Benihana Q4 Earnings Call Transcript

123jump.com Staff
09 Jul, 2009
New York City

Benihana restaurant fourth quarter sales increased 5.3% to $74 million. Profit for the quarter increased 14.9% to $11.4 million due to cost saving initiatives. Earnings per share were 6 cents compared to 17 cents in the year ago quarter.

Benihana Inc. ((BNHN))
Q4 2009 Earnings Call Transcript
June 29, 2008 5:00 p.m. ET

Executives

Joel A. Schwartz - Chairman and Chief Executive Officer
Juan C. Garcia - President, Chief Operating Officer
Jose I. Ortega - Chief Financial Officer, Vice President - Finance, Treasurer

Analysts

Brad Ludington - Keybanc Capital Markets
Gregory Rudy – Stevens Inc
Tony Brenner - Roth Capital Partners
Jonathan Lee (ph) – Pacific Research
Will Hamilton – SMH Capital

Presentation

Operator

Good day and welcome to the Benihana Inc. fiscal fourth quarter and full year 2009 earnings conference call. Our hosts to day are Rich Stockinger, Chief Executive Officer; Juan Garcia, President and Chief Operating Officer; and Jose Ortega, Vice President and Chief Financial Officer.

Statements in this conference call concerning the company’s business outlook or future economic performance, anticipated profitability, revenues, expenses, or other financial items together with other statements that are not historical facts are forward-looking statements as the term is defined under Federal Security laws. Forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include, but are not limited to, changes in customers tastes and preferences, acceptance of the company’s concepts and new locations, obtaining qualified personnel, industry cyclicality, fluctuation in customer demand, the seasonal nature of the business, fluctuations of commodities costs, the ability to complete construction of new units in a timely manner, obtaining governmental permits on reasonably timely basis, and general economic conditions, as well as other risks detailed in the company’s filings with the Securities and Exchange Commission.

I would now like to turn the floor over to Benihana’s, Chief Executive Officer Rich Stockinger. Sir, the floor is yours.

Rich Stockinger – Chief Executive Officer

Thank you. Hello everyone and thank you all for joining us. I’m going to briefly review some highlights from fiscal 2009 before moving on to what I believe are some very important action items that are designed to move our company forward over the next year and beyond. Juan Garcia our President and Chief Operating Officer will then review our current development activity before we turn the call over to Jose Ortega, our Vice President and Chief Financial Officer who will conclude our formal remarks with the discussion of our fourth quarter and full year 2009 financials as well as issue our fiscal 2010 guidance. After that we’ll answer your questions.

First, for the full fiscal year that ended on March 29 total restaurant sales increased 2.9% to $303.9 million from $295.2 million including a company wide comparable restaurant sales decline of 8%. On restaurant concept, comparable restaurant sales fell 7.7% at Benihana Teppanyaki, 7.5% at RA Sushi and 10.6% at Haru. We opened a total of eight restaurants in fiscal 2009, including four Benihana Teppanyaki and four RA Sushi restaurants and we ended the year with a total of 95 company-operated locations. Our diluted earnings per share excluding non-cash impairment charges taken in the fiscal third quarter and retirement charges related to my predecessor taken in the fourth fiscal quarter were $0.55 which was significantly above our previous guidance of $0.40 to $0.45. With regard to our quarter results Jose will go into more details but I’m pleased that we are able to generate our highest restaurant operating profit margins of fiscal year 2009 along with the 170 basis point improvement over the same quarter last year with only a modest sequential improvement in company-wide comparable sales. We have been effectively managing control of expenses throughout the organization and this is truly a team effort.

