Greetings, welcome to Ark Restaurants Second Quarter 2023 Results Conference Call. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Christopher Love, Secretary. Thank you. You may begin.
Thank you, operator. Good morning. Thank you for joining us on our conference call for the second quarter ended April 1st, 2023. My name is Christopher Love, and I am the Secretary of Ark Restaurants. With me on the call today is Michael Weinstein, our Chairman and CEO, and Anthony Sirica, our President and Chief Financial 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 morning 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 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. Thank you.
Hi, everybody. Before, I get into this, Anthony, I would like to discuss our situation with cash.
Yeah.
where we stand, especially in relation to the fact that we increased the dividend from $0.50 annualized to $0.75 annualized. Please give it to us.
Yes. Our balance sheet remains strong. The significant items that took place this quarter was on March 30th, right before quarter end, we amended our banking arrangements with our lender. The primary purpose was to move from LIBOR to SOFR. In connection with that, we paid down a $6.7 million loan, and we implemented a $10 million credit facility, revolving credit facility. Subsequent to the quarter end, we paid down additional two loans for a total amount of $6.1 million. In total, we paid down $12.8 million of debt between March 30th and April 5th, say. We made the decision because we had a very strong cash position.
The rates were over 8%, this will generate at least $1 million of cash savings over the next year. Also subsequent to quarter end, you probably saw in the press release, we raised the dividend from $0.125 to $0.1875 per quarter. Our latest cash balance as of today is about $15 million in the bank, our current debt position is $7.3 million.
Thank you, Anthony. I'd like to go over venue by venue, what we saw happening in the last quarter, more importantly, what we see going forward. We're just, you know, halfway through the June quarter. As the press release indicated, we had very strong sales generated by our events department and catering departments, especially in New York and Washington, D.C. That lifted the overall comp sales for the company by about 8%. That, of course, was calculated eliminating Gallagher's in Las Vegas, where the comps were inappropriate because we had closed Gallagher's sometime in early February, and it remained closed to the end of April, while we did a renovation that was required by our new lease with MGM.
Those missing sales were substantial and certainly had a big impact on our EBITDA and net income. In general, New York was very strong. Alabama, and New York remains strong. Alabama was, you know, in line with our projections and through the early part of this June quarter, again, remains in line with our projections. Washington, D.C. is the same. It's doing well. Florida had a good quarter, but in the last few weeks, we've started to see a declination in customer counts in the Florida restaurants, in the full service restaurants. We've also seen a seasonal adjustment in Las Vegas.
It's hard for us to tell whether or not we're comping favorably to last year, because Gallagher's just reopened, and that's a big driver of sales for us at New York, New York. I would say to you that it feels a little bit softer than it has been. If you take a look at our customer counts, in New York, we're doing well. In comparison, we have two indicators of how we're doing. Number one, customer counts is the most important, obviously revenues are, you know, an equation of customer counts times increased prices on menus, which would drive revenues. In Florida, customer counts are down, revenues are starting to come down slightly in the last couple of weeks.
It's very, very hard for us to make a calculation as to whether this is a trend or just a blip. My belief is that we're losing the low-end income customers from, you know, our full-service restaurants. Our food courts in both Tampa and Hollywood and in Vegas remain very, very strong. The implications are, you know, we've gotta see where Gallaghers winds up. We've raised prices there, we have a new menu. We raised prices in line with what we think we can ask customers based upon the renovation, based upon the new menu, and best, more importantly, extremely good quality. If you read the reviews coming, early reviews on Yelp, they're all five-star reviews.
I think the team out there has done an extraordinary job. We have additional renovations to do, one on the food court at New York, New York, but that will not have any impact on sales because there are nine units there, and we're gonna do one at a time. Basically, we feel that as we close a unit, the sales that would belong to that unit will be spread over the other units. You know, business quality of our product, service of our product, the look of our restaurants remain in extremely good condition. We're very happy with what we're doing in the restaurants.
