Ark Restaurants Corp.
Q4 2014 Earnings Call Transcript

Published: 11 Feb 2015

[Operator:]

Greetings, and welcome to the Ark Restaurants’ First Quarter 2015 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. It is now my pleasure to introduce your host, Robert Stewart, Chief Financial Officer. Thank you, sir. You may begin.

[Robert Stewart:]

Thank you, Operator. Good morning, and thank you for joining us on our conference call for the first quarter ended December 27, 2014. With me on the call today is Michael Weinstein, our Chairman and CEO and Vin 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 Web site. 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 was solid quarter for us. There is a lot going on so I thought maybe I take you through venue by venue and just give you an idea of how the company is doing section by section. We obviously have had a lot of leases expiring over the last two years and so all the good that we’re doing or that we think we’re doing in generating new operating profits from new operations or increasing operating profits at older operations has largely been offset in the last two or three years by leases that have been expiring that we cannot renew for a variety of reasons some they would just too expensive to renew, others landlords spaces we were in to ultimate uses and in our restaurant. So fighting this loss of EBITDA for several years and the fact that we had this quarter shows that what we’re doing in our existing and new restaurants is really working out. Las Vegas remains flat to down little bit but our operating profits have held up. New York has been sensational we were up 5% in this quarter compared to last quarter. One of the big plusses [as clients] is finally turning around we had extraordinary losses there at the first half happened in the second year this is the third year that we just finished and the December quarter was the first time we’ve showed an operating profit some quarter been our first quarter our new fiscal year. And the numbers since then in January and February held up so we think we finally have a soft revenue problem declines. Robert and Bryant Park remain extremely-extremely strong, and Rio Grande as well, New York has just been a great market for us. Washington DC, we’ve had some revenue challenges at Union Station where we run two restaurants. Union Station is under construction I would think that anybody sitting at one of our restaurants will find certain parts of the day completely unpleasant with the noise and the hammering and the dust. So our sales have been off there. But Sequoia has been very strong Sequoia is on waterfront. We have four years left on that lease. We think we renegotiate a 20 extension, so we’re in very good shape in Sequoia and once Union Station gets finished which is probably eight months to a year away we think sales will bounce back pretty quickly there. And Washington should again be a very strong market for us. Atlantic City despite all the closings and the dread of news that comes out of Atlantic City we are up and doing well in Galgher’s and Burger Bar Tropicana is doing well so we’re satisfied with that market. Boston is flat but we did license Durgin Park to host and they have a Durgin Park at the airport and that started to contributed I guess couple hundred thousand dollar a year in additional revenue. So that’s a good thing. We are down a little bit in Connecticut not too much and Florida we’re basically down a lot because as I said in previous conference calls the Hard Rocks have changed their -- we operate in two Hard Rock casinos in Tampa and Hollywood. And Hard Rock has changed its marketing policy a good part of the fast food revenues that we had there was a comps and they have basically terminated their comp policy so the 31% currently sales that we use through that marketing arrangement and that no longer exists we are still profitable. At this juncture what I can tell you is everything we are doing is profitable we don’t have one restaurant that is operating at loss. That’s probably the first time in the history of the company that we can say that. As you know we bought the Rustic Inn in Florida last year reported in late February so we’re just about to have our first 12 months under our belt. We think we’ve increased sales through price increases and other efficiencies probably 15%-20% there. In the season we’re running 300,000 plus a week we were surprised that in the summer which is not season in Fort Lauderdale we were still running at 200,000 plus a week. That hasn’t happened before for Rustic Inn in its previous 50 years so that’s been very-very strong for the company. And last week or two weeks ago we opened the Rustic Inn and Jupiter our first full seven day week, we did $140,000 so that’s a huge start for us. And in this quarter, December quarter we had $200,000 approximately of startup losses, we’ll probably have a small amount or more for the first couple of weeks but at the $140,000 level if that holds we should be profitable pretty quickly as we get efficient. It can only takes us a month to get efficient, get payroll online, get food cost online. So that’s been a big plus. We’ve already started to look for a third Rustic based upon its early strong beginning for the second Rustic we maybe a little bit too optimistic but it takes time to do these deals and we’re now looking for other waterfront properties in Florida. As far as our investment in the Meadowlands Racetrack we still are confident that that’d be a license gaming license issued to the Meadowlands. As I told everybody we think we’re in good position to get that but that’s not by any means assured, it could go to request for proposal, that’s up to the politicians in New Jersey. But I think we’ve done everything right here, we’ve built a spectacular $100 million grandstand with our partners Jeff Gural and Hard Rock Casino, people are enjoying it but harness racing is not a moneymaker and in order for this project to stay alive over a long period of time we need a casino license. And that’s basically it ready for questions.