That being said, it is certainly a challenging environment across the entire restaurant landscape these days and while we are cautiously optimistic that trends are beginning to stabilize and in some cases as we improve year-over-year there is clearly a great deal of work ahead of us if we are going to emerge from this downturn stronger, more agile and more relevant that we were when the recession began. Since I believe in relentless focus on improving operations is first and foremost the key to any restaurant company’s long-term success, in the four and a half months since I assumed the role of Chief Executive Officer, I have spent a significant amount of my time in our restaurants meeting with our staff from regional managers to pursers. Throughout my travels I’ve also spent time meeting our guests. After almost five months it is my firm belief that we are not living up to the full potential of each of our three distinguished brands and that each has room for improvement. Given the significance of the Benihana Teppanyaki brand, our primary goal is to improve the overall performance of Benihana Teppanyaki first.

Specifically we need to address our current guest perceptions as they relate to image, value, quality, consistency and the lack of Japan. The details of our Benihana Renewal program which takes a long-term strategic view in maximizing our Benihana brand potential will be disclosed later this summer just prior to the roll out of our new menu scheduled for September 1. The quality improvements will include beef, chicken, produce, ice creams, scallops and shrimp and others. We will also be introducing new menu items including certain healthier items as well as others that should be more appealing to our female guests. Our new enhanced beverage program will be rolled out this summer also. We expect that our new menu will have no increase in prices to any of our entrée items. Additionally we have revamped our steps of service to revive a more unique and personal level of hospitality.

From a marketing perspective, we’ve rolled out value promotions including our twilight menu, our weekend munch program and a 45th anniversary special. While we will remain relatively quite until the fall we have been successful in the roll out of our new e-mail initiative named the “Chef’s Table”. This e-mail database will be used for future promotions and build brand loyalty. The program started about two months ago and has already increased its membership from 70,000 to over 200, 000. A member of our Chef’s Table receives a free dinner for his or her birthday, a celebration that has been a long tradition here at Benihana.

In July we are rolling out our Children’s club addressing an area very important to our concept. We have also signed Wieden Kennedy best known for its work on behalf of Nike to lead our advertising efforts as part of the renewal. Once the Benihana Teppanyaki initiatives are under way we will then focus on improving the RA Sushi and Haru experiences as well. Please be assured that we currently are focused on capturing more guests with particular emphasis on their expanded happy hour menus for both beverages and appetizers. Also we continue to view RA Sushi as an exciting concept and are pleased that comp trends have returned to normalized levels. We continue to see great potential for this brand and look forward to resuming our accelerated role out once economic conditions permit.

While Haru continues to be challenged by its strong presence in New York City, we think that any improvement in the financial sector will be very helpful in restoring its prior momentum.

On another note, we also consider ourselves good corporate citizens and give back to the community at large. We are pleased to say that on May 5th we celebrated the Japanese holiday Kodomo No Hi with Children’s day, which honors children’s happiness and donated 100% of the proceeds on all children’s meal served that day to St Jude’s Children Research Hospital. We also hosted local art contest at 64 of our restaurants to celebrate Kodomo No Hi with winners receiving free dinners for themselves and their families. On May 18, we then hosted over 275 guests comprised of patients from St Jude and their families at our Memphis restaurant. We understand that this was the largest off-campus holiday sponsored for St Jude’s families. In late May RA Sushi hosted its fifth annual Nicky’s week fund raiser also to benefit St Jude’s Children Research Hospital. Nicky’s week was started in memory of Nicky Mailliard who lost the longest battle with brain cancer in 2005 at age 13. Nicky’s uncle was one of our RA founders. All RA Sushi locations in Arizona, California, Florida, Illinois, Maryland, Nevada and Texas participated in the fund raiser where we raised over $150,000 this year well ahead of our $110,000 goal. St Jude is an incredible organization with an important mission where we want to ensure that services remain available for children and families battling with serious illnesses. RA since 2005 raised over a half a million dollars for this cause.

In conclusion, we are not satisfied with current performance. And even in the face of unprecedented economic challenges we have some very real opportunities in fiscal 2010. Overall we are focused on enhancing shareholder value as well as the financial strength of the company by putting our guests first and we are confident that we’ll be well positioned to capitalize on the eventual economic recovery. I am excited about the opportunities available to the company. I look forward to reporting to you on our progress in realizing these goals.

