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Executives

Richard Stockinger – Chief Executive Officer

Juan Garcia – President and Chief Operating Officer

Jose Ortega – Vice President and Chief Financial Officer

Analysts

Anton Brenner - Roth Capital Partners LLC

Brad Ludington - Keybanc Capital Markets

Michael Gallo - C.L. King & Associates, Inc.

[Jonathan Way – Precipio Research]

[Unidentified Analyst] for Greg Ruedy - Stephens, Inc.

Will Hamilton - SMH Capital

Benihana Inc. (BNHN) F1Q10 Earnings Call August 31, 2009 5:00 PM ET

Operator

Good day and welcome to the Benihana Inc. fiscal first quarter 2010 earnings conference call. Our hosts today are Rich Stockinger, Chief Executive Officer, Juan Garcia, President and Chief Operating Officer, and Jose Ortega, Vice President and Chief Financial Officer.

Statements in this conference call concerning the company’s business outlook or future economic performance, anticipated possibilities, revenues, expenses or other financial items together with other statements that are not historical fact are forward-looking statements as the term is defined under Federal Securities laws. Forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include but are not limited to changes in customer tastes and preferences, acceptance of the company’s concepts and new locations, obtaining qualified personnel, industry, [sicks] of realty, fluctuation in customer demand and seasonal nature of the business, fluctuations of commodity costs, the ability to complete construction of new units in a timely manner, obtaining governmental permits on a reasonable, timely basis, and general economic conditions, as well as other details in the company’s filings with the Securities and Exchange Commission.

I would now like to turn the floor over to Benihana’s Chief Executive Officer, Rich Stockinger. Please go ahead.

Richard Stockinger

Thank you. Hello everyone, and thank you all for joining us. I am going to briefly review some highlights from the recent quarter and then delve more deeply into the Benihana Teppanyaki Renewal Plan, which we first touched upon at our recent annual meeting of stockholders. Juan Garcia, our President and Chief Operating Officer, will then discuss our current development activity before we turn the call over to Jose Ortega, our Vice President and CFO to conclude our formal remarks with a discussion of our financials and an update of our fiscal 2010 guidance. After that, we’d be happy to answer all of your questions.

First, for the quarter that ended July 19, total restaurant sales for the quarter were slightly higher than last year at $95.5 million, and are attributable to the sales from new units as well as from locations that had been closed in the prior year period for remodeling, which all worked to offset the decline in comparable sales. You will notice that the aggregate comparable sales fell sequentially in the quarter compared to earlier this calendar year. And this mirrors what many restaurant companies experienced over the same timeframe.

Now, with regards to our Benihana Teppanyaki Renewal Program, many of you have probably already seen our recent press release in which we outlined several steps we are taking to improve guests’ perceptions of dining experience as it relates to image, value, quality, consistency and lack of Japan. Our primary objective in formulating this strategy is to restore the concept to its former greatness by undoing many of the deviations that have evolved over time from the original Benihana brand concept. Deviations that, quite frankly, have negatively impacted the gust experience. Basically we are going to elevate the quality of food and beverages, raise the level of service standards and revitalize our marketing and public relations activities. These combined efforts, which are in various stages of implementation, are focused on increasing guest frequency, creating greater mindshare and ultimately bolstering restaurant sales.

While image, value, quality and consistency are relatively easy to define, I’d like to first expand upon what I mean by a lack of Japan. On the surface, this seems rather ironic given that we are a Japanese themed restaurant. However, through market research we have come to learn that many guests feel that over the years the Benihana Teppanyaki concept has lost its focus and become too commercialized or, quite simply, that we have deviated too much from our proud origins. We are therefore making some changes to the Benihana dining experience so that we not only continue to honor one of the world’s oldest cultures, but also so that we solidify our reputation as being a celebration of Japanese heritage. This encompasses such items as being greeted in Japanese when entering the restaurant, adding more Japanese words and contemporary Japanese cuisine to the dining experience, adding Japanese elements to the restaurant and celebrating Japanese holiday’s not just American holidays.

To execute on our plans of enhancing our guests’ experience, our primary focus is right where it should be, on operations. We must perform flawlessly at the restaurant level and remember that everything we do begins with satisfying the needs of our guests and making their Benihana experience as enjoyable and as memorable as possible. Our food and unique entertainment quality are of course the bedrock of this effort, and we will continue to use these attributes to encourage guests not only to celebrate their special occasions with us but also to come to Benihana for more routine dining out experiences.

