another event space, by the way, as I think I've explained in the past. So, there was resistance because people walked into construction site even though the renderings showed them what it was, but what was kind of amazing to us is on very short notice when we opened up, we got a flood of requests to see the event space. And we actually did more event business this year than last year. So, I think what we did on an early take is that by adding event space and by renovating the whole facility, it really is highly attractive what we did. And by doing that, I think we created something that's very much in demand. The à la carte business is a beyond the event business or in addition to the event business. So, the total result is if you look at the - at the last quarter, the December quarter, we are up 17% from the prior year's quarter. To me, it's an amazing number. We really don't get a feel for this thing, quite honestly, until we see what happens next year once the outdoor is open. If you're up 17%, you're up 17% on a winter business, which may be something like $150,000 to $225,000 a week depending upon the week. If you're up 17% in the summer, you're up 17% on $400,000 to $500,000 a week, and that's a big difference. But the initial results are very gratifying given that we were having no luck showing event spaces until thoroughly when we opened and that business just flooded in. We were very happy about it. The large loss we took last year was primarily because we kept everybody. We had a good crew down there. We didn't want to lose them. There is a big area opening up in the spring called [indiscernible] about 5 miles away from us. There are a whole series of waterfront restaurants, 18 of them. We didn't want to go looking for people with that competition around. So, we made the decision that given that the labor market was very tight to keep those people, and we knew we would have good service and to not miss a step the day we opened. And that's exactly what happened. The service has been great, the food has been great. People are very excited about the way the place looks. So, I think we did a good thing there. Whether or not it justifies the renovation cost, which is very high, we'll find out, but so far so good.

Great. That's encouraging. And on the topic of renovation cost, you obviously spent a lot in CapEx this year. Can you give a sense of what CapEx is going to look like in 2018?

Bob - I think it's $1 million to $2 million.

Yes, that's the standard CapEx to keep our restaurants open and in good repair. We have one project that we're going to be undertaking at Fort Lauderdale. I think that's another at the most $2 million. So, we don't have any of the big projects right now where we're going to be spending a lot of capital.

Yes, I should say that before the bridge came down, Rustic was overwhelmed by demand. And we have an old facility there that sort of was little by little added on to by the previous owners who had it 50-some-odd years before we got to it. So, it was added on to piecemeal, and it's a business that does great, but it's really inefficient. And we're not taking advantage of the people who wait, we have two-hour waits on the weekends. And there's no place for the people waiting to buy anything. So, we're adding bars and a big raw bar as well. We think we'll get it done sometime during the year. Our plans are almost complete, they'd have to go through the building department down there. Parking was an issue. We've bought an additional 58 parking spots by acquiring a piece of property that was contingent to our existing parking lot. So, we think there's room there also. And what's interesting is without the bridge up, it's been down for almost two years, our business was comping very well at Rustic, despite the construction and the detour. So, we think that that's a big opportunity as well. I think Vegas is an opportunity, Rustic is an opportunity, Shuckers is an opportunity. Shuckers did very well this year despite bad weather and this building next door not being fully occupied. You have to understand Shuckers is on a barrier island of [indiscernible] beach. And we have one or two restaurants on the ocean side and there are not many restaurants on the whole island. And if there are 40 rooms not occupied in the building next door, those are 40 customers that we would normally see every day. People come down there and occupy that as a time share and they do nothing but eat in our restaurant and drink in our restaurant, and we haven't had that. So, there are just a lot of opportunities for improvement here in EBITDA.

That's great. And it sounds like you made some encouraging comments on the December quarter so far. Is it - are all the markets comping positively at this point?

Well, certainly, New York seems to be okay. The comping - look, the whole business is the comps up 1% or down 1%. We have in New York restaurants that are basically overrun with customers. The weather is brutal outside, yesterday, Bruce, there was a line waiting to get into Bryant Park. Robert is a very hot restaurant. The only restaurant that needs to be - have more demand is Clyde's, and it's still out of the way, and there's still - Hudson Yards is still not up and running. But we think once that gets up and running, we'll reach where we wanted to be in terms of headcounts. So, our business is just fine. These are mature restaurants, Bruce. You're not going to see a 10% jump in comps. They're already doing it as close to maximum as they can, if not maximum.

Great. Thanks for this thorough update. Good luck.

Thank you.

Thank you. [Operator Instructions] Mr. Weinstein, it seems there are no further questions at this time. I'll turn the floor back to you for any final comments.

Thanks, everybody. As I said, no excuses. We've got a clear path, see how we do. We think it's going to be good. Wishing you all very happy New Year. Thanks, again.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.