Juan C. Garcia – Chief Operating Officer

Thanks Rich. Now onto our recent and upcoming development activities, in the fiscal fourth quarter we opened a Benihana Teppanyaki restaurant in Coral Springs, Florida on University Drive near the Coral Square Mall which is our 6th Teppanyaki restaurant in South Florida. We also opened a Benihana Teppanyaki restaurant in Columbus, Ohio, in the Polaris Fashion Place Mall. Additionally the second Benihana Teppanyaki franchise location was opened in July. More recently in the first fiscal quarter of 2010, we have opened two company restaurants while a franchisee opened one location. We opened a RA Sushi restaurant in Atlanta, Georgia in mid town. We also opened today a Benihana Teppanyaki restaurant in Orlando, Florida on International Drive. We will be opening up two more RA Sushi restaurants in the first half of fiscal 2010. Units will be located in Houston, Texas and Leawood, Kansas. The Houston location represents our second unit in that city and will be located in City Center. The Leawood, Kansas location will be located at Park Place. There is currently one additional Benihana Teppanyaki restaurant under development in East Rutherford, New Jersey. There is also one additional RA Sushi restaurant under development in Orlando, Florida. We did like to terminate the leases of Benihana Teppanyaki restaurants that were planned for Chicago, Illinois and Westwood in Massachusetts as well as the RA Sushi restaurant that was planned in Westwood as well. The reason is very simple. These projects had been delayed by their respective developers for reasons having nothing to do with us and given our minimal investment in these projects we considered it more prudent to walk away. Instead we are seeking alternative venues for development and believe that given the current real estate headwinds we should be able to secure better lease terms than were available when these deals were originally negotiated.

As I am sure you are all aware, the upscale casual dining segment is already in the midst of rationalization and many weaker independent operators along with underperforming chain locations have closed their doors, while a severe downturn in the commercial real estate market would be detrimental to all of us. There are some bright spots for forward thinking operators like ourselves. First for being after more high quality sites on better lease terms than we have been in the past as we are recognized for our established brands and our ability to bring consumers to the retail centers that we operate. Although we recently have been heavily focused on development we look forward to a point where we would reaccelerate the growth of RA Sushi concept, and for that matter Benihana Teppanyaki as well. We are beginning to actively search for potential sites. In our experience the timeframe between the lease signing and a grand opening is generally 15 to 18 months and with the economy already demonstrating some early signs of recovery we think that if we were to sign leases this year the corresponding openings will be taking place in a much stronger environment than we find ourselves in today. As always we will act prudently by making decisions in the best interest of our shareholders and while being mindful of both the current challenges and long-term opportunities we have with regards to our restaurant portfolio. Current economic conditions we continue our efforts to renegotiate better base rents occupancy cost, cam charges and landmark concessions. Not surprisingly landlords are being bombarded with requests of this nature and are certainly not in a position to accommodate everyone. We know that in addition to hard dollar concessions we are also attempting to secure soft dollar items including more visibility for our signage subject to zoning variances or other forms of advertising within adjacent shopping centers etcetera. Generally our approach has been to find some middle ground and restructure deals that come out as a win on both sides of the table. And with that I’d now like to turn the call over to Jose Ortega, our Chief Financial Officer.

Jose Ortega – Chief Financial Officer

Thank you, Juan. Good afternoon everyone. I’m going to review our financials for the fiscal fourth quarter as well as issue our guidance for the new fiscal year. On the top line, we delivered total revenue of $74 million for the period which was 5.3% higher than the year ago period including franchise feeder royalties which were 13.2% lower than last year, at about $400,000. There were a total of 1131 store operating weeks in the fourth fiscal quarter of 2009, compared to 971 store operating weeks in the fourth fiscal quarter of 2008 or an increase of 16.5%. Total restaurant sales increased 5.4% to $73.6 million in the fourth fiscal quarter 2009 up from $69.8 million in the fourth fiscal quarter 2008. Benihana Teppanyaki total sales increased for the quarter by 1.5% to $50.3 million. Haru’s total sales decreased 12.6% to $7.5 million while RA Sushi sales increased 35.1% to $15.8 million. Company-wide comparable restaurant sales were down 10.4% while within our three concepts comparable restaurant sales were down 12.1% at Benihana Teppanyaki, down 1.2% at RA Sushi and down 12.6% at Haru.

