Ark Restaurants Q3 2024 Earnings Report

Ark Restaurants EPS Results

• Actual EPS: $0.72
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Ark Restaurants Revenue Results

• Actual Revenue: $50.40 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Ark Restaurants Announcement Details

• Quarter: Q3 2024
• Date: 8/12/2024
• Time: N/A
• Conference Call Date: Tuesday, August 13, 2024
• Conference Call Time: 11:00AM ET

Ark Restaurants (NASDAQ:ARKR), traded on NASDAQ under the ticker ARKR, is a Boca Raton, Florida–based restaurant operator. The company owns and manages a portfolio of casual and upscale dining venues that feature Cuban-inspired menus, full-service bars and live entertainment. Its concepts emphasize traditional Latin flavors paired with modern culinary techniques to appeal to a broad range of diners.

Ark Restaurants serves both on-premise and off-premise customers, offering dine-in seating, take-out, delivery and catering services. Many locations also host private events, weddings and corporate gatherings, leveraging dedicated event spaces and custom menu offerings to support special occasions. The company’s bars highlight craft cocktails, premium spirits and curated wine lists designed to complement its food programs.

Founded in the late 1970s, Ark Restaurants has expanded alongside Florida’s hospitality industry, building a regional footprint primarily across South Florida. In 2017, the company completed a public listing through a reverse merger, positioning itself for further growth and selective franchising opportunities. Today, Ark Restaurants continues to explore new markets and partnerships to extend its Cuban-themed concepts beyond its core territory.

Ark Restaurants Q3 2024 Earnings Call Transcript

Key Takeaways

• Arc ended Q3 with $11.5 M in cash against $5.7 M of debt and faces three $435 K quarterly payments plus a $4.4 M balloon in June 2025; it also took a $2.5 M impairment on the underperforming Sequoia Washington restaurant.
• Comparable sales were down about 3% (ex-Gallagher’s) while wage inflation, higher insurance and other cost pressures squeezed margins, yet the company generated a $3.3 M net income for the quarter.
• Regionally, Florida full-service outlets saw traffic declines and soaring wind-insurance costs, while Alabama and New York venues performed well; Sequoia DC is slated for a menu and brand refresh.
• The board suspended the dividend to preserve cash for over $4 M in Las Vegas refurbishments and to fund potential acquisitions in Florida and the South.
• Management is launching a test of the new “Lucky Pig” concept in Las Vegas, exploring additional brand buys and trialing automation (e.g., burger-making and dishwashing robots) to help offset labor costs.

Presentation

[Operator]

Greetings, and welcome to the Ark Restaurants Third Quarter 2024 Results Call. At this time, all participants are in 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. I would now like to turn the conference over to your host, Mr. Christopher Love, Secretary for Ark Restaurants. Thank you. You may begin.

[Christopher Love, Secretary at Ark Restaurants]

Thank you, operator. Good morning, and thank you for joining us on our conference call for the third quarter ended June 29, 2024. 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, Anthony Sirica, our CFO, and Sam Weinstein and Jennifer Jordan, our joint co-COOs. 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.arcrestaurants.com. Before we begin, however, I'd like to read the safe harbor statement.

[Christopher Love, Secretary at Ark Restaurants]

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 the Securities 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 this call over to Anthony, our CFO.

[Anthony Sirica, CFO at Ark Restaurants]

Good morning, everyone. A couple of things I wanted to touch on before Michael provides his commentary. We ended the quarter with $11.5 million of cash and $5.7 million of debt. All of our debt is current now. We have three more quarterly payments of $435,000, due in September, December, and February. And then on June first, we have balloon payments of $4.4 million. We'll be meeting with the bank to discuss a new credit agreement over the next month or two. The other item of note is the impairment charge that we took on the Sequoia restaurant. We continued to look at the performance of the restaurant, and it was lower than expected. So with that, was considered a triggering event.

[Anthony Sirica, CFO at Ark Restaurants]

We then engaged an independent third party to do a market rent study, and based on that and a discounted cash flow analysis, we had an impairment charge of $2.5 million, which was broken up between long-lived assets, I think it was $939,000, and the right-of-use asset of $1.5 million. We will continue to monitor that as we go forward based on revised projections. We hope things get better. And I think other than that, the rest of the balance sheet was, you know, relatively stable compared to the prior quarter and year-end. So, Michael?

