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Author: TommyRumblestrip Two stars, 250 posts Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19970  
Subject: Ark Restaurants Q3 Date: 8/13/2012 1:10 PM
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Ark Restaurants reported their 3Q numbers on Friday and had their conference call earlier today. My notes from the call are below.

The numbers look good – overall SSS up 4%. Q3 revenues were flat though EBITDA increased to $5,352,000 from $3,997,000. Diluted EPS was .89 vs. .73 for the quarter.

For 9 months, revenue is again up just slightly but EBITA is $8,907,000, up from $5,081,000. Diluted EPS is $1.41 vs. .45. They seem to be gaining traction.

Full results here: http://www.investquest.com/iq/a/arkr/ne/news/arkr312.htm

The big downer from the call is that their new restaurant Clyde’s is struggling. More in my notes:

3Q Conference Call Notes – these were jotted down quickly and might be slightly wrong:

- Good quarter, driven by sales in DC which have been building consistently over the past 3-4 quarters. NY remains up and stable, AC up significantly, CT flat, Fire in Boston. W/o fire Boston would be up slightly. Las Vegas – good improvement at Planet Hollywood (new owners), NY,NY up slightly, Venetian down slightly.

- NY & Boston are exceptional, NY less price sensitive than last few years as shown by strong corporate events - generally less negotiating on price. Individual restaurants all doing very well. Early quarters this year all driven by good weather, but this quarter's improvement was based upon similar weather as last year.

- Atlantic City is seeing more business, though they can’t explain why. Up 25% though hotel is having problems (bankruptcy). They expect it will do better in the future when the property changes to Margaritaville, won’t close during renovations

- CT – treading water along with the casino in general

- Boston – fire is big issue, Durbin Park has new owner, they expect to do better

- Las Vegas was somewhat disappointing – up 2.7%. There may be some slowing – if there is a double-dip, it’s only showing in LV.

- All in all a good quarter

Questions:
1) Insurance claim for flood, build-out allowance for Clyde’s: 4 open items – several hundred K outstanding from flood, 2) overpayment of 500K in taxes, 3) 100-200K from Boston fire. Insurance claims take forever. Pretty confident in all these numbers. 4) Recently received 1.8m for Clydes, still owed 300K. Another few months. Currently have $7.5m in cash, with these items, total of roughly $8.5 in cash

2) Clydes – disappointment – good reviews, good food, good participation, but not performing very well. Think there is a problem in that people think of it as a sports bar – they intended Clyde's to be a fine restaurant. Bar is busy, but dining room ignored. Trying to fix this. Got unlucky with open – wanted to open with basketball season, but subcontractors delayed by 4 months, which likely hurt. They think the fall will be better. Summer has been terrible. Trying to be stingy with costs, they need to change things.

3) Basketball City – opened June. Ark was interested in the catering prospects. Facility will be used for league games but also as event space with ample parking (key). Hence the catering. Agreement is for exclusive catering for all events except those brought in from other caterers (they get % at that point). As part of this deal, they have to operate a restaurant – the burger bar. They expect modest sales, maybe breakeven or slight profit. The restaurant is not open. They’ve done some minor events there – they expect it to pick up and be very attractive. Restaurant will open in January, but catering should bring nice numbers come the 1st Q of next year.

My thoughts:
In Q2 call, they said they expected to build cash back up to $10m by the end of the year. That looks on target.

ARK’s EBITDA numbers are very strong, getting stronger. If you compare the last few years, this is already their strongest year since 2008 with one more quarter to go:
FY 2012 (3 quarters only) – $8.76m
FY 2011 – $8.077m
FY 2010 - $8.081m
FY 2009 - $8.099m
FY 2008 - $13.607m
FY 2007 - $15.270m
FY 2006 - $13.607m

I’m not worried about Clyde’s, though I am confused by their statement that it’s not a sports bar. In their public documents, ARK mentions that each restaurant is unique and it takes a while to work out their identity and success patterns. This seems to be the case here. The reviews for Clyde’s seem to be very positive. It is a bummer that they missed out on this last basketball season, as Jeremy Lin single-handedly lifted MSG’s stock and probably would have helped this restaurant.

Though I don’t play basketball as much as I used to, Basketball City has a strong buzz already. I like the frank discussion on the catering prospects.

Looking at my notes from previous quarters, it seems like there may still be one or two new restaurants in New York on tap. If they’ve changed plans, I haven’t heard any news. They had talked about another museum opening, which someone on the yahoo board said would be the Museum of African Art. This yahoo poster is actually quite informed, and writes some very good recaps of each call. I think he may have been the person who asked questions on this call.

I just looked up the NY African Art Museum – it’s slated to open at 110th and 5th, though plans are delayed due to lack of funding. This is “Museum Mile,” so I suspect it would a strong location though it has to be years away.

Management has also referenced new locations along the Williamsburg, Brooklyn waterfront and in Central Park. I’ve heard nothing on either of these, though the Brooklyn waterfront seems to me to be a wonderful location. Since ARK is so small, two new strong restaurants could really boost earnings.

There was no mention of the dividend, though in the past they say it's stable.