[Operator:]

[Operator Instructions]. Our first question comes from Bruce Geller with DGHM. Please proceed with your question.

[Bruce Geller:]

Can you -- when does the change in the marketing policy in the Florida restaurants annualize -- start to annualize out through the results?

[Robert Stewart:]

That’s where today they stopped comping into the food courts.

[Bruce Geller:]

Okay…

[Robert Stewart:]

So they -- we annualized there.

[Bruce Geller:]

And is there -- I mean I guess you guys knew going in that that was always a risk. I mean have there been anything in your agreements historically that you’ve done that or in hindsight that you should have done that could help insulate against something like that?

[Robert Stewart:]

The only thing you can ask for is the guarantee of cost and the hotels we run in several casinos operated since and none of them had we historically asked for a guarantee or comps I don’t think it’s something that’s on the table as they would give the biggest there in negotiating any lease that I can recall and I make mistakes but not asking for a guarantee of comps that the food court at Foxwoods which we closed a couple of years ago took a write off for ourselves and our investors we thought for sure that there would be significant comps in their warrant but there was no traffic going to that facility. We do ask for it because the developer or landlord casino is always saying you’re going to do fabulous and we always say that's well can you guarantee us comp number and their answer is no. But we have very -- we've had 10 years of extraordinary returns in Florida doesn’t mean we’re happy about the situation but we’re still very profitable our investors are doing well. So it is what it is. Whether or not it changes over time I can tell you that customers are not happy about not being able to comp into the food court but they’ve determined that that’s a customer they’re really not looking for.

[Bruce Geller:]

Okay, so you’d all think it was something that they were testing that maybe they would go back to the older policy on.

[Robert Stewart:]

It could be, but, look, we were -- this is the Hollywood property is undergoing expensive expansion and we were mind for a while and still have little bit of the mind that maybe they did this to -- on us because they need us to move in order to effectuate the expansion that they are looking for and repositioning it from retail components within the casino and they can’t move us without a negotiation it’s not something that -- at least where they can move us to a similar location. So we thought maybe it was pressure but as time goes on they haven’t come back to us and said, hey let’s talk about location at the food court. So we tend to think it’s pretty reliable that this was a marketing plan has changed as they brought a new management. They brought a new management about a year ago and we think this is, that managements take on what customer they want and what customers productive and how much comps do cost them and we felt that their operating profits would benefit from eliminating the comps.

[Bruce Geller:]

So there is really nothing you can do until it comes time to renegotiate those leases?

[Robert Stewart:]

Well leases, don’t renegotiate for another 10 years and quite honestly I'm stunned that we have the leases that we have. They are very strong tenant leases and I don’t know what’s going to happen in 10 years. We sought of have this situation with Hard Rock there, our partners in Netherlands. They asked us to be the food service providers when they would feeling on the location in New York which is one of the sites New York legislation have European market for casino. So on the one hand the partners in one facility they access to go with them to another facility which they not get awarded for license. And on the other hand we have hammered by the policy in Hollywood and Tampa. So I don’t think they’re looking to hurt us on purpose and I think this is just an outcome of a new marketing philosophy and they have that flexibility. The lease doesn’t come up to 10 years unless they want to discuss it before then we just sit here and wait.

[Bruce Geller:]

Do you feel comfortable throwing so much support behind a partner in the Meadowlands that hurt you so badly in Florida?

