Ark Restaurants' (ARKR) CEO Michael Weinstein on Q1 2016 Results - Earnings Call Transcript

| About: Ark Restaurants (ARKR)

Ark Restaurants Corp. (NASDAQ:ARKR)

Q1 2016 Earnings Conference Call

February 16, 2016 10:00 AM ET

Executives

Michael Weinstein - CEO

Bob Stewart - CFO

Vincent Pascal - COO

Analysts

Operator

Greetings, and welcome to the Ark Restaurants First Quarter 2016 Results Conference Call. [Operator Instructions] 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.

It's now my pleasure to introduce your host, Mr. Bob Stewart, President and Chief Financial Officer. Thank you. You may begin.

Bob Stewart

Thank you, operator. Good morning, and thank you for joining us on our conference call for the first fiscal quarter ended January 02, 2016. With me on the call today is Michael Weinstein, our Chairman and CEO 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, Friday, 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.

Michael Weinstein

Hi, everybody. This quarter had a lot of moving parts. Let me start on by telling you the good news, which we think this is substantial as we certainly are well aware of the shortfall in EBITDA which I will get into as well. First of all, our same-store sales were more than satisfactory, helped a little bit by the fact that [indiscernible] fell in our current quarter and last year it fell in the second fiscal quarter. So [indiscernible] was helpful, but in general same-store sales with the exception of Washington D.C. were all up in every venue.

The business in general feels good, we think demand is holding, we are under construction in several venues, most notably Washington D.C. where Union Station has been blocking our entrance to one of our restaurant because of a restoration of the celling. We are under construction in Fort Lauderdale at the [indiscernible] basically have detoured people going through the restaurants for some [indiscernible] because one of the bridges is being restored. It has some flaws in it that goes over the canal to directly access our restaurant.

We are under construction in Las Vegas, with New York-New York blocking one of our main entrances -- main entrances to -- their building a new park with a new entertainment center with 20,000 seats. That listed in April and we expect that in Las Vegas we'll start doing in better in April when entrances open up and we should see more demand from the expansion of New York-New York. So given the fact that we are facing outside construction problem with those three venues again we think sales are more than satisfactory.

In this quarter, we finished the purchase of Shuckers, a restaurant in Jensen Beach, Florida. We purchased that restaurant for some $5.6 million, it includes the gift shop and a real estate brokerage and a [indiscernible], it’s in a timeshared facility. Shuckers controls most of the rentals, the timeshare, the restaurant does about $5 million and with the purchase bid we thought it would earn about $1 million.

Operating profit on trailing 12 months basis, it earned 990 [ph], so we're right on the ball there and we think that will be a wonderful acquisition, to try it on the beach, we are now processing an applications to expand the beach seating. We think that will go well although there is no insurance of that, but if that should happen we think there is more demand [ph] than seating this time.

We also had a very good six months at our Southwest Porch in Bryant Park, we operating as you know The Bryant Park Grill and The Bryant Park Café in that park and it was an opportunity to take over a 45 seat outdoor facility, we can bang up this from the time we took it over in summer through December. It's seasonal, there is no enclosed seats. The March quarter will generally be faster at everything [ph] and -- but it will swing back very favorably in April-May through December.

What makes it such a good [indiscernible] in December quarter is that Park has an outdoor shopping Christmas -- shopping retail complex, that comes in Park around October and lasts right until the new year’s day and that's bring literally thousands and thousands of people through our door steps. We also are expanding that with 45 in April, we’ll get another 40 seats, so that's seems to be going extremely well. We have continued problem with Jupiter with the expansion in Rustic Inn’s Jupiter.

We just feel that we got with a bad start with service in that facility. We changed managers, part of our problem this quarter was increased losses last year. We were not operating but we did have some pre-operating expenses, couple of losses and the December quarter exceeded the pre-operating expenses last year.

We had two factors which we spoke about in the press conference of which related to the decline in EBITDA, one was the $120 thousand in closing course with Shuckers deal, which we wrote it off, and another was we lost three operation at the Venetian [ph] that were fully operating last December quarter and were not operating this December quarter. All that being said the good news -- the bad news, the really bad news here was that we lost control of our labor costs and it as insidious. Just across the board we were higher everywhere and it's a not big number in any one restaurant, but when you take a look at all of our operations, labor costs were just inefficient.

