Q1 2023 Ark Restaurants Corp Earnings Call

Greetings and welcome to the ARC restaurant's first quarter, 2023 Results Conference call. At this time, all participants aren't a listen-only mode. The question and answer session will follow the formal presentation. If anyone wants to require operator assistance during the conference, please press...

star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Chris Guloch. Secretary, thank you. You may begin.

Thank you, operator. Good morning and thank you for joining us on our conference call for the 2023 first quarter ended December 31, 2022. My name is Christopher Love and I am the Secretary of Arc restaurants. With me on the call today is Michael Weinstein, our Chairman and CEO , Anthony Serica.

our President and Chief Financial Officer and Vinny Pescal, our Chief Operating Officer.

For those of you who have not yet obtained a copy of our press release, it was issued over the news wires 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.arcrestaurants.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 funds with the Security and Exchange Commission.

for 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.

Hi everybody, happy Valentine's Day. First I want to have Anthony explain the woody stand in terms of our balance sheet and the comparison with December of 2021 that quarter compared to the current December 2022 quarter.

Anthony, could you do the other show? Yes, sure. Good morning, everyone. Our balance sheet remains strong. Our cash and...

CD is 24.5 million which the CD is now cash to get matured on January 8th.

our total debt at the end of the quarter was 21.6 million.

Total equity was 61.1 million.

was 61.1 million.

significant changes were, you know, we had a bump.

$4 million decrease in accruals that related to the utilization of catering deposits.

from the year end, uh, announced the cause of all the parties held in December .

and the payment of bonuses.

and now the payment of.

The fight attacks were deferred because of the CARES Act, so there was a number of accruals that were paid for in the quarter, so that came down along with the cash balance from the end of the year.

on the P&L.

on the P&L a couple things I wanted to point out.

on the food and beverage sales hour.

As a percentage of sales we came down from the prior year quarter. We're now in line with...

just about where we were free pandemic. We've done a good job of targeting price increases as well as buying smartly. Payroll, obviously you see a big increase there in payroll. You see the news record unemployment.

It's no challenge. We feel like we're getting it on the control. But again, it as a percentage of sales

It is spot on with the last quarter, prior to the pandemic quarter ended, December 31, 19. It was the same percentage, 34.0% sales.

on the occupancy expenses.

We're up about 900,000 from the same quarter last year. That's the result of primarily three factors.

Last year we recorded.

the COVID-19 treatment deals from Brian Park.

which obviously the rent expense was artificially low last year.

So that was about 300,000 of the increase this year. Las Vegas.

Rents went up on 1122.

So that's about another 300,000 of increase rent this year over last year.

and about 220 of it is insurance premiums.

which I'm increased.

other operating costs and expenses that's

You know, really just inflation related across the board.

That's really it on the P&L, so other than that, it was a strong quarter.

Turned out to my hub.

Thank you, Anthony. So I just want to emphasize that the way we went about signing the Cross Vegas leases, we could not, the new minimum rents.

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In January of 2022, however, we could not book those new minimum rents until we had signed leases.

So we didn't accrue for them. Our accountants were adamant that we shouldn't accrue until we had signed deals. So the minimum rents would push forward. And in the December quarter, we...

We expense more in minimum rents than the actual minimum rents would be for that quarter because we had this delay until we could book them. So if I were looking at the quarter and roughly $4 million last year.

600,000 of that and 3 million this year, 600,000 of that increase, that decrease. 300,000 was because of the accounting for the rent that...

We did not have to pay the reduced rent on our deal with Brian Park and so we had a

reduced rent on our deal with Brian Park. And so we had a...

Oh

a decrease in the rent in the December 2021 period and There was an increase of about 300,000 due to the Las Vegas deals in the 2022 period I think Anthony probably explained the bed and I did but I have a explain

All in all, our business for the quarter was very strong in Vegas, Alabama, and New York New York benefited dramatically from events that were missing and in...

much of certainly last year and in December 2021. Quarter, we also benefited somewhat from weather. There's been no snow in New York.

The temperatures have been with the exception of Christmas day and a couple of days on either side of that. The temperatures have been unusually favorable for us. We did have this blip in Florida. So we're doing well with...

order weekend. Part of that is, again, this problem with rustic that we've been having because our costs went up, our menu prices went up.

We were still running 50% costs, trying to hold on to customer accounts. So we would not really aggressive in pushing menu prices and rustic or anywhere else to that matter. But customer accounts and rustic dropped dramatically. And...