Our beef, which is hand butchered on the premises, has been upgraded. Now both our strip loins and our tenderloins will be USDA choice. With it we have upgraded our chicken specifications. Our cooking methods for both beef and chicken have also been improved to enhance the tenderness and flavor for our guests. Our produce is fresh and prepared on premises. Our salad has been improved with the use of romaine and iceberg lettuce with grape tomatoes. Keep in mind that all our soups, dressings and sauces are made on premises as well. Our Benihana Onion Soup simmers for six hours.

We have also returned to serving premium Häagen-Dazs Ice Cream for dessert, and we’ll now offer a premium Bindi Sorbet. All specialty entrées will now include ice cream or sorbet as part of their entrée price.

From a seafood perspective, we have revamped our specification and preparation process for our coldwater lobster tails. Our scallops are now shucked and frozen on boats off the shores of Canada. We also now have a potential wow item at Benihana. The shrimp used for our dinner entrées has been upgraded to U12 Mexican Number One Whites. They will be grilled on a Teppan grill with the shell on. We’re looking forward to seeing the results of this upgrade.

We are rolling out our new menu on October 1 with all these improvements and with no increases in the pricing of our entrées. In addition, our new menu has eight new items which include the 12 ounce Imperial Steak; the Emperor’s Salad with choice of shrimp, steak, or chicken; the spicy Tofu Steak; the Hibachi Lemon Chicken; the Colossal Mango Shrimp; the Garden Delight which is steamed vegetables prepared on the Teppan grill using a specialty steamer; the Spicy Seafood Shrimp Soup and the Yummi-Taki, a specialty dessert. And as we have said before, we think investments in our food are the right thing to do for the long term health of the business. And we believe that the more favorable commodity environment, along with aggressive purchasing initiatives, will offset these additional costs, resulting in a cost neutral effect year-over-year.

Of course, having great food can only go so far without equal commitment to a superior beverage program. We are developing products with distinct Japanese flair, but which are also relevant to current trends and consumer demands. We are developing new Sake cocktails and enhancing our existing hot Sake menu through the introduction of items that are currently only found in Japan. We have also added some exciting new specialty cocktails and will be bringing the latest beverage trends from Japan to Benihana. Similarly, our wine program has been completely upgraded with new wines, new glasses and temperature controlled wine storage, which will be placed in the dining room wherever possible to help our merchandising efforts.

We are also elevating menu other elements of our dining experience including the napkins, tabletop presentations, steps of service and dress attire. We have gone through a detailed facility assessment of all our units, and are addressing each facility’s needs.

In addition, we are maximizing visibility with signage and even lighting the blue roofs where appropriate. We are looking for areas to place additional seating at certain of our south Florida locations, especially those locations on the waterfront. All of this is being done to help guarantee a great Benihana experience at every restaurant.

We view the future of Benihana as honoring our proud heritage as well as showcasing the festive, contemporary Japanese culinary trends. In this way, we can provide what is familiar to our long time guests while also introducing them to more innovative dishes, items that they are likely only to experience at Benihana.

Most of you are familiar with our late founder, Rocky Aoki, but the vision behind the Benihana concept was actually that of Yunosuke Aoki, Rocky’s father. Yunosuke opened a small coffee shop in Tokyo right after World War II. He wanted to introduce Japanese culture to the United States using restaurants and food service as its vehicle. Rocky then took this and created a worldwide, cultural icon and a brand more powerful than the number of units would suggest.

But the Aokis were not the experts in culinary arts. They turned to a master chef to create the original menu, and many of those recipes are still in use today. The chef was Master Chef Shinji Fujisaki, who was Chairman of the All Japan Culinary Artist Society. Master Chef Fujisaki trained in French cuisine, which influenced the preparation of many of the Benihana recipes. So as we look ahead, we’re going to raise the bar on the quality of our offerings by reinvigorating the rich sense of culture and heritage. And we’ll be doing so through new relationships that we are cultivating with some of the leading authorities in Japanese cuisine today.

We are working towards bringing Japan back to Benihana, a vision that began with Yunosuke Aoki and his son, our founder, Rocky Aoki and their forging alliances with people and companies in Japan to help us achieve this vision. To that end, we recently announced that Chef Hiroyki Sakai, a protégé of Master Chef Fujisaki, has become our Executive Culinary Advisor. His role will be in assisting the company enhancing our recipes and cooking methods, while also incorporating the latest trends from Japan. We believe that the impact of this relationship on our company, especially on our Chef, is going to be enormous.

In addition, we are also pleased that Eriko Horiki, a world renowned designer and washi artist from Japan, has agreed to become part of the renewal program. Her work is showcased in places like Narita International Airport in Tokyo and the backdrop of the Silk Road concert by cellist Yo-Yo Ma at Carnegie Hall. She will be receiving an award in October in France for her work on a special packaging for Dom Pérignon. She is currently working on several Japanese elements for our restaurants, as well as new and exciting menu design that will be launched in the coming months.