In terms of cost, food and beverage costs were 23.3% of restaurant sales during the fiscal fourth quarter which were 60 basis points lower than the comparable period in the prior year and our best results in fiscal 2009. Haru concepts benefited from the number of pricing taken much earlier in the fiscal year but the biggest impetus for our improvement was favorability in our contracting. As we had discussed in our last quarterly call we had renewed our beef contract with a 5% decrease in cost while our shrimp contract was renewed at a 7% decrease in costs. Lobster had been renewed at a similar decrease as well. We only gained current pricing with our main distribution partner for account 2009 and have also benefited from lower gas prices compared to the year ago period.

That said, we expect to remain favorable on a percentage of restaurant sales basis with the prior fiscal year through the first quarter of fiscal 2010. However cost of sales as a percent of sales will be more than the margin achieved for the full fiscal year 2009 with the roll out of enhanced menu items at Benihana Teppanyaki during the second fiscal quarter. Labor and related costs were 32.5% of the restaurant sales which was 220 basis points lower than last year and similar cost of sales are the best results for the fiscal year. We are pleased with our ability to manage labor costs given two pronged challenge of comparable sales de-leveraging coupled with higher salaries due to minimum wage increases. We have reduced total hours across all restaurant personnel and all managers at both the regional and store levels continue to monitor more closely all schedules to ensure efficiency without sacrificing service. We will of course continue to actively manage the labor line while ensuring that the guest experience is not compromised. As you know we are also benefiting from the completion of the renovation program as we were carrying excess labor while restaurants were closed for renovations.

To round up the major cost drivers at the restaurant level, utilities were up about 10 basis points at 3% of restaurant sales, due the high energy costs as well as sales de-leveraging. We have negotiated energy contracts in those states where it is permitted and given the reduction in oil prices compared to a year ago we are definitely looking for some improvement on utility charges in the coming period although this maybe lessened should oil process continue to increase as they have over the recent months. With declining sales during the quarter de-leveraging was evident in the fixed costs, which was occupancy and depreciation. Occupancy was up 80 basis points to 6.9% of restaurant sales. Depreciation and amortization was up 10 basis points to 6% of restaurant sales. Taking these together we generated $11.4 million in restaurant operating profit compared to $9.7 million in the same period last year with margins increasing 170 basis points to 15.6% of restaurant sales. When compared sequentially restaurant operating profit margins improved 140 basis points from the fiscal third quarter of 2009.

Restaurant opening costs were approximately $427,000 down almost 43% from the prior year quarter due to the timing and number of openings during the period. Marketing, general and administrative expenses were 13.2% of restaurant sales and 340 basis points higher on a year-over-year basis. In terms of absolute dollars marketing, general and administrative expenses were approximately $2.9 million above the prior year’s fiscal fourth quarter. As previously stated, we incurred charges totaling $3.2 million during the fiscal fourth quarter or a $0.12 impact net of taxes related to the retirement of our former CEO. Excluding this one time cost, core G&A costs actually fell several hundred thousand dollars compared to the fiscal fourth quarter last year. Net income was $1.2 million in the fiscal fourth quarter versus net income totaling $2.9 million in the same period in the prior year.

Our effective tax rate was impacted by increasing tax credits on decreasing taxable income and diluted earnings per share was $0.06 on a base of 15.3 million shares and equivalents compared to earnings of $0.17 per share in the prior year on a base of 17.3 million shares and equivalents. Exclusive of the retirement charge, net income was $3.1 million or $0.18 per diluted share. Now as recently reported we amended our third quarter 10-Q to reflect a non-cash impairment charge of $11.9 million that is $7 million net of tax on the goodwill associated with RA Sushi concept. Following the original filing we discovered an error in our analysis. Upon further review we concluded that the goodwill associated with RA Sushi was impaired and we amended our results accordingly. Please note that this adjustment had no impact on our debt covenant ratios.