[Robert Stewart:]

Well, hurts me so badly is a stronger statement than I think that the situation deserves. So would I like to have the comps back? Absolutely, am I about to start a war with them about it I don’t have the guns to support the war. It’s their marketing philosophy it’s their facility we’re just a tenant. And if our lease, it was the short side in negotiating the lease but not have any guarantee of comps if it could be gotten. I would tell you I got the lease we do some 15% rent to 10% rent early on because they want something for us, from us and I think that’s far more valuable with what happen with the comps. So we think they are straightforward businessmen, I have nothing but respect for Jim Allen and the organization he has built and I’m not just saying that hoping that he is on the conference call listening to me, but I do respect him, he's built a terrific organization, two very strong facilities in Tampa and Hollywood that throw out tons cash flow and I couldn’t think of a better partner to have if we get license in the Meadowlands.

[Bruce Geller:]

So was it similar change in policy in both Tampa and Hollywood?

[Robert Stewart:]

Yes, at exactly the same moment, yes.

[Bruce Geller:]

Okay. And my last question for now is, would you mind just maybe give anything a little bit more an update to the spend you can the prospects for the Meadowlands getting gaming rights.

[Robert Stewart:]

There are several things you can look at that are fairly significant. Number one, the collapse of Atlantic City. Casinos in Atlantic City have come down from 5 billion in sales to less than 3 billion sales over the last five or six years I guess. And the City has -- the state has an 8% interest in those revenues. So their revenues are down from 400 million to under 240 million right now. That's significant and a state that really is looking to find additional revenue to run the state. There have been four closings in Atlantic City recently, [indiscernible] went bankrupt twice, I think everybody knows that with the competition from Maryland, Pennsylvania and Delaware Atlanta City has to shrink dramatically and has started to shrink dramatically in terms of its gaming offerings. In order to the remaining casinos to be profitable we rents resorts with Gallagher’s and the Burger Bar and fortunately that has a very financially strong owner but it’s still loses money. The state has failed in getting interest and demand in online gaming and so that’s Atlantic City. The second thing that happened which woke up the legislature I believe is -- and this is all my interpretation so you got to be careful. I tend to be wrong a lot. But the second thing that occurred to me which woke up the state legislature was Caesars which had a position in Atlantic City and the legislature has been protecting Atlantic City as the only venue for casino gaming in New Jersey. Caesars applied for a fair gaming license in Orange County even though they didn’t get it. The fact that they were prepared to desert the comfort of the security and protection of the state of New Jersey to go after those revenues I think was wakeup call with the legislation what are we protecting this guys for. I think it was the right call to the governor as well. Then what happened is the legislature who has always protected Jersey come to South New Jersey made a statement seven months ago which time we considered the northern part of New Jersey for casino houses. And what has been bandied about has always been the Meadowlands because it’s a lot of acreage with a lot of parking and already has a race track so it’s legalized gaming at the Meadowlands. And Jersey City, where there's been a proposal kicking around to build a mega resort. So all of those things come into play. The new installed ledge in the [indiscernible] which was two powerhouse newspapers in the north have been continuously writing editorials saying what are we waiting for, we need a casino in the north. And then you have the expansion of casino gaming in New York State and fortunately for New Jersey they didn’t take Orange County they went to the [indiscernible] [Genting] the guy who is Chairman at [Genting] owns 75% of the empire and he is going to build the billion dollar facility there. By the way as an aside we are probably going to do food service at that facility not necessarily in the casino at the surrounding retail that’s being constructed. So there is a lot of pressure on seriously to raise revenue there is no reason any more to secure Atlantic City as the only gaming site in the state. And there has been significant activity at the legislative level to try to write legislation before this August to be prepared to put a referendum to change the constitution of the state to allow for casino gaming and so on. I would say to you and I’ve gone out on a little bit of a limb, there is 100% chance that the referendum on the ballet in November for a gaming license at the Meadowlands. Whether or not we get the gaming license is not anywhere sure. As I said we built $100 million grandstand facility that is set up to be a casino that they have to referendum passes we could bring them slots and table games the building was built to support that from not only design point of view but a structural point of view, it would an easy phase one, we could start giving the state revenue immediately. If that casino license is not given to us either outright or on request for proposal I think it would take somebody else two or three years to get into business. They would have to find a site in the Meadowlands and do environmental studies and go through the whole process before they could start to build. So there is a delay of revenues so we think we’re in a favorite position but again you’re dealing with politicians who have other concerns and not necessarily in our corner not necessarily not in our corner but we won’t know until the legislation is written Hard Rock has gotten approved for a gaming license in the State of New Jersey as a preference to all of this so that if we are given a casino license at least our partner who will be running the casino is in line to get a license. We have as part of our investment the rights to all food and beverage at the casino and the race track and any expansion of the casino at the race track with the exception of one Hard Rock Cafe. So we have renderings ready but that’s no big deal anybody could do renderings but we think we’re in a good position. Right now I would tell you if we didn’t get it I think we will all be disappointed because we think we’ve done everything right in addition to which what we trying to build is not $4 billion resort, we want to build something far more modest at Atlantic City is not challenged by what we build and I think that’s a different approach than anybody else would have who'll come into the Meadowlands. So that’s, I think as much of answer as I can give you right now.