We are also working on several other alliances from Japan and hope for further announcements in the very near future.

From a marketing perspective we recently started a new email initiative called The Chef’s Table. This email database, which has grown from 70,000 to over 400,000 names in five months, is being utilized for promotions and building brand loyalty. For example, any member of our Chef Table receives a free dinner for his or her birthday, a celebration that has been a long tradition at Benihana. Importantly, our database will also be deployed to gain a better understanding of guest usage of our restaurant concept. During the month of September, members of The Chef Table will be able to enjoy an exclusive offer celebrating Benihana’s 45th anniversary. The 1964 special offer these guests a Rocky’s Choice which includes Hibachi steak, grilled chicken breast, Benihana Onion Soup, Benihana salad, shrimp appetizer, Hibachi vegetables, homemade dipping sauces, steamed rice, Japanese hot green tea and ice cream, sorbet or sherbet at a special price of $19.64. This entrée retails for approximately $24.00.

In July we inaugurated our children’s club to address a very important component to our concept. Children are often the prime drivers in bringing families to Benihana. On their birthday, they will receive a traditional Japanese mug to bring home as a constant reminder of Benihana.

Advertising activity, however, has been limited over the past several months, as we’ve been focused on launching the Benihana renewal. Also as part of this new focus, we have signed Wieden and Kennedy, best known for its work on behalf of Nike, to lead our advertising efforts and Coyne PR to lead our public relations efforts.

To sum up, our opportunity is huge, our objectives are clear and our passion is great. It all comes down to renewing the brand, and we strongly believe that many initiatives that we have laid out today will help build our brand equity and bring Benihana concept to the level it once secured in the eyes of the guests.

In terms of our emerging brands, we are pleased with the recent performance of our RA Sushi brand, which has turned in positive comp sales during the quarter as well as expanded its restaurant operating profit margins. Haru continues to operate in a challenging market, and while comparable sales remain negative, we were able to slightly expand our restaurant operating profit margins as well.

We realize that we need to execute our business flawlessly like never before. We will drive operational excellence by improving how we run our restaurants, as well as providing the guests a unique experience that is simply unmatched anywhere else. This will enable us to strengthen our customer loyalty and to take market share from those who are trying to cut corners. Our guest relationship are the strongest bonds we have, and we’ll never compromise ourselves in any way.

As you can certainly appreciate, we are managing the business through the perhaps most difficult environment we have seen in decades. We have made difficult decisions to make investments in ourselves in order to enhance quality of our food and are able to do this through a tenacious purchasing effort with the help of our vendors. While other concepts may be going in a different direction, we are making improvements without deteriorating our margins. In fact as I said our cost of sales margins are projected to be running at the same level as we averaged last year.

I am confident that we will pull through this difficult economic environment and be in a much stronger position after the economy turns around. Our financial discipline insures that we employ capital for only the best possible uses. With our credit facility in place, we have the flexibility to allocate resources as necessary. With our passion for the business and our commitment to our guests, combined with the uniqueness of our brands, we are extremely excited about the future.

I will now turn the call over to Juan Garcia, our President and Chief Operating Officer.

Juan Garcia

Thanks, Rich. I would now like to briefly discuss our recent development activities. In the first quarter of 2010 we opened three company restaurants, while a franchisee opened one location. Specifically, we opened RA Sushi restaurants in Atlanta, Georgia, in Midtown; and Houston, Texas at City Center. We also opened a Benihana Teppanyaki restaurant in Orlando, Florida, on International Drive near Sea World. So far in the second fiscal quarter we have opened a RA Sushi restaurant in Leawood, Kansas, at Park Place, and with that opening have now completed our development plans for the fiscal year.

As of the close of business yesterday, we closed our Benihana restaurant in the Georgetown area of Washington, D.C. This restaurant had approximately six months left on its lease and given the fact that we were not going to continue in that space long term, we negotiated an early lease termination. As previously announced, we have terminated a number of leases that were under development. Given the current economic conditions, as well as delays at the various projects, we believe that it was in our best interest to terminate those projects.

There is currently one Benihana Teppanyaki restaurant under development in East Rutherford, the Meadowlands, New Jersey, although we do not have a target date for its completion at this point in time.

We’re also seeking alternative venues for development, but have not signed any additional leases at this point, and believe that time is really on our side in securing the best possible sites on the best possible terms.

As Rich noted earlier, we have gone through a detailed facility assessment of all of our restaurants. The facility assessment addressed building visibility, front and back of the house, as well as the renewal program items such as adding TVs at most restaurant lounges, providing for temperature controlled wine storage cabinets, wine glass and earthenware storage cabinets, and iced tea brewers. The cost of these items is part of our normal capital expenditures and included in our capital expenditure guidance. Work stemming from these assessments is scheduled to be completed by October 1, program launch. Additionally, no store closures are associated in contemplation with this work.

