Ark Restaurants Corp.
Q2 2018 Earnings Call Transcript

Published: 16 May 2018

[Operator:]

Greetings, and welcome to the Ark Restaurants Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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, President and CFO. Thank you. You may begin.

[Bob Stewart:]

Thank you, operator. Good morning and thank you for joining us on our conference call for the second fiscal quarter ended March 31, 2018. 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’ll now turn the call over to Michael.

[Michael Weinstein:]

Hi, everybody. Thank you for attending today. I’d like to go over briefly what’s going on in the different regions where we operate and what we’re looking at in terms of indicators of how our business is doing. In New York, despite some very bad weather, the main drivers of profits in New York, which are Bryant Park and Robert, are both doing very well. Bryant Park was up 13% during the quarter. We have an outdoor food kiosk called Southwest Porch, which has a considerable amount of business. An indicator of how the weather has been is the Southwest is completely opened, has enclosed seats, has an open bar. We are down 25% from last year in Southwest Porch during the March quarter. So it indicates that the weather has not been with us. And despite that Bryant Park is up, Robert is flat, so all is pretty well in New York. In Washington, D.C., again, it’s already opened in January. So we have – excuse me, we were closed last January. We’re comparing against 2016 January, February, March because we weren’t open in 2017. The good news is we’re up 8% in sales. It’s a little bit better than that because we have not caught up with our event sales yet. We were closed nearly seven or eight months last year during construction, and people were hesitant to even look at the space, and it was difficult to sell when you’re under construction. So we have only been selling that space for about four or five months last year. And most social events generally take – are booked a year in advance. So we’re seeing what we hope to see

[Operator:]

Thank you. [Operator Instructions] Our first question is from Bruce Geller from DGHM. Please go ahead.

[Bruce Geller:]

Hi, good morning, gentlemen. I’m trying to reconcile the reported comp of 2.4% with some of the very positive numbers you gave, especially in some of your bigger properties. Bryant Park, Rustic were up double digits. Sequoia was up 8%. Vegas was up substantially. I’m trying to reconcile why the overall comp was only up 2%? And then also with some of those comps in your key restaurants, how come more operating income did not fall to the bottom line? Or how come more income did not fall down to that line?

[Michael Weinstein:]

All right, two things. First of all, the 8% of the – in Sequoia is not included in the 2.4% comps. The comping against 2016 for purposes of explaining where Sequoia is, but it’s not in the comp from 2018 compared to 2017 because we weren’t open in 2017. All right. So that number is not in the 2.4%. Otherwise, the 2.4% would be somewhat higher. The second thing is that there are some balance here, but they’re not drivers of – not big drivers of profitability. So we – I could mention them to you. But in Planet Hollywood, we’re down basically $100,000. If I go to this quickly, Clyde’s in New York is down $140,000. We’ve had some issues with Clyde’s, mostly in events where we’ve been down substantially in events at Clyde’s. Thunder Grill in D.C. is down $129,000. Because last year we had operating [indiscernible] Cafe at a Thunder Grill. And – they – the sales were combined for the Grill. We lost that lease last year. So there are some downs. And Atlantic City is down $100,000. But again, we don’t see these as the major drivers of our profitability, even though we want them obviously to improve than we’re working on improving them. In terms of the EBITDA number, last year, we had two gains, operating profits in Jupiter and in Canyon Road. Both of those situations where – we had sold Jupiter. But the developer who bought Jupiter asked us to keep it open until May, and he didn’t charge us any rent. So we took advantage of that situation, and we made some money during the season, January, February and March. Even though we had sold it and get to run it without paying any. So May, roughly $100,000 there. And same number in Canyon Road last year. We didn’t want to operate Canyon Road any longer. It was great to be even to losing a little bit of money. Made a deal with the landlord until we transferred the ownership to another person – and enter that operated so the store wasn’t closed paying any rent. So we wound up making $100,000 there. So there’s about $200,000 of EBITDA. And last year’s numbers were really just short-term deals that had nothing to do – are going forward with the profits. So I hope that explains it a little bit.

[Bruce Geller:]

Yes. And it sound like you’re still comfortable with your annual EBITDA guidance of $14 plus billion. Now that we’re about halfway through the third quarter, is there any anecdotal guidance you can give there to – on a year-over-year basis to provide some comfort with that?

[Michael Weinstein:]

Just that our business is up. We had a bang-up week last week. Last week, which is not include Mother’s Day by the way, so weekends on Saturday, but I think we were up something like 20% in sales last week compared to the same week last year because everything’s started to happen. Sequoia started getting a little bit good weather. Bryant Park started to get a little bit good weather, and note – we’re not straining here in New York. So even though we are not straining five to six week days in a row together we probably had three or four good days last week. Like my manager in Sequoia, I keep saying I’m going to go nuts with them anytime some calling on the day, what’s going on, what’s going on. We did over $300,000 last week. We only had two or three good days and he saying to me, listen, every day at 7

[Bruce Geller:]

Great. Thanks. I’ll let someone else ask the question.

[Operator:]

[Operator Instructions] Our next question comes from Jeffrey Kaminski from JJK Consulting. Please go ahead.

[Jeffrey Kaminski:]

Good morning, gentlemen. A question regarding the gaming license and now what will like be a sports book in the Meadowlands. You had mentioned something about finding a partner. Could you elaborate on that? And what does that mean? Do you need to get a bank to help partner you up? And once found, what you see the timeline that the Meadowlands would be like an active sports book in generating revenue?

[Michael Weinstein:]

I spoke to Jeff Gural who’s the major partner in the LLC and the general partner. He says – first of all, we’re not experts in this area at all, although Jeffrey runs some casinos in the northern part of New York state, the small casinos. But – so yes, he has some operating expense. And although Hard Rock is also our partner and as a contract with the Meadowlands LLC – with the new Meadowlands at LLC to operate casino if the casino comes there. We are restaurateurs. We have an exclusive on eight to nine restaurants while we have inclusive on all food and beverage. If there’s a casino there, with the exception of a carve out for a Hard Rock Cafe, if Hard Rock wants to put a Hard Rock Cafe in. And we have a minority interest in the LLC. So we’re not in the position – certainly not in a position to dictate what Gural and Hard Rock will decide. But in the conversation with Jeffrey last night, he says he has seven proposals that have come in, which was, for the last two months. This decision seems to be one that everybody thought would be the decision. And though he has people that runs sports books seriously giving him presentations of why they should go and why he should go – become their partner in this endeavor. I don’t know how long it’s going to take New Jersey to issue the rules under which sports betting can take place, but we think it will be pretty quick. And Jeffrey thinks we’ll be in business in the next four, five months. But again, we don’t – we look at this as a stepping stone to getting a casino license. For this investment to be meaningful to us, there has to be a casino there. Sports betting, even if it’s profitable, the distributions to us will not be anything significant. We have undiluted – we have about 11% interest in this thing. Obviously, if there’s going to be major casino built there, we have to find money to stay at that level, or we’re going to get diluted by 50%. So this only becomes meaningful for us if there’s a casino license. The sports betting is in the short-term. It’s nice to be cash flow profitable with – we’re positive with our investment and not to be receiving capital pools once each year. I think that accomplishes this. It certainly satisfies our outside orders on the value of our investment. But I can’t emphasize enough that it’s not meaningful unless there’s a casino license there. I hope that answers your question.

[Jeffrey Kaminski:]

Okay. Thank you.

[Operator:]

Thank you. This concludes the question-and-answer session. I’d like to turn the floor back over to management for any closing comments.

[Michael Weinstein:]

Thank you very much. I look forward to seeing you next quarter.

[Operator:]

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