[Operator:]

Our next question comes from Steven [indiscernible] Resources. Please proceed with your question.

[Unidentified Analyst:]

Congratulations. My question really deals with based upon great capitulation your company presently has luxury of cash flow wise and minimal debt, have you guys yet conceded rolling out any kind of change concept taking one of your concept that seems to work well and bringing it forward into a changed kind of atmosphere to capitalize on any marketing and G&A expenses usual reasons, whether it’s [indiscernible] which seems to be popular in New England or whatever I call that is a question, have not --

[Michael Weinstein:]

I just recently wrote my letter to shareholders and I said the history of this company started with us building six restaurants and six blocks on the west side of Manhattan a long, long, long time ago. And that’s where they all have to be different names and different menus not to compete with each other and we kept going with that and where other people had gotten better multiples on their businesses or on their stocks by having a brand, we've never been brand people and I understand the importance of brands and I understand that brands can do well in a location where a non-brand might not just because people have anticipation for the brand and reliability in the brand. But on the other hand we have Bryant Park where the [indiscernible] our brand. We have New York, New York where New York, New York when [indiscernible] was a developer along MGM, he didn’t want brands he wanted different restaurants with the New York sensibility. And so we were sort of making decisions based upon what developers wanted and the opportunity was always for us not to have to guarantee leases, not to have to compete with people who were much smarter at brands than we were. So the only opportunity that’s really come along that is our recent acquisition of Rustic and we purchased the land and buildings in a business operation in Rustic at a very favorable price. We’ve improved the cash flow coming out of Rustic by $1 million a year just with our know how and with good corporation of great management down there. And then we find the situation in Jupiter where we could test whether or not that was, that brand can be expended upon in another location where we brought a waterfront restaurant for a literally $250,000 and renegotiate the lease with general electrical capital at a very favorable tenant lease. We will fortunate we have to do that. And we open it up and this brand means something in Jupiter Rustic. So I would tell you that it’s an unusual restaurant in terms of its menu and just the whole feeling of it, interesting enough the original Rustic only does 12% in liquor sales. Jupiter is doing 25% liquor sale. So the margins are going to better because we put bars in and the old Rustic didn’t really have it all. So we’re learning a lot from the first and the second one and as I said we’ve already made recall to the broker who deliver those to us and go find the third one. So regionally we feel comfortable that Rustic is strong enough brand that we can do third we’ll see how that goes, but one at a time people and build 1,000 seats restaurants if we’re right to $15 million to $20 million got few of those. So we don’t think branding still way to go. We think we’re conservative on a balance sheet with reluctant borrowers and yes, we got a lot to do here but some days it's like a lava lamp, we’re not building 15 restaurants a year. We’re building two or three but they tend to be big and they tend to be highly profitable which we’re right. And we’re comfortable with our business we’re really comfortable.