You might have seen the data from MPD recently that estimated that 4,000 restaurants closed between spring, 2008 and 2009, or about 1% of all food establishments. We think that there’s likely to be more rationalization over the next year of both independent operators as well as under performing chains, which presents us with a larger number of opportunities for all three of our brands, particularly RA Sushi, with the success of our recent openings have energized us to the future possibilities.

The minimum time horizon between a lease signing and a grand opening is 12 months, or more generally between 15 to 18 months. So we would expect that if we were to commit to new development projects sometime this year, the actual openings would hopefully be well into an economic recovery.

In the meantime, we’ll work towards paying down outstanding debt and limiting our capital expenditures this year. In the current economic environment, we’re continuing our efforts to renegotiate better base rent occupancy costs, canned charges and landlord concessions. We note that in addition to hard dollar concessions, we’re also attempting to secure soft dollar items including more visibility for our signage, as Rich mentioned earlier, which is of course subject to zoning variances; along with other forms of advertising within adjacent shopping centers. Generally, our approach has been to find some middle ground so that any restructured deals come out as a win on both sides of the table.

And with that, I would now like to turn the call over to Jose Ortega, our Chief Financial Officer.

Jose Ortega

Thank you, Juan. Good afternoon everyone. I’m going to review our financials for the fiscal first quarter, as well as update our guidance for the fiscal year.

On the top line, we delivered total revenue of $96 million for the period, which was 1.6% higher than the year ago period, and included franchise fees and royalties that were essentially even with last year at $0.5 million. There were a total of 1,532 store operating weeks in the fiscal first quarter 2010 compared to 1,348 store operating weeks in the fiscal first quarter 2009.

Total restaurant sales increased 1.6% to $95.5 million in the fiscal first quarter of 2010 from $93.9 million in the fiscal first quarter of 2009. Benihana Teppanyaki total sales decreased for the quarter by 1.6% to $63.2 million. Haru’s total sales decreased 14.8% to $10.1 million, while RA Sushi sales increased 24.2% to $22.1 million. Company wide comparable restaurant sales were down 10.1% while within our three concepts, comparable restaurant sales were down 13.1% at Benihana Teppanyaki and down 14.8% at Haru, while RA Sushi’s comparable sales increased 3.5%.

Restaurant operating profit margins were down 40 basis points to 12.8% when compared to last year’s Q1, although restaurant operating profit was essentially even on an absolute dollar basis.

In terms of costs, food and beverage costs were 23.4% of restaurant sales during the fiscal first quarter, which was 70 basis points lower than the comparable period in the prior year, due to favorability in our contracting, specifically at Benihana Teppanyaki, as well as a generally more favorable commodity market. As we discussed on our last quarterly call, we had renewed our beef contract with a 5% decrease in cost, while our shrimp contract had been renewed at a 7% decrease in cost. Lobster [still] had been renewed at a decrease in cost as well.

We are maintaining current pricing with our main distribution partner for calendar 2009, and have also benefited from lower gas prices compared to the year ago period. That said, existing contracts for beef and shrimp have been amended to accommodate the spec changes associated with the menu enhancements. As we expressed before, we had expected to remain favorable on a percentage of restaurant sales basis with the prior fiscal year in the first quarter. However, with the implementation of the renewal program towards the end of the second fiscal quarter, our cost of sales as a percentage of sales will revert to the margin achieved for the full fiscal year 2009, due to the low lot of enhanced menu items at Benihana Teppanyaki.

Labor and related costs were 34.9% of restaurant sales, which were 90 basis points lower than last fiscal year. We are pleased with our ability to manage labor costs, given the two pronged challenge of comparable sales de-leveraging coupled with higher salaries from increases in minimum wage. In addition to closely monitoring all schedules to insure efficiency without sacrifice, we also benefited from the completion of the renovation program, since we were not carrying excess labor for restaurants that were previously closed for renovations. However, offsetting these gains were some additional labor costs associated with training for the renewal program, as well as an increase in workers comp liability. Training related labor costs, which will continue into the second quarter, totaled approximately $200,000 or 20 basis points. The adjustment to our workers comp liability totaled approximately $600,000 or 60 basis points and was attributable to claim developments during the quarter on prior policy years.

To round out the major cost drivers at the restaurant level, utilities were even at 2.9% of restaurant sales, as sales de-leveraging was offset by lower energy costs. We have negotiated an energy contract in those states where it is permitted, and given the reduction in oil prices compared to the year ago period, we’re definitely looking for some improvement on utility charges in the coming periods, although the impact of this may be lessened if oil prices continue to increase like they have over the past several months.

