ARKR

Ark Restaurants Corp. (ARKR)

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Ark Restaurants (ARKR)

Q1 2013 Earnings Call

February 12, 2013 3:00 pm ET

Executives

Paul Robert Stewart - Chief Financial Officer, Principal Accounting Officer, Treasurer and Director

Michael Weinstein - Founder, Chairman and Chief Executive Officer

Analysts

Justyn Putnam

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Ark Restaurants First Quarter 2013 Results Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, February 12, 2013.

At this time, I'd like to turn the conference over to Mr. Bob Stewart, Chief Financial Officer. Please go ahead, sir.

Paul Robert Stewart

Thank you, operator. Good morning, and thank you for joining us on our conference call for the first fiscal quarter ended December 29, 2012. With me on the call today are Michael Weinstein, our Chairman and CEO; and Vinny Pascal, our COO.

For those of you who have not yet obtained a copy of our press release, it was issued over the Newswire yesterday and is available on our website. To review the full text of that press release, along with the associated financial tables, please go to our homepage at www.arkrestaurants.com.

Before we begin, however, I'd like to read the Safe Harbor statement. I need to remind everyone that part of our discussion this afternoon will include forward-looking statements and that these statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We refer everyone to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks that may have a direct bearing on our operating results, performance and financial condition.

As was announced Friday, we received an unsolicited proposal from Landry's to acquire the company for $22 per share. As we indicated, our Board of Directors will review the Landry's proposal with the assistance of its advisers and will respond in due course. At this time, we will not say anything further or respond to questions regarding the Landry's proposal or the board's review of the proposal.

I will now turn the call over to Michael.

Michael Weinstein

Hi, everybody. This is a challenging first quarter. We always have challenges, but this was sort of more interesting than we would've wanted. Hurricane Sandy on the East Coast had a dramatic influence on our first quarter with New York City and Atlantic City greatly disrupted. Many of our restaurants were closed for a week or more. Sequoia and Red at the South Street Seaport in New York City were near the end of their lease terms, and turned in [ph] that it was just economically impractical to reopen them.

But besides a significant loss of sales during the quarter due to the hurricane, we are supporting the salaries of many long-term employees of the 2 closed restaurants who have yet to find jobs. This will continue to a lesser degree in the second quarter.

Absent from the quarter this year is the income from The Grill Room, which closed during the fiscal 2012 December quarter. Further, Clyde's Wine and Dine had operating losses, although it did make a small operating profit in December. I may also add that at this time, it made a small amount of cash flow in January and will make a small amount of cash flow in February as well.

All this said and done, we believe we are in a position to prove the EBITDA this year, even though this quarter was greatly impacted by the hurricane. While we are certainly far from success at Clyde's, we certainly aren't going to lose $1.8 million, which is what we've lost in the last fiscal year. We expect some insurance proceeds from damages to assets caused by Sandy, as well as some monies from some business interruption insurance. And significant to future cash flow, we have acquired some of the partnership interests of the variable interest entities that we own in Florida. We have investives [ph] in the 2 Hard Rock Casinos. These have been great returns for our investors. They've been great management fees for us. And by buying some of these variable interest entity partnership shares, we now participate on both sides, and this will have significant positive going forward.

We are taking great steps to try to figure out health insurance. We believe that this is probably the most significant event that will weigh on our company and all companies like us. We offer health insurance to all our full-time employees. But because we deal with -- or our employee base tends to be very young people who are single, many of them do not participate in our health insurance. Under ObamaCare, they will all participate and we will have a significant, significant expense. And we don't know whether elasticity in prices are there to cover these expenses.

More importantly than this, many small restaurants with fewer employees, fewer than the guidelines that require you to provide health care, they do not have to provide it, don't have the expense of it and therefore, they are going to be more price-competitive, if the way to solve this problem is to raise prices. So we are fortunate in that in many of our locations in casinos especially, or in train stations or in Bryant Park in New York, we are not competing with those restaurants. But where we have, and there are a few of them, restaurants on the street surrounded by smaller restaurants, it's going to be more difficult to find relief from raising prices.

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