[Unidentified Analyst:]

Okay, thank you. By the way so much time was spent on the Meadowlands in this question and answer. I will say you have a great partner. They are various real estate guys who partner leading that so I have the [indiscernible]…

[Robert Stewart:]

Yes, that’s right…

[Unidentified Analyst:]

That if it’s going to be doable and I know Jefferies added to them not taking too many chances it will be done.

[Robert Stewart:]

Hope so.

[Unidentified Analyst:]

Yes, congratulations.

[Operator:]

Our next question comes from Jeff Cominsky, Private Investor. Please proceed with your question.

[Jeff Cominsky:]

I had a question regarding the Rustic Inn I know the last gentlemen asked and you answered some of those questions already. But the model that seem to be successful down there and success that you’ve had early with restaurants that have been an existence there is that something you can take forward to your other properties in other words was this a marketing or menu change that’s responsible for the success at the two Rustics and if so is that something which we’ve bring forward to your other properties. What exactly do you attribute your early success with new ownership down there and how can you use that in your other restaurants?

[Robert Stewart:]

First of all we -- the last two quarters and we got our P&Ls monthly here and we have flash P&Ls every week on every single restaurant and Vinny Pascal who is our COO and Bob Stewart and myself sit down and we go through these things and I must tell you from our level of expertise whatever that may be and expertise maybe the wrong word but from our level of knowledge of restaurants and how they run we look at these P&Ls and there is very little wrong in them I mean very-very little. Our managers who’ve been with us forever are doing great work and in Rustic we inherited a management team in place that is spectacular what we did at Rustic is we just said like hey we’re afraid of we said the offerings here are too much value the portions are huge we’re not charging enough and we think from what we know people will pay for this even though we’re not South Florida people though we thought it was just too cheap. And we did it two prices increases one we did a price increase initially on the shellfish and the crabs which they’re for and three months later when we felt those were prices were absorbed without any loss or headcounts we raised the entire menu, the rest of the menu. And right now I could tell you we’re doing and the 15% more business every single week with no loss of headcounts. Now it’s in season, the tourists may have less of a reluctance to spend the extra few dollars and locals will and we’ll find that out in the summer months. But we wanted to raise the prices before we went to Jupiter which is a little bit of a wealthier community and a more well-heeled community and so that we had the same price points at each restaurant. And so basically we took the restaurants that when we were showing the numbers it was only a million dollars we thought we would add back we might be earning 1 million, 3 million, 4 million, 5 million add back meaning personal stuff that the former owners charged into the restaurant that we would not charge in cars and other insurance policies and stuff and with the price increases we think we’re going out at about $2.2 million $3 million cliff at Rustic maybe a little bit more in Fort Lauderdale. And so that’s what we did in Rustic, nothing that dramatic except saying hey this product is being offered to the customer for too cheap of a price and they will pay more because the product is good and the quantity of the product. Everybody is bringing a doggie bag home. So we have other areas where we think we can expand in Rustic as I said we’re going to build a new bar in Fort Lauderdale we think take out is underperforming they never -- they do take out they don’t do deliveries maybe we should be doing deliveries. The model for me is the Barbecue Restaurant in Memphis that’s interesting to have federal express all over the country. I think we could be using that model if we knew how to market it. But I must caution you and I am not being under valuing ourselves here we are lousy marketers we spend no money marketing what we are good at is our brand is being able to run these fix 700,000, 800,000 seat facilities and I always say your Bryant Park on the Thursday night at 10 to 6 the place is mostly empty, people get out of work about 5, 5.30 start to use the bar, that bar will do $25,000 $30,000 on the Thursday night, our outdoor bar and then at 6 o’clock there are 1,000 people sitting all at once and they will be up by 7 o’clock if they want to or earlier. We know production and we know quality and that’s our brand. And that happen to be the Rustic brand, they knew production and they knew quality and that’s why we like it so much. So there was very good we can teach them and I don’t think there all that much they teach us although I’d like to have all the -- on some of your that can’t use through the country because they think it’s great profit if we can make it as good as they have. But I don’t think beyond there is very much going on.