With declining sales during the quarter, de-leveraging was evident in fixed costs such as occupancy, which was up 60 basis points to 6.8% of restaurant sales. However, depreciation and amortization, as well as several other operating expenses, were even with last year as a percentage of restaurant sales.

As a reminder, during the first quarter of the prior year, the company did recognize approximately $400,000 in accelerated depreciation associated with the renovations project. Depreciation expense in terms of absolute dollars remained constant as a result of depreciation expense on new stores added throughout the prior year and the current quarter. Other restaurant operating expenses increased during the quarter by $1.3 million or 120 basis points. The significant movement between quarters is primarily attributable to the $0.5 million or 50 basis points in business interruption proceeds recognized during the first quarter of prior year from our Memphis location claim.

Taking these together, we generated $12.2 million in restaurant operating profit compared to $12.4 million in the same period last year, with the margins decreasing 40 basis points to 12.8% of restaurant sales.

Restaurant opening costs were approximately $1 million, up from $700,000 in the prior year quarter, due to the timing and number of openings during the period. We will have some opening costs in the second quarter for the one location that was opened during the quarter, but no additional opening costs for the balance of the year since we have completed our development for the fiscal year.

Marketing, general and administrative expenses were 10.3% of restaurant sales and 100 basis points higher on a year-over-year basis. During the quarter, we wrote off costs associated with terminated development projects totaling approximately $200,000 or 20 basis points. Corporate depreciation expense increased by another $200,000 due to depreciation expense on a new ERP system that was implemented during the prior fiscal year.

Finally, corporate salaries increased by another $200,000 or 20 basis points here in the quarter as a result of changes in our Benihana Teppanyaki corporate operations. Specifically, changes were made in our regional manager structure with related changes in roles and responsibilities.

Net income was $1.1 million in the fiscal first quarter versus net income totaling $2.1 million in the same period of the prior year. Our effective tax rate fell to 31%. With decreased earnings and increasing tax credits, our tax rate was favorably impacted when comparing quarters. Diluted earnings per share was $0.05 on a base of 15.4 million shares and equivalents, compared to earnings of $0.12 per share in the prior year on a base of 18.6 million shares and equivalents.

Once again, with regards to our bank credit facility, we believe that we have sufficient capital available to execute our operating plans along with the flexibility necessary to operate in today’s economic environment and remain in compliance with our debt covenants. We had approximately $2.3 million in cash at the end of the first quarter, and together with our operating cash flows and credit facility our cash needs are sufficiently covered. Our current borrowings against the credit facility were roughly $30.9 million at the end of the first quarter, which is down about $2.5 million from the sequential period.

CapEx for the quarter incurred was approximately $5.2 million, which included approximately $4.2 million for new units and $1 million for other maintenance CapEx.

Now with regards to fiscal 2010, we are reiterating our financial guidance as follows. Overall we believe that the Benihana renewal program, which is scheduled to be rolled out on October 1, will gain traction with our guests.

That said, this program will have a negligible effect on restaurant sales during the second fiscal quarter, which ends on October 11. And will probably take at least several months before we can glean early signs of its intended affect. We are, therefore, going to continue modeling negative comp sales for the system.

We estimate restaurant sales will be between $305 and $310 million, with total restaurant operating weeks between 5,000 and 5,075. We have already opened a total of four new restaurants this year, one being Benihana Teppanyaki and three RA Sushi restaurants, and this rounds out our plans for fiscal 2010.

Again, as expected cost of sales were favorable on a percentage of restaurant sales basis in the first quarter, but will revert to the average margins achieved for the full fiscal year 2009 due to the roll out of enhanced menu items at Benihana Teppanyaki in the second fiscal quarter.

Capital expenditures will total approximately $15 million. We are looking to pay down debt by approximately $6 million, resulting in an outstanding balance of approximately $27.5 million by the end of the fiscal year.

Diluted earnings per share of $0.40 to $0.45. Please note that the diluted common shares outstanding are estimated to be approximately 18.7 million shares.

And with that, I will turn the call over to Rich for some closing comments.

Richard Stockinger

Thank you, Jose. In closing, we are excited about the Benihana renewal that we’ll be launching in October. We believe that the improved quality of our food, the new menu offerings and the refined steps of service, along with the renewed focus on Japanese culture, will reinforce the fact that Benihana is unlike any other dining experience available. Additionally, we are excited about the recent performance of RA Sushi during these challenging times, and we look forward to the opportunities that are ahead of us.

Finally, I just want to reiterate that while the current quarter’s results were less than overwhelming, they were impacted by costs associated with the launch of the Benihana renewal along with costs not associated with core operations such as the write-off of terminated development projects, or the adjustment to our workers comp liability for prior policy years claims. We continue to focus on managing our operations as efficiently as possible, given the current economic conditions.