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah. Hi, everybody. So obviously, we're struggling with sales here. I think if you remove the Gallagher's close down from last year and the amount of business we did in Gallagher's this year to try to compare apples to apples, we're down just slightly 3% in comp sales. The problem isn't just comp sales obviously. The problem is payrolls, which, while they're not going up anymore in terms of trying to find qualified people for jobs, it's still hard for us to find people that fulfill the responsibilities we need them to fill at the management level. Legislation in various venues where we operate has increased minimum wage.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Insurance costs are substantially higher, and other things that, you know, other than food and beverage pricing, other things are also going up. So the combination of lackluster sales and expenses responding to inflationary pressures squeezed gross margins. I'm not unpleased with the $3.3 million result, giving that scenario. Again, we haven't raised prices as aggressively as other companies. I think that has stood us well. I think it'll continue to put us in a better position as we come out of this lackluster period for restaurant sales. If I go by venue, the thing that hurt us most are the full-service restaurants in Florida. They were down substantially in headcounts. Vegas was all right.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Alabama has been just great for us. New York has been good, driven by a lot of events in Bryant Park and Robert. Washington, Sequoia has been a little difficult. We can point to, you know, the whole Washington, D.C. area seems to be suffering from just a lot of bad influences in the city. We have competition there, obviously, from other waterfront sites. We're spending a lot of time now trying to figure out what a better menu might be for Sequoia, more affordable. And we're doing that with all our restaurants. But basically, Sequoia is probably the one restaurant in the company that needs a refresh in menu and maybe even in branding.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

We have lots of opportunities in terms of acquisitions that have been put in front of us in the last three months. We're following up on those. We also have lots of responsibilities in terms of refurbishing costs in Las Vegas, contractual when we signed a new lease. So given the sort of the lackluster sales that seem to be continuing right now, and the cash flow that's required to progress our company with, you know, new development and refurbishing in Vegas, we've decided to eliminate the dividend for the moment, just to preserve cash. That also sort of segues into the conversation about Bryant Park.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

We have still not, or the park has still not, issued any judgment on whether or not we will continue with a new lease or if they're gonna award it to somebody else. It's just been radio silence. There are always rumors, but we're not paying attention to those. So, we just think with the uncertainty of Bryant Park and what our responsibilities are, that eliminating dividend for this quarter is a wise move. In relation to the Meadowlands, again, New York State has not moved on their casino applications. As we've stated before, New Jersey is reluctant to do anything unless they see activity in downstate casinos in New York, meaning some New York City casinos.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So that's been kind of quiet, even though we really believe we're gonna be a licensee at some point. With that, you know, I'd like to entertain any questions.

[Operator]

Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please 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'd 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 keys. One moment please while we pull for questions. Once again, ladies and gentlemen, it is star one to ask a question. Our first question comes from the line of Jeffrey Kaminsky with JJK Consultants. Please proceed with your question.

[Jeffrey Kaminsky, Analyst at JJK Consultants]

Good morning, guys. You know, once again, on the call, Michael, you're highlighting specifically weakness in Florida, which I'll get to ask. And, you know, although the industry is plagued with the same challenges, payroll and insurance costs, et cetera, et cetera, in Florida, in particular, it's a pretty robust market. There, as discussed, there are new restaurants, there are changes being made. And I have a question that I really would like an answer to, because if in the past, you discussed what is Ark's strategy going forward, the answer has always and consistently been, "We're always on the lookout to buy, acquire properties, and fold it into the portfolio." Okay, that maintains that. You still maintain that. But you have a weakness in a big market, in a market that's generally flourishing.

[Jeffrey Kaminsky, Analyst at JJK Consultants]

I would like to hear something about the strategy in Florida on how you're going to change things around, because there's never any discussion on these calls about what Ark is going to do with the current existing properties and how we're gonna, you know, move revenues forward. And so I'd like to put that out there because this, this has been a very frustrating investment for me, and the news is getting worse, not better. And I'd like to hear what the vision is for the company in the immediate future.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So, Jeff, you broke up a few times during that question, but I think I get the gist of it, and I hope I'm answering it correctly. So first of all, we've been looking at several businesses over the last 12 months in Florida, well-established comp, you know, either companies or one-offs. And, you know, we're looking at numbers, and every deal has fallen apart, in part because numbers are deteriorating in those restaurants. When we talk to brokers in Florida, they will tell you everybody's down 15%-20%. If you look at a city like Delray, which was very, very hot for a while, probably still is hot, the vacancies in restaurant spaces-...

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

are coming up every day, because they were getting top rents when things were hot, and now business has slowed down, and restaurants' cash flow have been squeezed, and they can't afford the rents. Our strategy is to try to buy institutions with good management. In every case, in Florida, we think we've accomplished that. And if, you know, maybe this doesn't satisfy what you're looking for, but in, in, in my world, the way I look at things is there are years in which you make more money than you deserve to, and there are years in which you just, you know, through circumstances outside of your, you know, performance, you don't make the money that you would like to make. Right now, the latter is true. We think that we have great locations in Florida.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

One of the disadvantages of those locations, by the way, is that they're all on the water, and wind insurance and property insurance have gone through the roof in those properties, and that's squeezing our margins. But from a performance level, if you look at the reviews of the restaurants, for the most part, they're excellent. Every once in a while, we see, you know, that our revenues are creeping up above last year, but that doesn't mean that the headcounts are, because there have been some price increases. But in general, Florida has not been as good for us this past 18 months as it had been in the past. It doesn't mean that-