[Operator:]

Our next question comes from Chris [indiscernible] Please proceed with your question.

[Unidentified Analyst:]

Hi Michael, Bob it’s Chris Patrick from [indiscernible] Just a couple of questions here. Is there any kind of update to give on the -- I believe you refer to as the Bryant Park kiosk?

[Robert Stewart:]

Yes, there is a small kiosk. We have a licensing agreement which has not yet been signed but I think it will be, it’s -- sits in the corner of Bryant Park. The previous owner if we believe them or the previous operator did about $2.3 million 80% of that was in liquor. They were not renewed by the Park, the Park has asked to do it. We’ve gone through two or three test at least. We’ve applied for a liquor license they sort of accepted or menu proposal and our price points the Park clearly has a lot of discussion and controller. But I think we get there and I think it adds $100,000 to operating profit. It’s the only time we’ve ever signed the license has oppose to lease but that’s the only thing that’s available in that park at this point. I think it’s going forward we should be open sometime in April.

[Unidentified Analyst:]

Perfect, okay. On the Bryant Park just real quick, it is the few years out honestly but the outdoor café in the indoor have separate leases. This is brought up on I think --

[Robert Stewart:]

Yes, these four the 40th street side which is the grill which is partially enclosed and has a roof-top as well as a patio and the whole thing there is probably 550, 600 seats. That has 13 years left on the lease. The outdoor area on the 42nd street side which is another 400 seats and a huge bar has six years left. On that lease we have the right to first refusal. So the mechanism is that they can go out and try to find another let see for it, but they have to come to us with a valid offer and we have the opportunity to say, we wanted and expand of it then we get another 10 years. It’s going to be hard for us do not say want it. We’re already paying a very big rent there. So I don’t think too many people are going to challenge it and one of the things that makes that work is the fact that its supported by the other restaurant to grill. So somebody else running that space and it’s not impossible but they would really have to have a big catering operation to be able to deliver product all day long to satisfy the demands and stress put on that kitchen. So the fact that with next store and also basement space across the street because we need it I think sort of secures our petition I don’t think that’s going away very soon.

[Unidentified Analyst:]

Okay, great. Thank you. Somebody else have already asked about the chain concept, my question is outside of the Rustic Inn and this Bryant Park kiosk. Are there any other locations right now that you’re looking at to add a restaurant through a concept?

[Robert Stewart:]

We are looking at stuff all the time. We never really commented on what we’re looking at because for every 50 deals we look at maybe we do one but the difficulty we always have is that we're -- and our leases are public record if you went through those leases there are unlike anybody else’s leases I mean there are really strong leases I always tell the story when Sheldon [indiscernible] signed a lease with Barney's and the expansion of [Venetian] they said we’re going to move you, general growth said we’re going to move you. I said you can’t move us and they said no, it’s in the lease, its in every lease well wasn’t in our lease you can’t move us. We are difficult-difficult people to make a deal with. I am risk adverse this is a huge part of my equity in life and I am not going to take risk with it building a restaurant as client approved where I thought I’d have a slam dunk to use a bad expression for a basketball themed restaurant, but where I had a slam dunk we went through a lot of pain to get this to finally have a profitable quarter no matter how right do you think you are and this is an argument for brands but what we do is somewhat tickle and we can produce excellent food at excellent prices, a location we think that will work and one that doesn’t work and we’ve been through that. So, our leases are very-very difficult leases for a landlord to accept they really have to want us and so we look at a lot and lot of stuff and we just can’t make a deal that we’re happy with but once in a while we do and there is a Rustic and there is another Rustic and there is stuff that goes on. So I am almost apologetic for the lava lamp growth of our business but it’s been dependable.