Thank you for your time today, and we will now answer your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Anton Brenner - Roth Capital Partners LLC.

Anton Brenner - Roth Capital Partners LLC

What are your intentions with respect to price as the Benihana renewal program is rolled out?

Richard Stockinger

Hi, Tony. It’s Rich Stockinger. We will not raise any prices of any of our entrées, despite the increase in the quality of the ingredients.

Anton Brenner - Roth Capital Partners LLC

What will you raise?

Richard Stockinger

There will be some spot increases on some side orders available to guests, as well as desserts such as ice cream. And there may be some spot pricing taken on beverages.

Anton Brenner - Roth Capital Partners LLC

And that’ll be enough to mostly offset the higher ingredient costs?

Richard Stockinger

Again, where we’re going to end up is that the cost of sales margins will revert from where we are today back to the results we were achieving during the prior fiscal year.

Anton Brenner - Roth Capital Partners LLC

For the full year, Juan, what is a good number to use for the effective tax rate?

Juan Garcia

We are currently experiencing an effective tax rate of about 31%.

Anton Brenner - Roth Capital Partners LLC

And that can be extrapolated to the full year as well?

Juan Garcia

Yes.

Anton Brenner - Roth Capital Partners LLC

And lastly, regarding your guidance for an 18.7 million share count for the full year, that’s a function I guess of the price of the stock, isn’t it?

Juan Garcia

It’s a function of two items. Primarily it’s a function of the price of the stock. The fact that the market cap of the company has rebounded, we are to take into account the additional shares that would be issue able upon redemption. But because of the EPS guidelines and the accounting rules, you also have to take a look at the impact of the add back of the preferred stock dividend. For the current quarter, the earnings were less than the dividend per share earned by the preferred stock holders. So for the current quarter, those preferred dividends were not taken back and increase in the shares. But again the view is the forecast is for a full year, where the view is that the earnings would exceed the dividend per share as well as maintain the current market cap that we have. So we’re keeping the denominator at the 18 plus million shares.

Anton Brenner - Roth Capital Partners LLC

What is the inflection point in terms of stock price for this calculation?

Juan Garcia

The market cap of all common equities have to be over $75 million. So it’s roughly just under $5, $4.90.

Operator

Your next question comes from Brad Ludington - Keybanc Capital Markets.

Brad Ludington - Keybanc Capital Markets

I wanted to ask on the effective price increase during the first quarter. What was the effective price increase for the Teppanyaki brand?

Richard Stockinger

During the current fiscal year, we have not taken any pricing. The only pricing that we are slightly benefiting from are the spot prices that were taken during the second quarter of last fiscal year because we haven’t lapped over those periods yet. But again the average price increase on any of the three brands was approximately 1%, if even that.

Brad Ludington - Keybanc Capital Markets

And we’ll lap, at least with the Teppan brand we’ll lap that here in the second quarter.

Richard Stockinger

We’ll lap in the second quarter. You remember Benihana last year, the only pricing that they took was spot prices on beverage items. And it was specific items in different markets. RA Sushi and Haru implemented a roughly 1 to 1.5% price increase on different menu items. But then RA Sushi last year also introduced the discounted and extended hour Happy Hour menu, which has driven traffic and we have traded some check-out rich at the RA Sushi brand but we have increased traffic counts specifically for them.

Brad Ludington - Keybanc Capital Markets

And then, is there any possibility of more closures do you think going forward in the second, third or fourth quarters?

Richard Stockinger

No. Georgetown was an isolated incident where we had a short term lease there, we had about six months. So we do not expect any future closings.

Brad Ludington - Keybanc Capital Markets

And then looking at the pre-opening costs, I mean there’s nothing that’ll carry forward after the second quarter? I mean that’s just a $0 amount going forward in the second half of the fiscal year?

Richard Stockinger

It should be a zero. Again the only item that’s out there is the Meadowlands development and the timing of that is not for this current year.

Brad Ludington - Keybanc Capital Markets

I just wanted to touch back on the G&A. I mean the dollar amount, $800,000 to $1 million above what we might have expected, and that was just a bad call on our part I guess but could you break down what drove the higher G&A costs year-over-year again?

Jose Ortega

Again, the major items were there were write-offs of costs that had been capitalized on projects previously under development that were terminated during the quarter. And that accounted for just over $200,000. There’s increased depreciation expense on the corporate side of roughly $200,000 associated with the new ERP system that was implemented during last year. And then we had a change in certain roles and responsibilities in the management structure of Benihana, specifically regional managers, and that translated into an increase of again roughly $200,000 in the quarter.