We're a little bit concerned about the bottom rung of our customers, whether or not they can afford to eat as frequently as they did or whether there's gonna be a change in habit here during, you know, what is apparently a slowdown. I speak to other restaurateurs. They're basically all saying the same thing, especially outside of New York. That's the restaurant side of it. We should start to discuss Meadowlands more frequently in these conference calls. New York state is about to announce the three downstate casino licenses, who gets them.
We assume Yonkers r acet rack, which is just north of Manhattan and the Bronx or Riverdale and Aqueduct Racetrack in Queens will get two of the licenses. Where the third license goes is sort of a mystery to everybody. I speak to lawyers who are representing different groups who are vying for the license. One is Steve Cohen out of Shea Stadium in partnership with the Mets. There are a couple, Hudson Yards in New York, SL Green. Nobody seems to know where that license is going. The fact that Aqueduct and Yonkers are the likely recipients of two of the licenses will have a huge impact on gaming in Atlantic City.
We believe as these licenses are announced, Jersey legislation will have to sort of redeem itself with lost tax revenues out of Atlantic City and make a deal for a casino in the northern part of the state. We still believe Meadowlands is the most attractive site. Meadowlands, by the way, does more sports betting than all the casinos in Atlantic City combined. I think it's the largest sports betting site in the country. We think that's a logical choice. There are no environmental permits that need to be explored, that we have everything in place. If a casino license was issued to the Meadowlands, we could literally be in business in six weeks. That's not true with any other venue.
We think that we have a high degree of confidence that the legislators are gonna move forward, and it's required that it be a public vote. Hopefully by, you know, November of next year, there'll be a vote on a referendum to allow for a casino in the northern part of the state. We own, we're the third-largest holder of the Meadowlands Racetrack LLC, which is the site we think will be granted a license. That being said, you know, being the third largest, we only have, on a fully diluted basis, a little under 8%. We do have an exclusive for all the restaurants in the Meadowlands, with the exception of a carve-out for a Hard Rock Cafe.
Hard Rock owns 20% of the deal. A New York developer, Jeffrey Gural, owns some 30%. Again, we're slightly under 8%, and then there are a series of other investors, and one is a hedge fund out of Canada that specializes in casino operations and investments. With that, if you have any questions, I'm happy to answer them.
Thank you. Ladies and gentlemen, at this time, we'll be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of James Stevens with Private Investor. Please proceed with your question.
Yes, good morning. just talking about the balance sheet for a second. if I understand correctly, as of today, cash is roughly $15 million and debt is roughly $7 million, so we have net cash of roughly $8 million. Is that correct?
Correct. That's before float, but yes.
Yeah. Okay. Obviously, cash is way down from the end of last year, almost down $10 million, but in a good way, so is the debt. The debt is actually a lot, down almost $14 million, so it's in much better position.
Right. Exactly.
What is the interest on that, $7 million of debt?
Yeah, it's about $8 million and change. $8.1 million, $8.2 million.
Okay.
The SOFR approximates LIBOR. They just. It's a slightly different spread.
Yeah.
I think the LIBOR spread was 3.5 and SOFR is 3.65.
It's still pretty expensive debt. Is there a hope to pay that down further?
Depending how this year shapes up, we would consider that, but we're also looking at a couple of deals out there. You know, we have to manage that. That's why we didn't pay down more.
Got it. In terms of renovations, you talked about Gallagher's. It looks like in the release that there's another $4 million that has to be spent on America, and I think another $3.5 million on Broadway Burger. It's like $7.5 million between the two of them. Is that right?
Let me interject. Broadway Burger is part of... Even though it's not under the same percentage lease as the fast casual food within the Village Streets, which is our fast food court, essentially. We don't think the renovation of that is going to be more than $2 million. Sam is here. Is that right?
Yeah.