You know, rubber used that with down probably 17, 18% in the quarter in rustic. And the other restaurants were of 7, 8, 9, 10%.

which was all the same too

Yes, it was a bit and it was very very cold and flared from the 23rd to the 29th. It was like 30 degrees down there.

Yeah.

So that doesn't help. But in January we've seen a significant reversal of that. And our restaurants are significantly ahead in January and Florida and then they were in the same January period last year. So I don't know what that blip was, but we're very confident that our...

Opses in Florida very very strong and

restaurants like Shuckers somewhat because of menu increases but also increased head counts of running 20% ahead of last year in January . Blue Moon is running ahead. We've added about 50 seats at Blue Moon as we got permission from the Army, Corps of Engineers in the city.

to extend the dock that goes into the intercostal waterway. So we had about 50 seats there and we were in season and they're being utilized. JBS is doing very well. We had a record week last week at the hog rock, but we do fast food.

Our normal week there is maybe 175, 180,000. We've hit 200,000 a couple of times. Last week we did 220,000. So campus seems to be strong. Everything I hear about the demographics of campus favoring us.

New York because the weather has been mild January we had a great.

business in New York and Washington DC. The big problem for us in this March quarter is not revenue. It's we're closing Gallagher's at New York New York for renovation, which is part of our.

least negotiations. So we expect that renovation to take about two weeks and started this past Monday. Last Monday, I think the sixth or whenever that was, it'll last until the end of March. We're trying to hasten that. We were able out of

some 300 seats to cord and off 60 seats in a private dining room that's still serving Gallagher's menu, but Gallagher's is a restaurant that can do $350,000 to $400,000 a week, especially when there are conventions in town.

So my expectation is that we'll be missing some $2 million in sales in the March quarter in Gallagher's.

We've always had this policy when we close something for renovation. It's not the employees fault. It's, you know, managed from the fault of making that deal in this case with MGM. And so we are paying salaries, a certain percentage of salaries.

so that our employees are not harmed. So this is going to be a hit to our income for March. What we are building.

In terms of the renovation, I think it is a far more attractive restaurant. It is a restaurant that is very much in demand.

It has become more so with the activity in NGM's park and the team mobile arena with the Black Knights hockey team and concerts just being outside our door. NGM is also in New York, New York, put in the new Cirque du Soleil show.

and we should benefit from that. So this renovation I think is going to be significant for us in revenue improvement.

Other than that, our business quite honestly is pretty strong across the board. Our numbers are somewhat withsored based upon what happens with food prices, but that seems to be stabilizing. We have hired the right people in the right positions, we're paying a little bit more, but we're paying a little bit more.

but not finding the right people, which was difficult for us for a couple of years, seems to be eased dramatically.

So I think that should give you a flavor for what's going on. I'd like to address the metal ants, which is pretty much the same quarter to quarter. We think we have a very good chance of getting a casino license for the metal ants. So I think that should give you a very good chance of getting a casino license for the metal ants.

We think the catalyst for that is the downtown or downstate casino licenses that are going to be issued by the state of New York for areas in and around Manhattan. The Meadowlands is six minutes from Manhattan.

on a good traffic day, 20 minutes, 30 minutes by bus, so we will train and...

I don't think Jersey will respond.

anything but favorably to having a casino license in the north once a sea.

State starts to move forward with issuing these licenses, a Atlantic City.

which has been killed anyway over the years. We'll be further hurt. The city is going to, the state of New Jersey will be missing a lot of revenue. I don't think they want their.

citizens going across into Manhattan to gamble. I think that's the key transition point for us when there'll be serious discussions about having a license. MetaLands is an area that has no residential.

It's environmentally approved for a casino already. We don't think there'll be any lawsuits. The race track is already built to hold, you know, the first phase of the casino. So I think we can expect.

that this will be very favorably looked upon. And with that, you know, any questions, I'm happy to answer them.

Thank you. We will now be opening the line for questions. If you would like to ask a question, please press star 1 on your telephone keypad.

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No questions. Our first questions come from the line of Roger Liptom with Liptom Financial Services. Please proceed with your questions.

Good morning, Michael. Good summary as usual. Just one quick question. I was a little confused and whether the rent situation which you talked about catching up in Vegas and

Where else was it? I forget now. Whether it was 300 or 600 in total. It was 300 in Las Vegas. Oh, and the other, they were just confusing. Whether it was 3 plus 3 or 6 plus 3.