[Jeffrey Kaminsky, Analyst at JJK Consultants]

Let me interrupt for a second. I apologize, and perhaps that's where I broke up before. I recognize that your strategy continues to be acquiring, you know, properties where you think you could buy it at the right price and make some money. Let's put that aside for the moment. That's not happened recently. It may happen quickly. It may not happen at all. What is the strategy of the current properties and turning them around? Menu changes, happy hours, entertainment-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Well, well,

[Jeffrey Kaminsky, Analyst at JJK Consultants]

The kind of thing that drives new people.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Jeff, you're making the assumption that these things aren't doing well. They're performing well. They're all making money. They're just not making as much money as they used to make, and that's a function of three things. Number one, traffic is not as strong as it used to be in general for all full-service restaurants down there. Now, you can point to the three or four hot restaurants in every market where you can't get a reservation after five o'clock or before eleven o'clock. That will always exist. Our restaurants are not that, all right? The, they're not doing bottle service. There are no DJs, you know. We're not that. So these restaurants are performing well at the level of sales that presently exist. So it's a question of three things. Number one, are they profitable? Yes.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Have they had strong reputations and strong brand identity in the past, and now do they? Yes. All right? The problem is traffic, and the problem is increased expenses, and the problem is my reluctance. My reluctance as I read my customers to raise prices to make up for the squeeze on gross margins. And honestly, you know, you know, you can look at analogies that not necessarily appropriate, but McDonald's is struggling because they raised prices beyond where the customer, you know, can absorb. Starbucks is having problems. There are a lot of people that are having problems trying to figure out pricing in relation to the current economic circumstances. So given that these restaurants-

[Jeffrey Kaminsky, Analyst at JJK Consultants]

Well-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Hold on. Given that these restaurants are profitable and that we think they're performing well with their, with their menu execution and service execution, and the fact that they're all in great locations, you know, we're prepared to stand there and accept less, you know, of, in terms of cash flow, because we don't think they need changing. Do they all, do they all look at menus and try to be more efficient and bring on new product to entice customers? Yes. But are we gonna rip them apart and start all over again? No. And if you look at... You know, we have, we have one good laboratory that, that is very, very telling: Las Vegas. We're in, we're in a building in Las Vegas, we're in a building in Hollywood, all right?

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

that are major casinos, and they all have full-service restaurants, and they have our fast-food courts, all right? Our fast-food courts are going through the roof in terms of sales. I mean, I think we're up 10%, 12%, 13%. Anthony, is that probably true? Hollywood, yes. In Hollywood, every single week, maybe even more, all right? And the restaurants, according to Hard Rock, are suffering, the full-service restaurants. Why are they suffering? Because people can't afford them right now, all right? So they're switching to fast food. To our benefit, they're switching to fast food. I would tell you, our product is so good there that they closed their coffee shop because the coffee shop wasn't getting any traffic, because our breakfast place, called Eggs, you know, There's a line every morning to get there.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

There was no line at the coffee shop because it got a little bit too expensive. In Vegas, you know, the Village Streets is doing extremely well, but we can be down in every single restaurant, but the Village Streets is doing great. It's telling where the customer's pocketbook is right now. They're sort of being stingy, and so that period of time in which they will continue to be stingy, we will not see the sales that we were used to prior to that. All right? But it doesn't mean we rip apart everything.

[Jeffrey Kaminsky, Analyst at JJK Consultants]

Okay, well, just to respond to what you said, I was not referring to restaurants in Florida that you need to have a reservation. You know, you can't get a reservation, you know, between five and nine. I'm talking about the restaurants that we've discussed in the past, the El Camino, Bartaco. I know you know the group that owns Ke'e Grill and Henry's in Lauderdale, Boca and West Palm. These are all places that their happy hour is booming at four or five in the afternoon. They're capitalizing on the work from home crowd, so that they get out, they leave home, and they go to the bar at four or five o'clock, they stay for dinner. That's what I'm referring to.

[Jeffrey Kaminsky, Analyst at JJK Consultants]

Since this is a shareholder earnings call, just to remind you, the stock has been traded near pandemic or COVID lows. It's 11 as we speak, and you've discontinued the dividend that had already been cut in half. You referenced McDonald's, Starbucks. The hospitality group has been under pressure, but most are way above pandemic lows, and we are now gonna test that low, and you've eliminated the dividend. So I'm talking to you as a shareholder, not as a patron of your restaurant.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

I sympathize with it. I'm certainly aware of it. It represents a significant part of my net worth. And certainly, I don't like seeing the stock at 11 or 12, you know, down from 20 a year ago. It doesn't make me happy. I feel like, you know, the company is maybe a little too conservative in the deals we looked at and passed on, but that has always in the past held us in good stead. And one of the reasons I'm happy that Jennifer and Sam are on board is they see things from a different point of view. And that's been helpful in sort of the way we're looking at things going forward. But that's where we are.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

It's not a lack of effort on the restaurants to perform. Nobody's falling down on the job. We just haven't found new things to do that meet with our former criteria. One of the things we're beginning. So when I said to you before, the deals we look at seem to fall apart, in part, because the numbers of the restaurants we're looking at are also falling apart.

