FOOL CONFERENCE
CALL SYNOPSIS*
by Rick Aristotle Munarriz
(TMF Edible)
Rainforest
Cafe
(Nasdaq:RAIN)
607 Washington Ave. South, Ste. 204
Minneapolis, MN 55415
(612) 945-5400
http://www.rainforestcafe.com
May 5, 1998/FOOLWIRE/ -- Rainforest Cafe reported its earnings for the first quarter of 1998 this morning. Total sales for the 14-week period rose 104% to $44.6 million, from $21.2 million a year ago over thirteen weeks. Net earnings rose 150% to $4.0 million or $0.16 a share from $1.6 million or $0.06 a share the year before. The 1997 figure included a one-time charge of $1.9 million or $0.07 a share due to the write-off of development costs at the abandoned Taj Mahal and Stratosphere sites.
During the quarter the company opened its 17th and 18th units, in West Nyack, New York and at Disney's new Animal Kingdom theme park in Walt Disney World. The New York eatery was profitable for the quarter, while the Animal Kingdom restaurant was in pre-opening mode and is currently turning a profit.
SAME STORE SALES IMPROVING. After a well-publicized 11% decline during the fourth quarter, sales at the four units open at least 18 months rose 1% during the first quarter. Strong growth at Disney (up 6%) and Gurnee Mills (up 3%) won the tug-of-war with Mall of America (down 3%) and Woodfield (off by 12%). Except for the Disney unit, all of the units have improved their comps for April. Mall of America turned positive (10%), Gurnee improved (12%), and Woodfield narrowed its shortfall to just 10%. The Downtown Disney unit did report a 1% decline for the month. For April the comps are down 1%, in large part due to two new units now being included in the mix (Sawgrass, -7%, and Tysons, -6%).
CASH LEVELS AND STOCK BUYBACK NEWS. The company repurchased 909,000 shares as part of the company's previously announced share buyback at an average price of $11.37 including put premiums. Accounting for that, and $16.9 million in capital expenditures, cash and marketable securities now stand at $85.9 million.
MARGINS UNDER PRESSURE. The restaurant at Aventura Mall, which opened in December, continues to be a disappointment. Its results were "below break-even" for the quarter, and the loss there contributed to operating margins for the company as a whole to fall by 50 basis points. An AMC 24 screen multiplex theater is still being constructed, obstructing mall traffic from Rainforest Cafe, and won't be completed until early August. The shift in retail merchandise mix, a move that should be completed by the second half of the year, found retail margins shrinking. Beanie Babies accounted for 17% of total retail sales. However, the company sees significant improvement in margins and is expecting margins to come in 100 basis points higher for the current quarter. The company is excited about the new retail strategy that was outlined during last quarter's call.
DEVELOPMENT SCHEDULE FOR 1998. Rainforest Cafe expects to close out the year with seven more domestic openings, beginning with a unit at Ontario Mills in California in early August. Eateries are also slated for Cherry Creek Mall in Denver, Menlo Park in New Jersey, Burlington Mall in Massachusetts, Great Lakes Crossing in Detroit, Oak Park Mall in Kansas, and Philadelphia. For 1999 the company already has a signed lease at the South Center in Seattle and a letter of intent, which should be finalized into a contract lease sometime this quarter, in New York's Times Square.
Internationally, the London unit turned profitable during the quarter with results improving every passing month. Just last month the London unit reported a record $300,000 week. The first international opening for the year will be at Eaton Center in Vancouver by the end of the second quarter, which is a 50-50 venture with Canada's Elephant & Castle (Nasdaq: PUBSF). There are plans to follow that location up with a Rainforest Cafe in Montreal and two in Toronto (Yorksdale and Scarborough) over the next 18 months. Another Mexico City unit should open at a new entertainment center, and in mid-October the first Asian Rainforest Cafe is slated to open in Hong Kong. A second restaurant will open in the United Kingdom at a new mall in Manchester.
KEN BRIMMER NAMED PRESIDENT. Yesterday, interim-President Ken Brimmer got the interim prefix stripped from his title as we has named the company's new President. While the presidential search was intense, every worthwhile candidate seemed to come from senior management at major chains and in the same mold as Chief Operating Officer Greg Carey. Realizing they did not want "another Carey," after the April 28 board meeting the company approached Brimmer about taking over the job for good.
ANIMAL KINGDOM GOES WILD. Over the first ten days since the April 22 Grand Opening at Disney's Animal Kingdom the unit generated $810,000 in revenues. The company is getting a 25-30% capture rate of park guests as diners for either breakfast, lunch or dinner. As with MGM Grand, this unit began serving breakfast. In Las Vegas, the morning eats are expected to add an extra million dollars in top-line growth at the unit this year. At Animal Kingdom, breakfast and early dinner traffic has been good, but the big winner has been the lunch segment. Later this month Rainforest Cafe will begin corporate bookings at Animal Kingdom, which is a much better fit for the private, high margin, catered events, since the park closes at 8pm daily -- unlike the nocturnal Downtown Disney locale. Retail sales are strong at both Disney units and an even larger percentage of total sales at Animal Kingdom's expanded retail area.
BITS AND PIECES. The company's compensation committee has approved a plan where employee stock options can be exchanged for 85% of the representative share amounts at a reduced exercise price of $16 a share. The MGM Grand unit is doing quite well and is on track to earn in the high teens of millions, "if not better." The new Palisades Mall location, despite the fact that the mall is only half-occupied by incoming tenants, is generating sales of $225,000-250,000 a week. Arizona Mills is doing well, but the company expects seasonal factors of the region to make for soft second and third quarters. Grapevine Mills has pleasantly exceeded expectations, and the company believes that, beyond the mall's honeymoon period, its central location will make the unit a winner for some time. Downtown Chicago's unit, the one with the architecturally controversial tree frog protruding from the roof (and from the 1997 Annual Report front cover) was doing $300,000 a week for several weeks during Spring Break, and the company expects that to represent what the unit should do over the summer. Just last week the Chicago unit added outdoor seating.
* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.
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