No, it's 3 plus 3. The 3 in the December 21 quarter was a reduction of rent because we signed a finalized an agreement and signed an agreement with the Bryan Park landlord.

which we always knew we had.

You know that The farm and rent that became just a forgiveness of rent And that was signed in that December 2021 quarter So the 300,000 became a deduction from our regular rent payments So it would have skewed the December 2021 quarter

percentage rent. So once we get to a revenue level where the base rent

is a certain percentage of revenue, then we start to pay percentage rent. It's a break point and a natural break point. So the...

Minimum rent becomes a mood point.

We're basically on a percentage rent at that point and the annual rent will be based upon what the percentage is and our percentage rent is slightly higher than it was in the old lease. What we pay.

in America and Gonzalez and it's 1% at Broadway Berger. It's actually reduced a little bit.

We think we're a percentage random to pair. We don't think the basic minimum rent will affect our profitability at all in Vegas.

I hope that helps.

As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next questions come from the line of Paul Johnson. Please proceed with your questions. Please proceed with your questions.

Yes, good morning. Just on the Meadowlands...

Can you give just your best guess it can be a wild guess in terms of the possible timing I realize it's forces beyond our control including

government officials and all that but what would be your best guess if you had to make money.

I think he got a, I differ a little bit from my partners with a third-law just shareholder.

A developer named Jeff Corral in New York is a larger shareholder and then hard rock is a 20% shareholder. And I guess on a fully diluted basis, we're 7.8% of the casino. I want to remind everybody that we have...

exclusivity on all the food and beverage if the casino is built.

with the exception of a carve out for a hard rock cafe. So the...

My partners strongly believe.

strongly believe that

It's not the issuance of downstate licenses that will

be the tipping point to get New Jersey moving, but really to have casinos open in New York and in Jersey to see what that's doing to Atlantic City. I take the attitude that once say...

This whole thing will go into motion once they start to issue licenses. And if they issue a license in Manhattan, there are several groups related being.

one of them and Hard Rock being another one, by the way, interested in casino licenses within.

The Manhattan area, not in Queens, and not in, you know, Long Island.

I would think that would be enough to get the jersey moving. So I think we're a year away from that. And then it has to be a referendum to change state constitution to allow for a casino with outside of Atlantic City.

So I think, you know, with two years away, that's what I think.

Let's help. Thank you. And are there.

What is like the governor's position or the senator's position? Has there been any conversation among the higher level politicians?

Murphy has always been in favor of it. From what I'm told, I think he's had some direct conversations where he has said that. The legislature. Uh.

I think is more inclined positively than they have been in the past because the new legislative body from the last election I think is better for us.

If I look at the key people who would move the legislation forward, so I think the situation has improved but it's still very speculative.

I understand, thank you. And then, forgive me.

Can you give us an update on any possible acquisitions and are we correct in sort of?

thinking that the acquisitions that you'd like to make are going to be more and more in the southeast and the Gulf states or is that just been the recent trend.

I'd like to say one more thing about

The metallands just so you get an idea of why we think we're in such a strong position The metallands does more sports betting than all the Atlantic City casinos put together

And I think you'll see that the first or second

best sports betting site in the country. So there would be an inclination, I think, given...

That traffic and the amount of bedding that's already taken place to medallans That that would be the favorite site for casino in the north

So, in answer to your other question, we're constantly looking. We happen to have two very smart business brokers in Florida who show us deals.

the

Recently, we've been looking at four deals.

We sort of discarded and we look and we go visit and we kick the tires and we have our criteria and

up.

You know, two of those deals are very much focused on them.

No documentation has been signed for either one. I would expect we would do one of them in the next two or three months, maybe both of them. But you know, I have...

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a high hope and feeling that we'll get to terms, fair terms for us in the seller on one of these deals. We're always looking. The southeast is very attractive to us for a series of reasons. geben.

It's business-friendly. New York is not business-friendly. I've never built another restaurant in New York. The amount of business we can do.

And Florida equals anything that we can do up here, given the size of the sites and with it located. And the renters substantially less.

The legislators are more favorably inclined.

than the Yorkers to pass business laws that don't add additional expenses to operators. So yes, we're focused more on Florida and the Southeast than the Northeast.

Thank you. You know, I guess...

You know part of as long-term investors I mean you guys done a great job certainly and the acquisitions you've done it been it

super multiple, super low. You know, the challenge with having sort of a decentralized.

restaurant base that doesn't have a sort of a common brand. Is that, as you noted in your 10K, I think your terminology was something like...

you know, fixed costs don't decrease proportionally with sales. So, you know, the hard thing is how do you ever get to much higher levels of even leaving inside the metal lens opportunity.

unless you just have a lot more restaurants to spread over that fixed cost-based.