[Anthony Sirica, CFO at Ark Restaurants]

Yes, so-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

And go ahead.

[Anthony Sirica, CFO at Ark Restaurants]

So what's happened on almost every deal we've looked at in the last year, they're pricing the numbers off of, you know, 2023, and then we look at the 2024 year-to-date comps to last year, and they're down 20% on sales and EBITDA. So they're trying to price it off of 2023 income, saying: We want 3 or 4 times, you know, $1 million. They want $4 million. Then we look at the numbers for the six months ended, and they're down 20%-25%, and they don't want to take 20%-25% less. So we're not gonna overpay either. The other thing we are doing at a couple of the properties in Florida, we are working on an initiative to expand our event business down there.

[Anthony Sirica, CFO at Ark Restaurants]

You know, we have a substantial event business in New York and D.C., and we have people in corporate working on expanding the event business at, particularly at the Blue Moon and JB's right now, because that's a very profitable end of the business.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

One of the other things we've seen, Jeff, just to hopefully, you know, argue for my premise that people are squeezed right now with the disposable income. We're doing the same sales or a little bit less or a little bit more right now, the last 4 or 5 or 8 weeks, maybe eight weeks at Rustic. All right? We were down 10-12% consistently at Rustic. I would tell you the product at Rustic, for what we want it to be, is always a five-star product. It's just great. But what they're seeing is their headcounts in the weeks before the last few weeks, their headcounts were the same, but people were sharing dishes.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

You know, king crab legs at Rustic, 1.8 pounds to 2-pound serving, you know, it's $135. People used to get that for themselves, but now people are sharing. So we just think the customer is having a difficult time at our price points. You know, it – this may not resonate with everybody. I don't know how many people on the call are familiar with Milos in New York. You know, I go there once in a while because it's convenient to my house, and, you know, it's a great restaurant. Used to be, you couldn't get in there. I can walk in any day now, and there are empty tables.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

And that's the price point where the argument used to be, that if you're paying $125 a person to eat, you know, those people could afford it, and they're not gonna cut back. Well, guess what? They're cutting back. So it's the environment you're living in right now. Will it come back? Yes. I can't predict when, you know, but it will come back, and sales will increase, and margins will expand, and we'll be in good shape with the restaurants we have. The restaurants we would like to have, future acquisitions, people are starting finally to be more reasonable on pricing.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

It's no longer going, "Well, it's a little blip, and, you know, we still want 2023 pricing." People are beginning to realize that they've got to sell it on current numbers, not on, you know, pre-current numbers. So hopefully, that'll help us.

[Operator]

Thank you. Mr. Weinstein, I'm showing no other questions at this time. I'll turn the floor back to you. I'm sorry. We do have one other question. We have a question coming from the line of Bruce Geller with Geller Ventures. Please proceed with your question.

[Bruce Geller, Analyst at Geller Ventures]

Hey, good morning, gentlemen.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Hey, how are you?

[Bruce Geller, Analyst at Geller Ventures]

Good, thanks.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Okay.

[Bruce Geller, Analyst at Geller Ventures]

You discussed, you know, the pressures on both sales and costs. You know, based on the macro environment, it's hard to see much relief on either side of those at the moment. So I'm curious, you know, kind of adding on to the previous line of questioning, what additional self-help measures can you put into place to address this environment? Because just waiting for the environment to get better, isn't gonna be enough.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So, Bruce, one thing we're doing is we're, some, what? Six weeks away from opening up Lucky Pickle. So we've never done brands. We're looking to do brands, a brand, Lucky Pickle. That would be new for us, but something we're very excited about. And when we look in the marketplace, there's nothing like what we're doing. And we think that's expandable, and we have some further interest beyond New York-New York, if it's successful, to expand in the Las Vegas area, almost immediately. So there, there's interest in what we're doing. We're also looking, one of the things we're looking at right now is a small brand in the South, that's for sale. They have some issues with some of their leases.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

They're trying to correct that. They're speaking to their landlords. We can buy that at a very reasonable price, and we think we could do a better job than the current owners. The current owners think we could do a better job than them. And, you know, we could buy it at a fair price. And again, it's another brand that may be expandable. So those are two things we're looking at. There are other things we're looking at, but those are the two that are in the forefront. We've been looking at automation. We will probably have a test within the next four months of a burger-making machine that will save us some labor.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

We've looked at robotic janitors and dishwashers, and we're very active in trying to find ways to save on labor. The problem with that is, one of is that the robotic janitor—no, excuse me, the dishwashing robot that we looked at, which was sensational. I mean, it was really sensational, but the company didn't have enough orders and enough capital to sustain their business plan, so they closed. Even the burger maker that we've been looking at, I mean, they've sold 15 units in Korea, I think. They're coming here.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