Yeah. We think it's $2 million. We have specific language in the lease extension that says once the plans are approved by the landlord, the concept, whatever we're doing, you know, if it comes in below what the lease extension said, that's gonna be the number, so. You know, when we negotiated this lease, we didn't know to what extent they wanted these concepts to either change. We knew they didn't want Gallagher's to change. We knew they did not want the fast food court to change. They may want America to change in terms of concept. We would still be running it, obviously. The present management has been very flexible with us. I mean, Gallagher's was a breeze. We showed them the plans. Sam is here, who oversaw that.
Basically, they were very flexible with us. They weren't demanding. They made some suggestions. We tried to accommodate those suggestions, the suggestions they made were not, you know, heavily priced. We spent a little under $2 million in Gallagher's. I can't imagine the food court being more than $2 million. Based upon what they want us to do in America, which will be a decision next year or the year after, they're not in a hurry to change it. One of the reasons they're not in a hurry, it keeps doing better every single year. I think we were up 11% in sales last year in America from the year before. It's even questionable whether they want to change the concept or just wanna spruce it.
It's sort of, you know, not something we have to worry about in terms of spending a lot of cash today, if that's the question?
Got it. You mentioned that, you know, there's a little concern out there for going into recession, a little concerned about the bottom-rung customer. What's interesting is, Tilman Fertitta was on the other day, obviously they have restaurants, you know, all over and spanning the range from inexpensive to luxury. His point was that it was the higher-end customer that seems to be impacted. I wonder if that's what you're seeing.
I speak to his cousins, or people who are very heavily involved in Red Rocks. They're starting to see the hiring customers spend a little bit less, that's what I'm told. Basically, our check averages are holding up, maybe with one exception, which is Rustic Inn. I don't see any problem with our hiring customers and what they're spending. Again, you know, he has a broad range of concepts, in general, with the exception of the higher end, the crab and shellfish items at Rustic, the menu is not that expensive below those expensive items. Gallagher's is certainly expensive, but it's cheaper than any other steakhouse in Las Vegas.
We're also in a venue that doesn't attract high rollers and, you know, the room rates are substantially less than Bellagio or Wynn, etc. The rest of our restaurants are, you know, $40 check averages at dinner, $50 check averages at dinner, and you can eat at price points below that. What Rustic is seeing is because we not only count customers counts, but we look at the number of entrees sold. They're seeing their customers start to share entrees. People come and have two appetizers and an entree instead of two appetizers and two entrees. The rest of it, I think our high-end customer is okay.
I think it's the, you know, the customer that's renting an apartment in Florida and, you know, has to pay more for groceries and, you know, is just sort of behind the curve here with what's going on with the necessities that they have to pay for and what disposable income they have at the end of the week to go out and eat. I think that's... for us, that's the customer that we're seeing disappear.
I think our high end is different than his high end.
Yes.
He's got [Mash Bros] . I mean, he's got these places with astronomical, you know, per person checks. I think his high end, maybe that section of it is probably suffering.
Very full of color .
You know, I mean, This is not necessarily pertinent to a conference call, but I was out in Vegas a couple of weeks ago for, you know, to sit in Gallagher's for a little while. We have a tomahawk steak there that's 40 oz served, you know, with bone marrow at $129.
140.
$140. I apologize. I said, "Who's going to pay this?" Because, you know, I'm old, and I still remember, you know, a hamburger, $4.95. Sam took me around to Aria to a restaurant, and they were $350, so $325 for the same thing. You know, we're lower than anybody else on the Strip. It's still expensive, but we're lower. I would think most of our menus come off that way. We've certainly gone through price increases. We're not hammering our customers. We've frozen price increases for the last six months or seven months. We're worried that at some point, customers are gonna revolt and say, "Hey, why am I paying..." You know, they're...
If you walk around New York City, a $28 dollar hamburger is not unusual. You know, we're at, you know, $17, $18 at Bryant Park for, you know, for a hamburger.