So it is certainly a fair question.

If you just look at the stock price over time, it hasn't improved very much. But we have been a dividend payer and we paid a couple of special dividends along the way. We're very aware of your comment.

And the, I guess, you know, if I go way back and I'm going 25 years back.

When we did the Las Vegas Steel.

You know all of a sudden we were doing in those dollars 35 40 million dollars in in one location

And we said that's the model we want to replicate. We want to find those locations where we could...

put in a lot of different concepts and have the economics of one general manager, one executive chef, over 7, 8, 10 operations in one site. That never worked for us. We were never able to find the site. We came close twice.

We were very close pre-pandemic and then...

pandemic shutdown that idea we were looking

I had a site in the Midwest and the developer and us just decided.

during the pandemic not to go forward. So that was always the idea. Then what happened is...

When we bought rustic, you know, the rustic was doing a million and a half dollars and for seven and a half million dollars, we bought the million and a half, but we also bought the land underneath it.

And we thought it was a misprice restaurant back then and we thought we could improve the million and a half. And the economics of doing a sales lease back were usually favorable. I mean, if somebody, you know...

It didn't make a difference to the cap, but I'll use, you know, if we were going to pay somebody a million dollars for, you know, on a sale leaseback, if we're going to pay a million dollars in rent, we thought we can get, you know, 12 million dollars for something that we paid, you know, 7.5 million dollars. We're still have an operation to...

dynamics were working. Now they're working less with a 6% interest rate, you know, today than they were when interest rates were 2% or less, I guess. But we were looking to build at that point, you know, our eyes opened up and we said, hey, let's...

Let's try to buy the real estate and you can't do that in New York, but you certainly can do it in the locations we were looking at in Florida and Alabama. So those are the primary situations we look at. Now in Blue Moon we couldn't buy the...

The real estate, but we've bought an operation that was making a million dollars a year for $2.7 million and we negotiated a 26 year lease, a new 26 year lease with the landlord. So 26 years, it's not quite the same as owning it, but it's pretty close.

better than that, haven't been successful coming to the economic term.

We want to dictate to ourselves, but

But they're out there.

And I think that's the way we're going to grow. Obviously we have great hopes for the metal ends and that would sort of follow this idea of what we did at New York, New York. If the metal ends became the same, I'm sure that we're eight or ten restaurants in there, few bars, and...

That could be a 50, 60 million dollar business for us. We have a balance sheet that's...

From my point of view, on the leverage, then we also have credit lines beyond that. So we're prepared to do a bigger deal if one came along. We just haven't found one with the right economics.

So, we're sort of growing marginally with one loss.

But that should be the expectation, honestly, until we show you that we could do something bigger than that.

I appreciate that. Thank you for that, Kelly.

Thank you. Our next questions come from the line of Mo Chautau with RMR, Capital Partners. Please proceed with your questions. Thank you.

Hey Michael, great call as usual. All of my, most of my questions were answered, you know, thoroughly. I just had a question about, you know, the operating lease liabilities. I just want some color in terms of leases that you guys have signed. Are there any corporate guarantees associated with them? Like, what portion do you expect?

that you would own if you had to shut down a restaurant or that unique to each location.

We don't cross guarantee anything here. There are no corporate guarantees on anything we do here.

Excellent, that would be an easy thing.

Well, I get it. There might be one or two out there, Michael.

Like what, Anthony? I don't recall any.

Robert, get out and see you in my arc.

Has it Robert guaranteed by ARC? No.

I think there's one or two but I'm not sure which ones.

I mean we can follow up with you off line, Mo. Yeah. I don't recall anything. I trust Michael's memory better in my own. So.

which are offline. I don't recall anything. I trust Michael's memory better than my own. So I'll check it for you.

Thank you so much, guys, and great call.

I would have questions come from the line of Jeffrey Kaminsky with JJ K. K. Please proceed with your question.

I'm going to guys to hand in my phone to the great quarter. Just to follow up to a comment you made regarding Chef Hysard's dividend. I think you said in the financial recap earlier that numbers are back to a few times that of 2000 motion quarters. Obviously the dividend was eliminated during the pandemic.

of its reasons and stock prices. It's probably flat, but some of the volatility during the pandemic policy that was in its place. That said, given the current state of finances, and I assume the interest rates behind the being that it is a shareholder's.