They have established support here, but it's a young company, and one of the things you got to make sure of, you're not changing your line, your cooking line, and winding up with a machine that has no maintenance support. But we're looking at this stuff. The biggest area that we have problems with, honestly, is dishwashing. Dishwashers are hard to find at the hourly cost that we're prepared to pay, and so the turnover is great. And if we can find something that can alleviate labor and, you know, we would do it, you know, as long as we know that the equipment is, you know, supported by the manufacturer. So it's not like we're not looking at stuff to try to impact it. We have insurance.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

We have conversations that are mammothly long with our insurance brokers. We just switched health insurance companies and created some savings in doing that. Property insurance and wind insurance in Florida, that you're lucky to get insured.

[Anthony Sirica, CFO at Ark Restaurants]

Sure.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

It's crazy. You know, the only reason we're insured is because we stayed with the, you know, we've been with one company forever, and, you know, they're sort of acknowledging our relationship by writing the insurance. But I have restaurants calling me, honestly, "How do we get insurance?" You know, they can't find insurance. So, you know, I can't do anything about those premiums. It's very, very frustrating.

[Anthony Sirica, CFO at Ark Restaurants]

We are looking at other costs to cutting other costs. We've worked on, you know, driving safety initiatives at the restaurants to keep workers' comp claims down, which has actually been pretty effective the last two years, and our premiums have gone down, and we just received a big refund on workers' comp for the prior year based on their audit. I mean, we're looking at every line item to see where we could, you know, save money.

[Bruce Geller, Analyst at Geller Ventures]

What about other strategies to drive revenue in the existing restaurants?

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So, one of the things we've never been good at, and, you know, we're changing, is our approach to social media.

[Bruce Geller, Analyst at Geller Ventures]

Mm-hmm.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

It'll take a little while, but we're becoming more active in social media. But, you know, it's hard to see. You know, to delineate the cause and effect. You know, we don't advertise. We've tried advertising in the past. It doesn't work for us because we're advertising one-offs, essentially. So you're spending a lot of money in a market to try to get people to drive to, you know, a single unit instead of many units with the same brand. So advertising is ineffective. Social media could be effective, but this, this is not, you know, I don't wanna—I know this sounds defensive, but this is not a company that's falling apart. I mean, every unit we have is basically profitable. It's just making less money than it used to make, and that-

[Bruce Geller, Analyst at Geller Ventures]

So, Don?

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

That-

[Bruce Geller, Analyst at Geller Ventures]

Okay.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah, go ahead.

[Bruce Geller, Analyst at Geller Ventures]

No, I was gonna say, on that note, I'm really surprised and just don't understand the thought behind suspending the dividend here. I mean, shareholders-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So, so-

[Bruce Geller, Analyst at Geller Ventures]

have gotten very, very little return from the company over the past few years, and that was, you know, one minor source of return, and the company sitting here with net cash, and you're saying you're confident in the future and... But, you know, suspending a dividend like that is a sign of really low confidence, so it's, it's really a disconnect, and, I'm, I'm pretty disappointed to hear about this, so I'd, I'd love for you to, to elaborate more on it.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So we have $4-$5 million of refurbishing costs that we are, are responsible for in Las Vegas by you know, when we signed the new lease, that was part of the deal. So we've redone Gallagher's. We're, we're in the process of redoing the food court. I don't think what we're doing in the food court and the building of Lucky Pig in the food court will inhibit revenues in the food court. I mean, as one unit closes in the food court, people will gravitate to other units. So I don't think that will have an impact, but it, it may have an impact when we do America next year.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So we're in the process of finalizing designs for America's refurbishing, and we may be closed a period of time there, and that will again impact, you know, cash flow from America while we're closed, and we'll be spending money there as well. So that's one issue. We're looking at two acquisitions right now, that will, you know, not be inexpensive. So that's another reason to try to preserve cash. And then the question becomes: What happens with Bryant Park? I mean, they can make a decision tomorrow or next week, or it could drag another four months, but who knows where they are on this? And, you know, communication has not been great. The process has been, you know, not transparent.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So, you know, if tomorrow morning we find out that, you know, that we're not awarded this thing, you know, I don't wanna be sitting, paying out, you know, $3 million plus a year, with that uncertainty. So, that's the thinking behind it. The thinking behind it is to preserve cash for the company so that it could expand, you know, take care of its obligations in Las Vegas, and pay for things that will expand-

[Anthony Sirica, CFO at Ark Restaurants]

Invest, invest.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

You know, our cash flow... and that's what we're trying to do.