I’ve increased my position in ARK over the past month, so I’m glad to see strong numbers (I’ll even take today’s 5% gain). As the EBITDA totals above shows, it looks to me like business continues to get stronger. It may take a true turnaround in Las Vegas to really push the stock forward, but I think these strong numbers will at least keep the dividend sustainable. Hopefully they can turn Clyde’s into a positive and Basketball City will impact earnings as expected.

I’d love to hear any other thoughts. –Tom W. (formerly Eagles22)
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Author: bcs123 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11285 of 19970
Subject: Re: Ark Restaurants Q3 Date: 8/14/2012 1:11 AM
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I know very little about ARKR, but I do know New York, and I think there is little chance that Clyde's is going to succeed. I excitedly went after a Knicks' game this winter with a friend, and was sorely disappointed. At the time, I had no idea Clyde's was owned by a public company, and my thought after going was, "Wow, I'm glad we went shortly after it opened because this place is going to be closed in 6 months. The people who run it have no idea what they are doing. You know that thing about some large percentage of restaurants failing? This is obviously going to be one of those."

Why?
1) The location is horrible. It is 2 full avenue blocks west of Madison Square Garden (MSG) and 3 blocks north. It is out in the boonies and a significant hike from the arena and from public transportation. There isn't a whole lot going on near it, so they catch no overflow traffic and it isn't good enough to be a destination on its own. I went on a Friday night after a Knicks' game and it was maybe 30% full, even with himself Clyde in attendance. It felt pretty dead. Maybe the economics work because they got insanely low rents, but the place felt like a dud.

2) The decor is all wrong. It is super modern, where I was expecting wood-panel sports bar. The food was also "fancy". It just felt weird and out of character. It doesn't feel like people will go for the food given the name/theme and the decor is such that it isn't really a place you would want to go and hang out and watch a game.

It kills me to write this, because I think Clyde Frazier is one of the coolest people on earth (don't take my word for it, see link below) and I would love to see the place succeed, but I think it has very little chance.
http://www.amazon.com/Rockin-Steady-guide-basketball-cool/dp...

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Author: TommyRumblestrip Two stars, 250 posts Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11286 of 19970
Subject: Re: Ark Restaurants Q3 Date: 8/14/2012 11:55 AM
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Thanks for posting - it sounds like your expectations of the restaurant seem to spell out the exact problem described in the conference call - people expect a sports bar, management created a fine restaurant. It was never intended to be a place to go watch a game. Perhaps that has to change.

Management at ARKR is very strong, so I'm willing to give them the benefit of the doubt with Clyde's. They're certainly aware that it has problems, calling it's performance "terrible."

Management has also been ruthless about closing underperforming locations, so if it's not going to work, they'll pull the plug.

As for the location, I'm not worried. The area once known as Hell's Kitchen - now renamed "Clinton" - is pretty hot these days. There are tons and tons of luxury condos going up, and amenities are needed for the huge influx in population. The location was chosen specifically to take advantage of these trends. I used to work in the area, and the 9th and 10th Avenue corridors are really booming. It's not close to the subway, but people do live there, and most people take taxi's out to dinner anyways.

I hope they do turn Cylde's around. But if they can't, I do not think ARKR's turnaround will stall. Earnings are increasing at a nice pace even without any help from Clyde's. Obviously, it'd be better if Clyde's added to the bottom line though.

-Tom

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Author: bcs123 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11291 of 19970
Subject: Re: Ark Restaurants Q3 Date: 8/14/2012 8:11 PM
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I agree with you that Hell's Kitchen is booming, as is the High Line area to the south. However, Clyde's is almost perfectly positioned in the middle of a dead zone within that larger area.

It's kind of a little death square bounded by the Jacobs Javits Center, the Port Authority, the entrance to the Lincoln Tunnel, and the Hudson Yards project. Things might perk up when Hudson Yards redevelopment is done, but that is many years away.

That area on 10th between 33rd & 39th is blah and that is not going to change anytime soon.

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Author: LeKitKat Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Feste Award Winner! Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11317 of 19970
Subject: Re: Ark Restaurants Q3 Date: 8/16/2012 3:34 PM
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thanks Tom for keeping up with Ark. Haven't had time to look through the filings yet.

If Clyde's fails, they will cut it loose.They don't screw around with poor performing restaurants. Hells Kitchen-- scary as it sound?

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Author: TommyRumblestrip Two stars, 250 posts Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11323 of 19970
Subject: Re: Ark Restaurants Q3 Date: 8/16/2012 5:32 PM
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Not any more. It's rough and tumble days are long gone, unless you're looking for apartments with cheap rent. It's pretty well-to-do these days:
http://en.wikipedia.org/wiki/Hell's_Kitchen,_Manhattan

I'm going to take some time to toot my own horn here - I got post of the day for the ARKR write-up.

http://caps.fool.com/Blogs/ark-restaurants-q3/755438

So that's cool. -Tom

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Author: LeKitKat Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Feste Award Winner! Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11332 of 19970
Subject: Re: Ark Restaurants Q3 Date: 8/17/2012 11:31 AM
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I'm going to take some time to toot my own horn here - I got post of the day for the ARKR write-up

I will add the rest of the brass section to your horn--good on ya mate!

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