Yeah. No, that's all really helpful. Thank you. I just have one more question, and then I'll let someone else jump in there. Just in terms of the operating income or EBITDA, because I know you prefer to look at that, it's a little disappointing to see an 8% rise in sales, and actually would have been better with Gallaghers and really see on the bottom line or with EBITDA that it's down. I know there are some factors in there, but are we ever gonna get back to these years of $14 million-$15 million worth of EBITDA? Or is that, you know... Obviously, in a, in a worsening economy, you know, it's gonna be difficult to achieve that.
All things being equal, especially with the interest savings, on paying off some of that debt, are we gonna be able to get back there? Are we still there?
Their line is still connected.
Can you hear me?
Gentlemen, are you there?
Yes, I'm here. Can you hear me?
We can hear you, Mr. Stevens. I'm trying to see. Their line is connected, but they're not answering.
Oh, okay. I'll stand by.
One moment. Okay, they're reconnected.
Did you want me to repeat their question, Michael, or?
You gotta repeat the answer to the question.
Yeah. No, I think we were talking about pricing and, you know, we don't think we're out of line with pricing. We think a lot of restaurants are out of line going into what might be a recession and where people are being more careful. Despite that and, you know, we're still seeing a slight deterioration.
Okay. Thank you for that. I had one more question. I'm not sure if you heard it when the line cut out. Did you?
Yeah.
About the-
We didn't hear it.
We didn't hear it.
Okay. Did or did not?
Did not.
Did not. Please repeat it.
Okay. All I was saying was that, I mean, you guys are doing a great job in a, in a, in a tough market. It's a little discouraging to see an 8% rise in revenue and actually would have been better with Gallagher's. On the top line, it's good to see that, but it's tough to see on an operating income basis or EBITDA. I know you prefer to look at that. The number's lower. I guess I'm just wondering, you know, we can't control the economy and the consumer, but all things being equal, is it gonna be possible, especially with interest savings, to get back to that $13 million-$14 million worth of annual EBITDA?
I see no reason not to. I see no reason that we shouldn't be better than that. I'm not talking about the results for the, you know, the year ending or fiscal year ending September. I'm talking about the rate of EBITDA as we turn the corner on the economy. Look, we made a decision here. We're interested in two things. It goes back to I guess 2008, 2009 when, you know, everything was bad, and we made a decision at that point, we weren't gonna lay off anybody.
If people were gonna spend money in restaurants, they wanted to get the experience that they're expecting for those dollars, which, you know, were difficult dollars for them to spend. In 2008, 2009, they didn't wanna walk into a restaurant which, you know, had sort of attenuated its full service approach to save payroll. We're not saving on payroll. If anything, you know, our payrolls are building up, a lot of it because of legislation with minimum wage. We're going through several bumps in payroll, legislative minimum wage payroll increases in Nevada, in New York.
Florida.
Florida. You know, our payrolls are going up, not down. We're not letting go of anybody, even if, you know, if sales get crimped a little bit. We're not raising menu prices. We're seeing stability in food prices. Crab prices are coming down a little bit, but for the most part, everything's remaining stable. We're not seeing things heading down in terms of the products we buy and the cost. Insurance premiums are going up. It's scary what the insurance companies are asking, and we're trying to figure out ways, especially in liability circumstances to get better rates. Utility prices are going up. I mean, we're just seeing everything being increased, and yet we're gonna...
The mantra here is keep your customer, you know. Customers can't see on the plate that the gas prices are going up or electricity costs are going up or insurance premium is going up. What they know is what they're paying for a piece of chicken in the supermarket, and then they can relate to what they're, what they're seeing in a restaurant. The mantra here is keep your customer. Do everything to keep your customer. If we do a little bit worse, but we have a loyal customer base going forward, our business will, you know, flourish as we come out of this.
As we see, you know, what happens to commodity prices, you know, we're even prepared to lower prices, to get those customers to think they're getting a quality product at a fair price. That's where we've been. The, the whole history of the company has been, you know, take good care of your employees, make sure your customers come back. That's the only song we wanna sing. We might have a little bit of an interruption in EBITDA here, so what? In the end, we'll be right. That's the feeling.
That's awesome. That's perfect. Thank you.