Some of that has to do with the new labor laws in certain venues, but we just did not do our usual good job and we are apologetic and we're well aware of it and we putting in those corrections already. This [indiscernible] January 1st in New York which has nothing to do with last quarter, we will face the substantial of the minimum wages rates or fixed employees. We had taken a different approach than a lot of restaurant who are going with a no-tipping policy and raised the menu prices.

We don’t want to be that revolutionary, we have great expense menu prices, we raised them because we think the demand is there at the moment to take a 3% or 4% increase and we’ve also done some work in limiting the number of hours and the number of worker time hours in our restaurant which is difficult given the legacy that we had our employees, but we are trying to make everybody flexible and understand problem and we think we have basically got to the point where this increase will not affect us on a go forward basis. But it did take us most of January and a good part of February to implement these price increases and to tone down the number of hours that the employees working at our restaurants.

So, all in all we think demand is there for our restaurant, we think sales will continue to be good, we think Shuckers and the Southwest operations will contribute. We are hopeful that once New York-New York opens up its park and its entertainment complex will see business flowing to New York-New York and we also are hopeful that we will see some good results from our efforts with operating expenses and curtailing labor percentage of our operations.

So, that’s basically it, any questions. I'll take questions on this first and I'll be happy to discuss the Meadowlands with everybody.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen we will now be conducting a question and answer session. [Operator Instructions] Ladies and gentlemen we have no questions in queue at this time. I would now like to turn the floor back over to management.

Michael Weinstein

Alright, so let's talk about Meadowlands and what's going on down there. As you know we are on 11.6% interest and an LOC [indiscernible] Meadowlands raising an LOC, and that LOC three years ago made a deal with the State of New Jersey and part of the deal with the State to run the Meadowlands race track. We built a $100 million grand stand and moved the facility from the old grandstand to a better position in terms of traffic flow in the Meadowlands area. The Meadowlands is this complex that includes giant stadium and other stadiums and the race track as part of that and perhaps it will include one of large malls in the world, which they’ve tried to complete for the last five or six years, but has not been completed yet.

The Meadowlands sits in an area where there is bad parking and no residential component to it. We thought, when we purchased our interest that Meadowlands race track would be a prime site if casino gaming was never permitted in the northern part of New Jersey. Little did we know, when we purchased our interest that events in Atlantic City would change dramatically, for casino closing with revenues collapsing under the weight of competition from New York, Pennsylvania, Delaware and Maryland and State of New Jersey started to have serious [indiscernible] conversations in the legislator to permit referendum to allow casino gaming in New York [ph].

Where this stands now is that we believe that sometime before August, the legislator will move and pass legislation to permit a referendum to go on the ballot in November to allow casino gaming any Northern part of the State. That legislation will not name any sites, but we’ll essentially, if the referendum passes, allows for some committee, not yet formed to look at this from Atlantic City casinos for locations north of by minimum 75 miles of Atlantic City.

Again, we think Meadowlands race track is the primary site in the north, literally all roads lead to it, its 10 minutes from Manhattan by car, it’s a railroad stop on Metro on New Jersey transit that lets out right in front in the Meadowlands. Again it’s a built facility at least for the first phase of the casino. The race track was built in such a way the bandstand started to discuss [ph] machine, we expand business in six months. The legislation requires that the license fee with current license holder in Atlantic City, so I will expect we would have a partner. There is some provisions in the legislation that’s being proposed is that no Atlanta City casino comes forward with a proposal that makes sense then it’s open to outside bidding. But my guess is we will have Atlantic City partner if the referendum passes.

We are highly, highly, highly optimistic that legislation will pass in this section, it is a bill that has bilateral support, it has support from the Atlantic City Unions. We don’t see any reason why it should not pass. Although, we’re dealing with politician, whether or not a referendum can pass in November, it depends upon which poll you look at right now. Again it has bilateral support, we would be somewhat confident, but this is not a slam-dunk that it will pass in the November.

If it doesn’t pass in November, there is a two year waiting period before legislation. Again the interest is, this is a change to the constitution of the State of the New Jersey and that’s why it has to be a referendum passed by the people of New Jersey on the November ballot. So again, we remain very optimistic about the next step, which is legislation being passed in the current legislative professions. So any questions on that please?

Operator

[Operator Instructions] Ladies and gentlemen, we have no questions in queue at this time. I would now like to turn the floor back over to management.

Michael Weinstein

Alright. Well thank you very much for calling in. We look forward to speaking to you on the next conference call.

Operator

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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