We kind of got strong even if the stock didn't do anything, we got paid for waste by us. What was a better dividend than we were getting well? Was there any discussion consideration that I felt from the dividend back? Two key-tandend companies, or perhaps some sort of special dividend, you know, as Sarah always remained patient, waiting for the next piece.

Thank you. Jeff, how are you? Jeff, every board meeting we've discussed a dividend. And as our balance sheet has.

been bolstered by two things. So the businesses are doing better, obviously. And we're not finding ways to spend a capital or a cash on a balance sheet. That's enough. We discuss it.

Look, my interest here, honestly, and I, you know, I'm fortunate, my family has

assets away from this business.

My goal has always been.

to protect my shareholders. And maybe I've been a little bit too conservative along the way. Maybe there were deals we should have done, where we should have been more aggressive about bidding for them. Maybe leases that we should have signed that required a guarantee that I didn't want to.

put the company on the line for, but the goal here has been to protect the shareholders.

And we never had a lot of debt. We've never been in a position where we conserved us the debt that we did have. And so...

That conservative nature is sort of shared by most of my board members. We have a couple of board members that would be more aggressive with the dividend than the majority right now. But it is up for discussion and every quarter we discuss it.

I think as we get further away from the pandemic, the likelihood is that we will revisit the different end.

and then it may be an increase. But right now, you're not happy.

We like the cash position we're in and we like our balance sheet.

Thank you guys. You're welcome. Thank you. Thank you. You're welcome.

Thank you. Our next question has come from the line of Roger Lippman with Lippman Financial Services. Please proceed with your questions.

Thank you. Our next question has come from the line of Roger Lippman with Lippman Financial Services. Please proceed with your questions.

My gap report with that with a couple of allocation, I was going to ask and I will ask what would be the timing of your CapEx in Las Vegas? How much will you spend in the win?

So, this year, our obligation to MGM, we have essentially three releases out there, all of which, which… which…

There are three pieces and there are also letter agreements. So letter agreements sort of cover, you know, the bank with business, the room service, pool service, the employee dining room. None of those things need renovations.

The three main leases are for the village street, which is sort of like a fast food area, America, which is, you know, they're 24 hour restaurants that we have, and Gallagher's. The obligation this year for Gallagher's

is certainly under $2 million, probably a million and a half, but we're just in the process and we don't know if there's gonna be cost overruns, but we think Sam and Jennifer who are...

the key players along with the local people in Vegas, but the key players here have really gone over those numbers.

with Linda Klaus who is our facilities manager.

OTC's construction as well. That likely is to me and a half dollars in CAPEX. But please remember beyond that, we're paying people who work for us there at 70% of their salaries.

even though they're not working, which we utilize in for other things, we can't, but you know, this staff there, this V&Paid. So if you included that, I guess that number goes to $2 million, you know, with the payroll. We don't have any obligation for the rest of this year other than to, um,

to give them a plan for the village streets.

And I don't think the village streets will be very expensive Maybe two million bucks there I think eight outlets in the village streets and and we're considering building one more So maybe a couple million dollars would that be close Sam? Yeah, Sam shaking his head yes

and he's smarter about this than I am.

So figure two million dollars and then America comes up in 2025 and America is doing great. I mean we've had 11% compound growth there last year from...

the previous year and we're running ahead this year and I don't know that we'll ever have to do America. It's basically New York's, New York, and MGM's call but they've taken an awaited see attitude because the restaurant's doing really really well.

So, you know, certainly the CAPEX in Vegas is not a factor when you, I think you're trying to finally know

We'll talk to the dividend and see if that would be impactful on the dividend. We're not concerned about that when we make a decision about the dividend.

Mike said just real quick that that sounds like a 4 million combined maybe including the payroll. That's lower than the numbers should have thrown out.

previously, if I recall correctly. Well, the total obligation was seven and a half million dollars, but the majority of that was going to be spent in America. Ah, okay. Okay, well that's good news. Okay, thanks very much.

Previously, if I recall well, the total obligation was $7.5 million, but the majority of that was going to be spent in America. Oh, okay. Well, that's good news. Okay. Thanks very much. You're welcome.

Thank you. There are no further questions at this time. I would now like to hand the call back over to Michael Weinstein for any closing comments.

All right, I hope I was clear. It's Valentine's Day. Happy Valentine's everybody and we'll see you at the next quarter call.

I hope I was clear. It's Valentine's Day. Happy Valentine's, everybody. And we'll see you at the next quarter. Call. Take care.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.