Thank you.
Our next question comes from the line of Alan Goldberg with a private investor. Please proceed with your question.
Hi, Michael. You probably don't remember me.
Yes, I do.
... we had dinner down in Florida.
Florida, yeah.
We are both the same age, so I too remember $4.95 and $3.95 hamburgers. We are the same age, and I don't know whether that's good or bad. As everybody's aware, Florida is growing, you know, unless something goes on politically down there. Florida is growing substantially. They estimate 365,000 new residents a year, almost 4 million over the next 10 years. The areas that we are involved in are in the key areas. Have we given any thought to do things, I hate to use the word less popular, but no less populated parts of the state. People that are coming down from New York, Cleveland, Chicago, Pittsburgh, as you know the places, they're shocked at our prices in the upscale areas. Shocked.
I'm wondering, have we looked into how we can take advantage of that with restaurants in areas that are not so well known? That's my first question. Have I lost you? Hello?
One moment. It looks like we lost him again.
Oh, boy. Okay, I'll stay on the line if that's okay.
Yes, just one moment.
We're back on.
Okay. They're reconnected now.
Okay. Thank you. Alan?
Yeah, Michael.
Yeah. You were making the point of the increase in Florida residents.
Correct. We're finding, I'm finding, I live down there full time, I'm finding that people aren't gonna be absolutely moving to the neighborhood where the house prices start at $9 million. You know, the people that are retiring from the north and the northwest are moving into less popular areas, nevertheless, the same weather. What I'm asking is, have we looked to do anything in lesser affluent areas?
what drives our decision to make acquisitions is the price we're paying for cash flow.
Right.
Whether we think that cash flow is sustainable. We don't care where we go, as long as we know we can manage it. The restaurants we have either bought or secured long-term leases on in conjunction with the purchase of the operation are all institutions. They come with great management. All management has stayed with us. Blue Moon, JB's, Rustic, Shuckers.
Right.
You know, they've all stayed with us. Those are the situations we're looking for. You know, we've looked in different parts of Florida, as far north as Jacksonville.
We looked near Disney.
We've looked near Disney and, you know, we're a little too conservative in what we wanna pay, but we certainly want that margin of safety. There have been deals that, you know, where we've had an asset purchase agreement with a willing seller, and we're a willing buyer, and the landlord got in the way, and we couldn't get the kind of lease that we wanted. Where we can get a good long-term lease like Blue Moon, you know, or JB's, you know, we're ready to go. We've looked at a lot of deals in Florida.
We're very picky and, you know, we have the multiple that we're prepared to pay, and we're, you know, we're really strict on ourselves not to go beyond that multiple.
Okay. Please continue to be picky, but the reason I even brought it up is I was driving from Sarasota across to where I live in the Palm Beaches. As I got towards the middle of the state, which was farmland, and it looked like nowhere, there was a great big sign, "Tall homes breaking ground, 1st of January 2024, starting at $950,000.
Yes. Alan, not to interrupt, we're not looking to speculate and build restaurants. We're looking to buy cash flow.
I understand.
The idea is, you know, if there's somebody in the middle of the Everglades doing $10 million and throwing off $2 million and prepared to sell the restaurants.
You're ready to go there.
We're ready to go there. We're not ready to build there.
I understand. I understand that. We are looking mostly to lease rather than own the property underneath, as we've done in the past.
No. We... Our primary focus is to own the land under an operation that we can buy at a multiple, you know, so that we have, you know, predictable cash flow forever.
That's wonderful. That's. I'm very pleased. I hope we get a little lucky in the Meadowlands. That would certainly be a little more icing on top of the cake, and that would be wonderful. The main thing, as you say, is to stay alive and keep in business and do what you've been doing for years. I'm-
Yeah. Thank you.
I'm very pleased. Thank you for your time, all of you.
Gentlemen, there are no further questions in the queue. I'd like to hand it back to management for closing remarks.
All right. Speak to you next quarter. Stay well, everybody. We'll see what happens. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.