[Bruce Geller, Analyst at Geller Ventures]

Yeah, but so some of these are things that haven't happened yet, like Bryant Park, we just don't know, and acquisition hasn't happened. We just don't know. You've been talking about potential acquisitions for quite some time. I could see maybe-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

And, and-

[Bruce Geller, Analyst at Geller Ventures]

Once, once.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

And Bruce-

[Bruce Geller, Analyst at Geller Ventures]

Yeah.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Every one of them, and there have been 4 or 5 of them that we've been close to, and what's happening is the numbers have been falling apart, just like everybody else's numbers have been falling apart, and the seller doesn't want to adjust the price, and we're not gonna overpay.

[Bruce Geller, Analyst at Geller Ventures]

No, I-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

That's it.

[Bruce Geller, Analyst at Geller Ventures]

I totally understand that.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

But, but-

[Bruce Geller, Analyst at Geller Ventures]

Totally understand-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah

[Bruce Geller, Analyst at Geller Ventures]

... and respect that. My, my point was-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

But Bruce, right now, what we're finally seeing is sellers that are reasonable because they see their business falling apart. They don't wanna operate in this environment for whatever reason, and, or they have other pressures on other deals that they may own, and they're prepared to take 3 or 4 times current cash flow projections, not past. And this is the first time we're really seeing that. So we think, you know, we may be able to secure some additional properties. So that's the reason for the dividend decision.

[Anthony Sirica, CFO at Ark Restaurants]

Oh, there was a board-level decision. I mean, this was-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah

[Anthony Sirica, CFO at Ark Restaurants]

...the board decided.

[Bruce Geller, Analyst at Geller Ventures]

Yeah. I just feel like it was a preemptive cut, as opposed to cutting it at a point where some of these items you're discussing as possibilities are definitive. It's also a little discouraging-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So-

[Bruce Geller, Analyst at Geller Ventures]

to see the, you know, you have a lot of spending obligations, it sounds like, but it's like you're spending a lot of money to kind of stay in the same place. Like, you've, you make a lot of these investments, but-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

I don't disagree with those optics. I don't disagree with the optics. You're right. But that's not what's going on here. You know, internally, we really are trying to progress the business, but the optics, you're absolutely right, it doesn't look like we're doing anything. But in truth, we're working to try to, you know, capture more cash flow.

[Bruce Geller, Analyst at Geller Ventures]

Well, it's not that it doesn't look like you're not doing anything. It looks like you're, you know, you're spending on some of these obligations, but it's not bringing the company forward. Your results, you know, remain the same or even a little worse and-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

No, they're worse.

[Bruce Geller, Analyst at Geller Ventures]

But-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah.

[Bruce Geller, Analyst at Geller Ventures]

But, Bruce-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So the capital is being spent, but there's no visible return on those investments. I mean, Sequoia is a great example. You spent a ton of capital to completely redo that restaurant when you signed a new lease, and, you know, it hasn't gone well, and now you've taken a write-down there. It has not worked. It has not worked out.

[Bruce Geller, Analyst at Geller Ventures]

In the past, you've purchased some of the real estate in some of these deals. I'm just curious, you know, I'm looking at the stock with the current enterprise value in the thirties. What would be a ballpark estimate if you had to estimate what is the value of the underlying real estate you own? Some of these are properties in great waterfront locations. I'm just curious, what, you know, what kind of underlying real estate value there is in a company that-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah.

[Bruce Geller, Analyst at Geller Ventures]

Enterprise value is less than $40 million.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

The value of owning the properties would be on a sale-leaseback. That's the value. If you, if you want to look at them as development sites, we, we haven't concluded that there, there's any, you know, value to them because we've never investigated it, them as a development site. You know, there are hotels all around Rustic. We own that property. It's a big piece of property. Maybe somebody would like to do a hotel, but, you know, but we, we've never investigated it. The only value to us would be in terms of the sale-leaseback, if we, if we wanted to, you know, use that to finance additional expansion. So I can't tell you what the value of those properties are.

[Operator]

Thank you. Our next question comes from the line of Walter Childs with... I'm sorry, private investor. Please proceed with your question.

[Analyst]

Hi, thank you. I'm hoping you can elaborate more on the Bryant Park lease piece. If you can share some information on the impact, either top line and/or bottom line, if the lease is not renewed?

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Mm-hmm.

[Analyst]

Given the historical New York presence of Ark from an SG&A standpoint and the move south, including real estate acquisitions and in future investments, which I'm supportive of, I think it's been smart, given the challenge of operating in New York. Is there something transformational you would do if that's not picked up? What's the hit on the top and bottom line, and would you, you know, relocate, move back office? You've got a lot of back office there from a business from 20 years ago that's clearly shifting south. I'd love to hear more about your plans.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

... All right, that's a good question. So, the cash flow from Bryant Park is substantial. You know, First of all, you know, at the restaurant level, there's something just shy of 300 people who work for us there when the business is going full out, meaning all the cafés are open and everything. We did for ourselves a study of the people who work there, and this is probably going on too much, you know, and I'm sorry.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