For fiscal year ended March 29, 2009 restaurant sales totaled $303.9 million, a 2.9% increase from the prior year. Restaurant operating profit totaled $42.3 million or 13.9% of restaurant sales. This represents a $5.1 million decrease from the prior year and a 220 basis point decrease as well. Marketing, general and administrative expenses totaled $30.3 million including a $3.2 million charge related to the retirement of our former CEO. We recognized impairment charges totaling $21.5 million associated with the assets of five restaurants and the RA Sushi goodwill. Net loss for the year totaled $5.1 million for a $0.40 per diluted share loss. Excluding the retirement charge and impairment charges net income totaled $9.5 million or $0.55 cents per diluted share. Once again with regards to our bank credit facility, we believe that we have sufficient capital available to execute our operating and development plans along with the flexibility necessary in today’s economic environment and remaining complaint with our debt covenants.

We had approximately $4 million in cash at the end of the fourth fiscal quarter and together with our operating cash flows and credit facility, our cash needs are sufficiently covered. Our current borrowings against the credit facility, was roughly $33.4 million at the end of the fiscal period. CapEx for the quarter was approximately $8.4 million including approximately $7.3 million for new units, just under million dollars for renovations and another $300,000 for our other maintenance CapEx. For the full year CapEx totaled approximately $47 million. But please note the above discussion contains certain non-GAAP financial measures as defined under SEC rules such as net loss or income and diluted loss or earnings per share adjusted in each case to exclude certain items discussed previously. The company believes that each of the foregoing non-GAAP financial measures improves the transparency of the company’s disclosure to provide a meaningful presentation of the company’s results from the on going operations excluding the impact of items not related to the company’s on going operations and improves the period-to-period comparability of the company’s results from it’s on going operations.

Now with regards to fiscal 2010, we are prepared to offer the following financial guidance. Overall while we are cautiously optimistic about our prospects this year, we are still modeling negative comparable sales. We know that trends so far in the fiscal first quarter are sequentially similar to what we experienced in the fiscal fourth quarter last year. We estimate restaurant sales to be between $305 million and $310 million with total restaurant operating weeks between 5000 and 5075. We anticipate opening a total of four new restaurants this year including one Benihana Teppanyaki and three RA Sushi restaurants of which we have already opened two locations with the remaining two restaurants opening in the first half of the fiscal year. Again, cost of sales, are expected to remain favorable on a percentage of restaurant sales basis with the prior fiscal year through the first quarter of fiscal 2010. However cost of sales as a percent of sales will revert to the margins achieved for the full fiscal year 2009 with the roll out of enhanced menu items at Benihana Teppanyaki during the second fiscal quarter.

Capital expenditures would total approximately $15 million for the year. We are looking to pay down debt by approximately $6 million resulting in an outstanding balance of approximately $27.5 million by the end of fiscal 2010. Diluted earnings per share will range between, $0.40 to $0.45. Now please note that diluted common shares outstanding are estimated to be approximately 18.7 million shares. Given the current value of the common stock and the Class-A common stock and the resulting market cap, the series B convertible per stock is assumed to impact the forecasted diluted common shares outstanding. Thank you for your time today and now we’ll answer your questions. Operator?

Question-and-answer session

Operator

Thank you. The question-and-answer session will be conducted electronically. If you’d like to ask a question, please press “*1” on your telephone keypad at this time. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signals to reach our equipment. And once again that is “*1” if you’d like to ask a question. And we’ll pause for a moment to assemble the queue. And we’ll first go to Brad Ludington with Keybanc Capital Markets.