[Unidentified Analyst:]

Last question from me then just on the some of the expenses the food and beverage cost were up about 11% year-over-year…

[Robert Stewart:]

Yes, let me answer that quickly before you go to the next one. The best analogy is if you’re sitting in a restaurant and you’re the owner you would like to see somebody order a lobster at a 50% cost rather than a hamburger at 28% cost because the whole dollar profit is bigger. That is Rustic’s business. Rustic runs very-very high food cost but in the end you’re happy with the operation because it’s doing so much volume and the sense of value is so great that it’s the flow through over the transcend is spectacular volume so Rustic as we build the first one or as we bought the first one and the second one our food cost generally for the company has been right around 30% a little bit less and here we own Rustic that when we first bought in at 46%-47% food cost it’s now running more like 42% with the price increases we have. So the more volume Rustic does the more it impacts our food cost and if you took Rustic out our food costs are running basically the same as they’ve always run so Rustic is impacting us.

[Unidentified Analyst:]

And then the first part of that are you saying that with lobsters the margins are higher or is this the high level cost…

[Robert Stewart:]

No the higher costs are not making our margins higher our margins are lower but our whole dollar profits are higher selling a lobster rather than a hamburger. So we have a higher check average with Rustic although we have a higher food cost.

[Unidentified Analyst:]

And then the last question occupancy -- not occupancy, the payroll expenses were up a little bit year-over-year…

[Robert Stewart:]

That has to do with several factors it has to do a change of legislated minimum wage increases that are we’ve been hit within every venue and that continues it has to do with New York State’s new rules on what’s called spread of hours and sick leaves spread of hours just to inform you is if somebody works nine hours for me they have to be get paid for the tenth hour whether they work it or not. Sick leave in New York now you have sick -- guaranteed six sick paid leave days and one hour or in other words one hour every 40 hours. Vinny Pascal our COO handles this for us he is immersed in every venue in labor laws and we audit our payrolls on a regular basis at every single restaurant because labor laws have become so complicated that we want to make sure that we’re abiding by the regulations it is difficult. Vinny if you want to take..

[Vinny Pascal:]

I think that also has to do with the administrative charge that we charge on parties and that also has to do with the change in law we pay $35 an hour to our service to work course down events and that’s in the payroll although if you look down at the bottom you will see with the administrative charge gives us back which is always greater than what we’re paying out but it does have an effect on the course to these payrolls.

[Robert Stewart:]

That’s a good point so about a year and half ago we started to charge -- we started to pay people differently for events or the people who work for us so you could be a waiter with regular minimum wage and on a payroll getting tips but if you work the private party you now get paid $35 an hour we charge the party 22% administrative charge we’ve had no problem with that whatsoever and obviously they don’t tip out any of our waiters, waitresses, hosts et cetera because they are paying us administrative charge. We just pay a straight $35 an hour. Waiters and waitresses are happy with that because they’re making $35 an hour where if they will work another party that wasn’t very lucrative they may not make that much, but on the bigger events they probably would have made more with the tip. But this secures them that they’re going to make very good ways to work in that party. If it’s a party for instance it’s a $100,000 party our fee would be, administrative fee would be $22,000. We may be paying out $17,000 or $16,000 in terms of payroll to that party. So we’re making an additional $5,000, $6,000, $7,000. So now this $35 that we’re paying out shows up in payroll would be $4 was a tip. So that also is a good point by Vinney. We’re making more money but our payroll expenses went up little bit to reflect that $35.

[Operator:]

We have a follow up question from Bruce Geller with DGHM. Please proceed with your question.

[Bruce Geller:]

Actually my question was answered, so thank you.

[Operator:]

There are no further questions in queue at this time. I’d like to turn the call back over to management for closing comments.

[Robert Stewart:]

Thank you all for being on this conference call. We think we’re going to have the couple of good quarters coming up. We’re really happy with the way the business is working. Obviously the second Rustic coming up with such good early results is the big relief and the big benefit for us. Again we’re going to keep our balance sheet simple and just try to stay in a strong position if the Meadowlands happens we’re obviously going to need to find a way to finance our shares so we’re not diluted but we think we can do that. And we look forward to next conference call with you. Thank you very much.

[Operator:]

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time. And have a great day.