But of the 25 people who manage front of the house and who are general managers, essentially, for either the back of the house or front of the house operations, of those 25 people, 19 have been with us for over 25 years, in Bryant Park or in other operations in ARC. Four of them have been with us for 15 years or more, and the rest have all been with us over five years. The service people, tipped employees, have an average working time with the company for over 11 years, so that's extraordinarily painful if we would have to terminate those jobs.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

And we had a discussion yesterday, I think, you know, what are our not legal responsibilities, but what are our ethical responsibilities if we don't get that, and how do we take care of these people? Because we're not expanding in New York, and therefore, you know, what can we offer them, to sort of, you know, help them, you know, for over the next few months while they're looking for other jobs? The event planning department in New York would essentially be gutted, because, you know, we would be left with the only event space that we would be left with would be Robert, and that probably requires one person in the office instead of six.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So, you know, so, you know, it would be very painful, and the net result would be, after you get rid of all of that overhead and, probably, you know, other things unrelated to the direct operation of the restaurant that we would save on, you may have a $3.5-$4 million hit to EBITDA. Anthony's shaking his head like I gave the right number, which is unusual. He usually sits at me and says, "Eh, that ain't the right number." But it would be a $3.5-$4. It would be a $3.5-$4 million hit. So that also was part of our thinking by eliminating the dividend, you know, how do we make up that $3.5-$4 million?

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

You know, not that I'm saying that the dividend is the reason for the cut is that, we don't know that. You know, we've heard nothing, nor has anybody else, I believe. But the... You know, New York is a very hostile environment to work in. Construction costs are, you know, unreasonably high, rents are unreasonably high, even in this environment, and the legislature is, you know, every year we're fighting. We have our own lobbyists. I think we've been effective. But the next shoe to drop is going to be elimination of the tip credit and a higher minimum wage for tipped employees. And in Bryant Park alone, that would cost us close to $1 million in additional payroll. So, you know, we don't have those problems in Florida.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

We have those problems in Las Vegas because they've legislated higher minimum wages. But we... You know, in Florida and Alabama, we don't have those problems. We have those problems in Washington, D.C., where they've legislated higher minimum wages for tipped employees. You know, our complaint has always been, "Hey, you know, we have waiters and waitresses at Bryant Park that make $3,000-$4,000 a week in tips. You know, why are you eliminating the tip credit?" So yes, you're right, New York is hostile. What we're aggressively trying to expand our business in the South. There will probably come a point where the overhead in New York does not make as much sense.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Not that we're all gonna move to the South, but, you know, there, there's something to be said that we can be more efficient, with, with general corporate overhead. Honestly, I think we're pretty efficient now, for what we have, but, you know, one of, one of the big unknowns for us. And it, it's not a Hail Mary by any means, but we've been, you know, dealing with the Meadowlands for 5 or 6 years now, thinking that we're going to get licensed because New York is gonna move forward.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

We have a state legislature in New Jersey that seems to be as amenable as they've ever been to giving a license to, you know, for a casino in the north, and the Meadowlands is the, I would tell you, the only location where they could give it, because all the environmental work's been done. We could be open literally in a month and a half with the first phase of the casino. I think everybody's aware of that. We just, there seems to be a reluctance to do an amendment which needs to be voted on by the public for a casino license in the north, unless they don't feel the vote would be successful unless the, you know, New York State is moving down having casinos, downstate casinos.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So, you know, we still pursue that. That's where we are. You know, Bryant Park would have a significant impact, you know, on our EBITDA if we don't have it.

[Analyst]

Thank you for commenting on that. That was helpful. And it was very helpful. And also, while certainly Meadowlands would be attractive if New Jersey can move forward and not seem to protect, be concerned about Atlantic City as much as competing with New York, I do hope that that comes to fruition. But that may be years away, it may never happen. The-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah.

[Analyst]

If you could expand, tip credits have been an issue for a long time. We've seen a huge tipped employee cost increase, you know, greater than 50% in a lot of these markets. In Florida, there seems to be some movement there. Not there seems to be, there has been movement there as well.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah.

[Analyst]

Have you looked at investing in other jurisdictions that are more favorable? And for those where you have a presence, is there something you can do with an administrative fee, service charge, other elements to make up for some of the huge increase in front of house expense tied to minimum wage? And then finally, on the real estate piece, like the prior investor mentioned, that's a big part of the strategy I support. Are you on leased land or do you own fee simple rights on all of the properties from a standpoint of enterprise value, where it's not just a leasehold tenancy, but you have the land rights as well?

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah. The only properties where we own the land are the two properties in Alabama, the Rustic Inn and Shuckers.