Brad Ludington – Keybanc Capital markets

Good afternoon and congratulations on the quarter and the cost control seems to be working out well.

Rich Stockinger

Thank you.

Jose Ortega

Thank you.

Brad Ludington – Keybanc Capital markets

You bet. Now I wanted to start of and just see if we can get quickly any color on RA Sushi and their trends. I mean given the significant improvement in the same-store sales sequentially, should we assume that trends in California, Arizona, Nevada have at least sort of stabilized?

Jose Ortega

Well it is Jose. We have seen continuing improvement at the RA Sushi concept as we have seen over the past few quarters sequentially and we are starting to see slight positive comps there into the first quarter and as you’ve mentioned the markets that they are operating in are stabilizing.

Brad Ludington – Keybanc Capital markets

Okay. And then I missed the name of the marketing firm you are going to be using for ads in fiscal ’10.

Rich Stockinger

It is Wieden and Kennedy.

Brad Ludington – Keybanc Capital markets

Wieden and Kennedy. Now should we expect since you are doing some kind of refinement at the Teppanyaki, the marketing expenses I guess in the G&A line altogether will probably going to go up in the dollar value or will that be offset by the renovation program?

Rich Stockinger

We don’t expect it to go up.

Brad Ludington – Keybanc Capital markets

Okay. And then I just wanted to get clarification on, I know you are not going to give the details on your strategy or your initiatives at the Teppanyaki but that’s sort of reevaluation and refining, not a restructuring right?

Rich Stockinger

Right.

Brad Ludington – Keybanc Capital markets

Okay. Well, thank you very much.

Rich Stockinger

Thank you.

Operator

And we’ll move on to Greg Rudy with Stevens Incorporated.

Gregory Rudy – Stevens Inc

Thanks. Good afternoon.

Rich Stockinger

Good afternoon.

Gregory Rudy – Stevens Inc

I’ll follow on Brad’s question there. You did walk through a number of initiatives that you have planned at the Teppanyaki. If you can just maybe anecdotally give us an idea what guests are telling you to necessitate some of these adjustments and our end user’s comments in reference to your price points?

Rich Stockinger

Well, I think I had nailed the first in the presentation about value number 1, quality number 2, consistency number 3, image number 4, and clearly the lack of Japan. It is called renewal because we are going back to once what made Benihana as successful as it was in the beginning. And going any further than that I think I’d rather wait until we announce it later in the summer.

Gregory Rudy – Stevens Inc

Okay. Currently you are getting commodities favorability and it seems some of your competitors expect those commodity sales to last a little bit longer than you. Is there a takeaway that you are actually reinvesting in the food and giving some of that value back to the guests where others maybe taking price and not really adjusting their menu specs.

Rich Stockinger

That’s 100% correct.

Gregory Rudy – Stevens Inc

Great, I’ll pass it along. Thanks.

Rich Stockinger

Thank you.

Jose Ortega

Thank you.

Operator

And we’ll now hear from Tony Brenner with Roth Capital Partners.

Tony Brenner – Roth Capital Partners

I have two questions. One related to the trend in menu items at Benihana. Are these intended to be so called value items to appeal to consumers that have difficult economic period or are they premium items? I’m curious why you’d plan new items with a lower profit margin or at least a higher food cost?

Juan Carlos

On the first thing what we said so far in on the items there is quality improvement to our existing menu not new items right now, which is again as previously Rich mentioned we are taking this savings that we are taking from the commodity pricing as well as the institution of about a year ago of our centralized purchasing system and putting it back to the guests in terms of quality of our products. That’s our existing products without raising entrée prices. That’s number one. On the new items we are working on new items related to more healthier which would be less sodium as well as relating more female friendly, to our female guests and as well as expanding the price point and I don’t mean up when I mean down., which we are giving the customer the ability to come to Benihana for if an item may not particularly fit the dietary needs on existing menu we hope to be able to achieve that. We know we have achieved that with the new menu items that we will be promoting in September.