Operator

Your next question comes from Michael Gallo - C.L. King & Associates, Inc.

Michael Gallo - C.L. King & Associates, Inc.

Just had a couple questions in order to drill into the renewal program a little bit. As you look specifically at two of the elements here that are being upgraded, one being obviously the alcohol and beverage program particularly around wine, as well as the opportunity for improved dessert I was wondering if you could break down for us, Juan, what each of those is a percentage of sales currently? Alcoholic beverages and dessert items. And where do you think that that should be if the program is successful? So just trying to get a feel for what the delta of that opportunity is.

Juan Garcia

Our beverage mix is about 17% on the Teppanyaki concept but that includes non-alcoholic as well.

Michael Gallo - C.L. King & Associates, Inc.

If you were to break just the alcoholic piece out of that?

Juan Garcia

Alcoholic is probably about 15%, and we’re looking for a combined to bump up that 17 to about 20.

Michael Gallo - C.L. King & Associates, Inc.

And on the dessert side of things?

Juan Garcia

Dessert is much smaller. I couldn’t quantify it for you but it’s a much smaller percent, Mike.

Michael Gallo - C.L. King & Associates, Inc.

Where do you think it should be as a percentage? Have you thought about that with the program in terms of?

Juan Garcia

You know, it’s hard to tell, Mike, because one of the things that we’re doing is we’re adding back the specialty ice cream or sorbet that we’re offering now as part of our specialty entrées. So those are giveaways. So we’re still evaluating that. We do have the new Yummi-Taki coming on board that we’re really excited about, and I know we’ll start to see some traction with that but it’s hard to quantify because dessert has never been a real focus of ours.

Richard Stockinger

Part of that ties into the value perception to make sure that the customer is fully satisfied with all the courses that they essentially receive would be the Benihana experience.

Michael Gallo - C.L. King & Associates, Inc.

Just coming back to beverages, I mean it seems like the wine program as it is right now is certainly not conducive to you know selling any you know higher end wines. Certainly I would guess you didn’t sell many if any. So I guess particularly in some markets like Manhattan or other markets I mean wouldn’t you think that would provide a significant opportunity to you know really help check in some of those kinds of city and other locations?

Richard Stockinger

We feel that there’s an opportunity not just in Manhattan or in Orlando, etc., especially as it relates around the special occasions. So we’re expanding the price points, leaving on you know a $30 bottle of wine and then can go up to $100 bottle of wine. But in order to do that you have to have a detailed wine program. A, the wine glass has been improved. B, you have to store these in proper facilities and then merchandise it and include it as part of your steps of service. So as an example we’re now going to have temperature controlled wine storage cabinets, hopefully placed where we can in the restaurant dining room as a form of merchandising.

The other thing we’re going to do, though, as part of the steps of service, we will put a wine glass on the set-up when you walk in at dinner time. And it’ll be part of the table set-up. As part of our steps of service, we will be focusing on of course Sake. But if you order a Sake or a Japanese beer, we’re going to leave that wine glass on the table until just before the chef comes to the table. Then the server will be again asking would you like a glass of wine with your dinner entrée. So we think there is an ability not just doing additional sales of wine by the glass, but also for the people that like wine, are out to celebrate an anniversary, a birthday, that they’ll go up from a $40 or $50 bottle of wine to maybe a $70 or $80, and on special occasions it may be even $100 bottle of wine because they’ll be well known names that they’ll recognize.

Operator

Your next question comes from [Jonathan Way – Precipio Research].

[Jonathan Way – Precipio Research]

If I ex out the $600,000 on the G&A, you’re about a 5% growth rate. Is that a good pace to be using for the rest of the year? And what does that have to do with as far as the inflation that we’re seeing on the G&A line?

Jose Ortega

The balance of the movements were smaller items throughout the G&A lines. We do have, it’s not overly significant but some additional travel associated with the renewal program. But in terms of a go forward basis, you can look at the balance and assume that that’s a reasonable run rate. And again we had mentioned last year the extent to which we can continue to leverage our G&A because it’s fixed is dependent on sales trends. So we manage the G&A lines, but if you back out those items you can come up with a reasonable run rate.

[Jonathan Way – Precipio Research]

So kind of a mid single digit growth rate?

Jose Ortega

Yes.

[Jonathan Way – Precipio Research]

And any comment on the accounts and the quarter-to-date and kind of what you’re seeing so far?

Richard Stockinger

In terms of what we’re seeing so far, trends have remained similar to what we’ve seen in Q1. And RA Sushi continues to comp positive and we’re pleased with that.

Operator

Your next question comes from [Unidentified Analyst] for Greg Ruedy - Stephens, Inc.