[Anthony Sirica, CFO at Ark Restaurants]

Condos.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

The Shuckers property is a restaurant that used to be in a hotel that would. The hotel portion, well, the restaurant portion sits in four commercial condos, which we own. Then there are 62 one-bedroom apartments with two exceptions that are two-bedroom apartments. And what used to be a Ramada Hotel that has been converted into these apartments, we own 13 of those apartments as well. We bought most of those apartments in the $180,000-$250,000 dollar range. They're now trading at $400,000. We've tested the market with one just to see where we are, then we withdrew it.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

But I think safely, you can get out of those 13 apartments, probably in the $350,000 area. One of the problems with selling those apartments now and why we withdrew, you know, the test to find out what they were worth, is Florida passed that law after the building collapsed, which required significant assessments in all condos to upgrade to the new building standards. So I-

[Anthony Sirica, CFO at Ark Restaurants]

It's on the beach.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah, we're, we're on the beach, so I think each one of those units now, we're spending $40,000-$50,000, some number like that, in assessments to upgrade to the new building codes. So that, that has, you know, temporarily closed down transactions for the, for the apartments and buildings that are on the beach, pretty much.

[Analyst]

Any options for service charge or other fees, have you tested that in markets where you have a clientele, full service clientele, that may be more receptive to that model, where you've seen an inflation, say, from, you know, a tipped credit wage a few years ago now to, you know, a march towards $15?

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah. We really haven't. We don't get a lot of activity shown from other states. You know, maybe once or twice a year, we see something that we start to investigate, but we don't see a lot of activity.

[Analyst]

Thank you for the clarity.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

My pleasure. Thank you.

[Operator]

Thank you. Gentlemen, we have a follow-up from the line of Jeffrey Kaminsky with JJK Consultants. Please proceed with your question.

[Jeffrey Kaminsky, Analyst at JJK Consultants]

Hey, Michael, just to follow up to Bruce's comment earlier, he kind of asked the same question that I did. He used a different terminology, so I'll repeat his. He asked about, you know, self-help measures that can be undertaken to, you know, stem losses, drive traffic, et cetera, et cetera. You know, there wasn't any real answer regarding changing the menu or adding craft cocktails or any of that. You did mention the Lucky Pig, so I'm just curious, what are your projections in terms of revenue, you know, based on the square footage and the property? And how quickly do you think, if it's successful, that you'll be able to scale this to any meaningful enterprise that would actually contribute, you know, revenues to the company?

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

So, the question's coming a little muffled. Anthony, can you help me with it?

[Anthony Sirica, CFO at Ark Restaurants]

Lucky Pig projections-

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Oh.

[Anthony Sirica, CFO at Ark Restaurants]

and scalability, if it's successful.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah. The scalability on Lucky Pig, you know, we would move very quickly.

[Anthony Sirica, CFO at Ark Restaurants]

I mean, the outlet in Vegas is small, right?

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah. Yeah.

[Anthony Sirica, CFO at Ark Restaurants]

I mean, it's, you know, it's a counter, basically. It's a test, you know, we're gonna test the concept there.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Yeah, but you know, we think the menu is very attractive. We have another casino that we think we could go into immediately with a bigger space, and we would be very aggressive about testing it in different markets. So, you know, that's one of the reasons we want the capital. So, you know-

[Jeffrey Kaminsky, Analyst at JJK Consultants]

Michael, follow up. A follow-up to the Meadowlands. Did the decision out of Nassau County the other day, where I guess they're approving a casino at the Nassau Coliseum in Nassau County? Does something like that, if it should proceed and they build out—I think it was Resorts?

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

I think it helped. I... Jeff, all of that helps. You know, we just got to get Jersey to do a referendum at a time when they think it will pass. They're not trying to do a referendum, you know, the public has to vote on this, and there has to be clear reasons why the public will vote positively for it. The clearest reason is people going outside of Bergen County and going across the bridge to gamble, as opposed to staying in New York, in New Jersey. That's what we need. We need that evidence. And, you know, the last time they tried to do a referendum, it was messy. It did not specifically say what, you know, what the state would use the money for.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

It even didn't make clear that the state wasn't investing any money in it, that this would be, you know, an investment by a company without the help, without any state aid. So, you know, they've got to get very specific about the referendum, and they have to be clear that this is going to benefit the state of New Jersey. The easiest way, when you speak to the legislators, or the governor, which I do not have conversations with, but my partners do, is, you know, to demonstrate people leaving New Jersey to gamble in another state.

[Jeffrey Kaminsky, Analyst at JJK Consultants]

Thank you.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

You're welcome.

[Operator]

Thank you. Mr. Weinstein, there are no other questions. I'll turn the floor back to you for final comments.

[Michael Weinstein, Chairman and CEO at Ark Restaurants]

Thank you. See you all next quarter.

[Anthony Sirica, CFO at Ark Restaurants]

Thank you, everyone.

Participants

Executives

• Anthony Sirica, CFO
• Christopher Love, Secretary
• Michael Weinstein, Chairman and CEO

Analysts

• Bruce Geller, Analyst at Geller Ventures
• Jeffrey Kaminsky, Analyst at JJK Consultants
• Analyst