Tony Brenner – Roth Capital Partners

Okay fair enough. And my other question relates to your guidance for the year. You are saying that the number of operating weeks will increase approximately 9% year-over-year and your same-store sales, your blended same-store sales in fiscal 2009 was down 8% and you’re suggesting that for the full year sales will be, restaurant sales will be essentially flat or up nominally. And I’m wondering what’s the basis for that? Is it that you are assuming that the economy is just going to be in the doldrums for the entire year with no improvement in any of your concepts or what?

Jose Ortega

Tony this is Jose. In terms of the outlook for fiscal 2010 again in terms of what we are seeing, we are seeing some signs but the speed of which sales will turn around is the question. We have really in the past few quarters seen some stabilization in the comp trend and as I mentioned a minute ago that where we are seeing slightly positive comps into the first quarter. All that said, the outlook for the fiscal year in terms of the macro economic conditions still remains cloudy at best and so to come out with overly aggressive expectations will not be prudent and so what we are looking are assuming that current levels continue for some period of time.

Rich Stockinger

Tony you are what you are and we can only model base stuff on what we have seen in the last quarter so we are…

Tony Brenner – Roth Capital Partners

Yeah I am kind of surprised that given that all those uncertainties why are you giving guidance?

Jose Ortega

In terms of the reason for the guidance is as we have discussed over the past few years given all the different things that we’ve been focused on and working on in terms of operating weeks because of new store developments as well as different initiatives to go silent would not help the community understand what we are focused on and what we are working on and for that reason we’ve given the guidance to the extent that we have.

Tony Brenner – Roth Capital Partners

Fair enough. Thank you.

Jose Ortega

Thank you.

Operator

We’ll now go to Jonathan Lee (ph) with Pacific Research.

Jonathan Lee – Pacific Research

Yeah hey good evening guys. I had a question fro you on the other restaurant line with the labor. With the initiative that you have with the Teppanyaki do you anticipate in having some sort of a negative impact on labor and other restaurant operating expenses?

Juan Carlos

In terms of restaurant operating expenses our goal is to continue to improve margins but as we’ve said we’ll have more information in the coming months here with the Benihana renewal in terms of the adjustments from an operational point of view.

Jonathan Lee – Pacific Research

So, at this point we are just expecting to have the commodity get back but other than that no guidance as far as any sort of labor or other costs impact.

Rich Stockinger

Right and the reason for being so explicit with the costs sales is that last quarter we had discussed the contracts that we had negotiated for up to 12 month periods and the savings that we were expecting over those 12 months and given the initiatives that we have under way and we do invest those savings back in the guests experience we felt it necessary to clarify that point explicitly.

Jose Ortega

And we don’t expect the labor line to increase as a percentage of restaurant sales.

Jonathan Lee – Pacific Research

I was just trying to figure out and you guys have done a great job in the fourth quarter, why shouldn’t I expect that to continue because it seems like your guidance expects kind of flattish, restaurant operating costs no?

Rich Stockinger

Well if you…the one thing to keep in mind is there is a certain cyclicality to our operating margins that follows, usually margins improve during Q3 and Q4.

Jonathan Lee – Pacific Research

No I’m looking at it as the full fiscal year.

Rich Stockinger

Agreed, agreed. But there is cyclicality baked in there. When you get to Q2 the things slow down. Those the margins at that point of time usually drop off a little bit just because of the time of the year and then having said that to the extent that sales, negative comparable sales continue you may experience further de-leveraging on fixed costs.

Jonathan Lee – Pacific Research

Yeah but we didn’t see that in the fourth quarter it was down 10 comps so I guess we are to assume that some of the renewals will have an added cost on to it?

Rich Stockinger

Other than the cost of sales that we discussed, the answer is no. Again in terms of more priority related to renewal we will have more information in the coming months.

Jonathan Lee – Pacific Research

Okay, any time line or sometimes in the coming months we should look for a press release. Is that kind of the idea?