[Unidentified Analyst] for Greg Ruedy - Stephens, Inc.

How should we be thinking about incremental labor hours going forward around the training for a lot of these new things that are going in for the renewal program?

Juan Garcia

In total, we incurred about $200,000 this quarter. For the aggregate we think that we will incur about $0.5 million so about another $300,000 in Q2 for training.

[Unidentified Analyst] for Greg Ruedy - Stephens, Inc.

And then more specifically on the new lighting aspect that we’re going to be seeing at some of the Teppanyakis, is there a material amount of G&A associated with that?

Richard Stockinger

No. Those would all be capitalized under our normal CapEx program. We’re lighting the blue roofs where available, adding signage where we can, but those are all capitalizable items.

Juan Garcia

And a lot of which blue roofs had lighting at one particular period of time. We’re just going back and fixing it and maybe increasing the amount of lights so you’ll be able to see the blue roof, if it’s a blue roof, a sign that will stick out and you’ll know it’s a Benihana.

[Unidentified Analyst] for Greg Ruedy - Stephens, Inc.

About how many units are targeted for that update?

Juan Garcia

You know, given that the [WD] designed the renewal prototype doesn’t have the blue roof, I would say probably 30 to 35 of those units would have the blue roof.

Richard Stockinger

But even the units that have the new prototype, we’re going back and looking for additional signage either on the building itself or pylon signs. Where in the past either landlords or even cities may not have let you or given you a variance, we’ve been successful to date with, based on what’s happened in the economy, on getting new signs A, on the building or you know pylon signs where maybe before we couldn’t get that done.

[Unidentified Analyst] for Greg Ruedy - Stephens, Inc.

And then last one, as you’ve been going through a lot of the units and really identifying where there’s opportunity for new tweaks, has the GM or the assistant manager’s performance, have you started looking at that component? How the performance is measured or are there new metrics in place for the restaurant level staff?

Richard Stockinger

The answer is yes. We’ve done two things. You know we’ve implemented unit level bonus programs to incentivize them and to Benihana where we did not have such a structured bonus program in the past. But yes we are now redoing the job descriptions for a restaurant manager, assistant manager and general manager that yes, it’s all being reviewed and have been reviewed over the past several months.

Operator

Your next question comes from Will Hamilton - SMH Capital.

Will Hamilton - SMH Capital

I was wondering if you could give us a little more color as to the performance of the new RA Sushi’s, you know, Atlanta, Houston and Kansas. Did they meet, exceed? Any additional color?

Juan Garcia

Well, I can tell you that of the three Atlanta’s been open the longest and we’re extremely pleased they’re well above the average unit volumes. And right now Houston has been opened up I would say about eight weeks, and they’ve been trending up every week. They’ve improved from the previous week and they’re just at the average unit volume. And Leawood, they’ve only been open about three weeks and we’re really pleased with where it opened up. It’s right about the same average unit volume that the concept performs at.

Will Hamilton - SMH Capital

The Houston location I know is not terribly close to the existing one you have there, but has any effect to that location?

Juan Garcia

No. We haven’t seen any cannibalization of our first Houston store, which we’re extremely pleased with that. And the other thing to consider there is we opened up there as the first tenant in that center. Everything else was under like a construction zone. That has gone away. The hotel just opened about a week ago. So we’re very similar to Plano, so we’re excited where that location is headed.

Will Hamilton - SMH Capital

And in terms of the first quarter comps for the RA Sushi, was it across the board that you saw that improvement or were certain regions that were particularly weaker that improved dramatically? Or is it more comparisons that helped you with this positive comp?

Juan Garcia

We’ve seen improvements across the board, so it wasn’t just one region. And even the regions that have been weaker, their performance has improved during the quarter.

Will Hamilton - SMH Capital

I think during the quarter and then going forward do you have some stores joining the comp base, any impact from those that might swing positively, negatively and which stores maybe?

Juan Garcia

It’s a little bit of a mixed bag because again where we’ve discussed in the past, the different RAs given their location and the environment around them has impacted how they open up. And we’ve had some that had very strong opens and others that grow into it, so it’s a mixed bag for the openings from last year.

Richard Stockinger

Yes, at this point I think as far as openings from last year, Huntington Beach would be the next one to fall into the comp base and that’s not until December.

Operator

And, gentlemen, we have no further questions in our queue at this time. Mr. Stockinger, I’ll turn the call back over to you.

Richard Stockinger

Well again I just want to thank everyone and look forward to speaking with you shortly at the next quarterly review. Thank you.

Operator

Thank you and that does conclude today’s conference call. Thank you for your participation and have a good day.

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Source: Benihana Inc. F1Q10 (Qtr End 07/19/09) Earnings Call Transcript
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