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Ark Restaurants Corporation (NASDAQ:ARKR)

F1Q 2014 Earnings Conference Call

February 11, 2014 10:00 AM ET

Executives

Bob Stewart – CFO and Treasurer

Michael Weinstein – Chairman and CEO

Operator

Greetings. And welcome to the Ark Restaurants First Quarter 2014 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Bob Stewart, Chief Financial Officer, for Ark Restaurants. Thank you, sir. You may begin.

Bob Stewart

Okay. Thank you, operator. Good morning and thank you for joining us on our conference call for the first fiscal quarter ended December 28, 2013. With me on the call today is Michael Weinstein, our Chairman and Chief Executive Officer; and Vincent 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 variance on our operating results, performance, and financial condition.

I will now turn the call over to Michael.

Michael Weinstein

Hi, everybody. This was a good quarter. The strength of our restaurants exceeded the weakness that was caused by Sandy last year, Hurricane Sandy. And last year’s quarter, our businesses were interrupted; some of the businesses were closed as much as five days in New York. But whatever shortfall Sandy caused last year in revenue, and therefore in EBITDA, was not as severe as the subsequent gains we had this year in the New York and Washington, D.C. areas. Our businesses in New York were extremely strong; we had very good catering results over the holidays. So it’s a good quarter.

Reason by reason, we still are having difficulty in Las Vegas, with revenues, Vegas has been under pressure, since 2008, we basically have not seen very much of a recovery there. This year’s quarter, we were down slightly than last year, obviously, there was no Hurricane Sandy in Las Vegas, so those comparisons are real comparisons. New York, we were up 15%, probably we were down 5% on Sandy – so the 15% is really, probably a 10% gain. In same-store sales New York was very strong, Washington was about flat, Atlantic City was extremely strong, but Atlantic City was decimated last year by Sandy. Our results in Atlantic City are good, what should be expected, but really no significant comparative sales gain beyond making up what we lost due to Sandy last year.

Boston is slightly up, Connecticut is slightly down. In Florida, where we own significant interest in – want me to partnership, that operates the fast food marketplace, our restaurants in the Hollywood, then Tampa, our Hard Rock Casinos, we were down but that is a result of a change in marketing philosophy at the hotels, and we are not beneficiary of a strong coupon marketing plan where we used to be. So that has redirected business somewhat away from us and we’re down about 11%.

All in all, our businesses are running well. We like the way our managers at the restaurants are approaching operating costs, inevitably operating cost go higher. We have not had the flexibility to raise prices in Las Vegas or Washington, D.C. for that matter. We have raised prices a little bit in Florida where even though the couponing has protected our businesses, our regular business demand is strong. We’ve raised prices in New York, but elsewhere we just don’t have the flexibility to raise prices.

So there is a little bit of a squeeze always because our occupancy costs are inevitably headed higher as our other operating costs and we need revenue to – to be sustained by price increases. We’ll get there eventually as demand takes up, we’re a strong believer that the world is getting better.

I guess I can take questions now.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Mr. Weinstein, there are no questions. Would you like to make any other comments?

Michael Weinstein

Yes, I would. Thank you. So, one of the issues which – actually I’m addressing here our related [ph] shareholders. It is a basic problem that restaurant companies or retailers face which is rent. Rents in many of the areas we are in have escalated dramatically. We are subject to losing leases and not being able to renegotiate commence their terms come to an end. Philosophically, we have changed the way we’re approaching new operations. And we are trying to find operations where we are not subject to the real estate market – the only way we could effectively [ph] renegotiate leases in New York City for instance is if we have the ability to take prices up significantly to compensate for the rent escalations that are taking place in the city.

For instance, we have seen our leases go from $60 a foot to $400 a foot. From – when we initially signed a term to – when our renewal comes up, where we can exist at these higher rents, especially when our customers are newer to prices that reflect the older rent, and they are not going to accept increases in the cost of our product to them which will allow us to renegotiate our leases. So, we have just made two deals, both of which we’ve mentioned in the past; one is, where we have become the partner in the Meadowlands Racetrack in northern New Jersey. We did that for two reasons. Number one, we think the Meadowlands is ideally located to get a casino license with New Jersey, besides to expand gambling outside of Atlantic City. We believe that is a good bet.

In addition to being an owner of the Racetrack, with our partners we have gained an exclusive on the food and beverage if a casino is built there. So if that happens, we have a four year lease with the state of New Jersey and that gives us a lot of visibility and reliability of earnings if a casino is built there and if – our restaurants and casino are successful.

We recently just purchased the Rustic Innovation, the deal is not closed yet but there is a contract that has been signed and it should be closed in the next month or so. That purchase of the Rustic Inn in Fort Lauderdale, Florida includes the land and the buildings, and the ownership of the land and buildings. So we become our own landlord. Rustic Inn has been around for many decades, it’s a hugely successful restaurant, very strong cash flow. So we’re our own landlord there, and that’s the approach that we are taking to try to expand our business now. We want to expand our business with virtual ownership with very, very long-term leases, well beyond the 20 years that we have previously negotiated for – for ownership of properties; we think this is the only way that we can get the reliability of cash flow into the hands of our shareholders over the long-term. It does not mean we will not sign any 20-year lease; we will do that if the economics – underlying economics makes sense in a rationale.

But primarily, we are looking to change our business philosophy to one of ownership, virtual ownership, and not be subjected to where we’re saying, hey, what is this lease word, what is the discounted cash flow on this lease because we know we’re not going to be able to renegotiate when the term of the leases comes due. So, I think that’s a significant rethinking of our business that I wanted to talk to you.

That all said, this past quarter was a very good quarter. We are in the midst of another good quarter. We think our March results would be equally strong, and this despite some brutal weather across the country, but our business is good. So, thank you. And we look forward to speaking to you next quarter.

Operator

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

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