Rich Stockinger

We are looking towards the end of the…with our first quarter results because we did say that the new menu will be rolled out September 1st.

Jonathan Lee – Pacific Research

Okay. Okay thank you very much.

Rich Stockinger

Thank you.

Operator

And once again that’s “*1” if you’d like to ask a question and we’ll take a follow up question from Brad Ludington with Keybanc Capital Markets.

Brad Ludington – Keybanc Capital Markets

Hey I just wanted to on the Benihana openings just quickly clarify on a net basis that is going to be just zero isn’t it because within the lake Buena Vista store closed when Orlando one opened.

Rich Stockinger

No, the Lake Buena Vista is still open and we did extend the option period with them for another five years.

Brad Ludington – Keybanc Capital Markets

Okay.

Rich Stockinger

So, it is an increase of one. And that restaurant did open today as a matter of fact, the new one, the Benihana in Orlando, International Drive.

Brad Ludington – Keybanc Capital Markets

All right. Thank you.

Rich Stockinger

Thank you.

Operator

And we will move on to Will Hamilton with SMH Capital.

Will Hamilton – SMH Capital

Good afternoon. I wanted to know if you can give us some color on the openings today of the Orlando one just today in terms of the other one in the fourth quarter and then…

Rich Stockinger

I know. We said, you mean on the new units?

Will Hamilton – SMH Capital

Yeah on the new units, the RA Sushi in Orlando Harbor has gone, the Columbus in Coral Springs.

Rich Stockinger

Sure. Out of the four units that are opening in fiscal 2010, Atlanta opened three weeks ago and we are very pleased with the results to date. Orlando Benihana is opening today. It just opened today as a matter of fact. We have Houston opening shortly here in the next week or so and then we have Leawood opening within the next 30 to 60 days. Prior to that I think we have been really pleased with the results of the RA Sushi units that have opened up over the last 12 to 15 months and Benihana as well. The RA Sushi units in Plano is extremely knocking them dead, South Miami performs really well. We are extremely pleased with Chino Hills and Huntington Beach. So, overall our real estate selection has been real good to us over the last 12 to 15 months and pretty much the same with Benihana.

Will Hamilton – SMH Capital

Okay and likely then any leases you sign in the next couple of months probably wouldn’t open until the second half 2011.

Rich Stockinger

Yeah at the earliest let’s say if we were to sign something today we are looking at least nine months out assuming that the space is ready. By the time we get the permitting and the plans done and everything you are at least nine months out. So, nothing opening in fiscal 2010 other than the four we have announced. So, anything that we sign today we are looking into the earliest first quarter of 2011.

Will Hamilton – SMH Capital

And to confirm regarding the leases you terminated at four Benihana locations and then the one RA Sushi, were there no expenses associated with that because of the delays by the developers?

Rich Stockinger

That’s exactly right. There were minimal expenses associated, costs associated with terminating those leases.

Will Hamilton – SMH Capital

Okay and lastly Jose I was wondering if you could just comment and give an explanation as to why it has kind of taken so long to get the fourth quarter out in term of the numbers? It is pretty much three months since the quarter closed and the first quarter is pretty much done and kind of wondering why it took you so long to get the results together.

Jose Ortega

Well, the slow up was related to the goodwill impairment in the statement. While we were in the middle of our audit we discovered that we had this disparity and it needed to be adjusted and associated with that we undertook additional work to confirm what the results should be and then undertook a series of reviews with our auditors to then amend the filings and get those in.

Will Hamilton – SMH Capital

Do you feel like at this point you now have sufficient information systems in place to or do you think that some more enhancements are needed?

Jose Ortega

No. We have sufficient information systems.

Will Hamilton – SMH Capital

All right, thanks.

Jose Ortega

Thank you.

Operator

And for the final opportunity that is “*1” if you’d like to ask a question. And there are no further questions and I’ll now turn it back over to Mr. Stockington and our speakers.

Rich Stockinger

I just wanted to again say thank you very much and look forward to speak with you again in August. Thank you.