Marcus Corp (MCS) 2003 Q2 法說會逐字稿

Please stand by. Good day everyone. Welcome to the Marcus Corporation second quarter fiscal 2003 earnings conference call. The call is being recorded. With us today we have Chairman and Chief Executive Officer Mr. Stephen Marcus. And Chief Financial Officer, Mr. Douglas Neis. I will turn the call over to Mr. Neis for opening remark.

Welcome everybody. As usual I need to begin by stating we plan on making a number of forward-looking statements on the call today. Our forward-looking statements could include but not be limited to statements made about our future revenue and earnings expectations. Our future REVPAR and room occupancy rates for lodging hotels and resorts division. Our expectations about the quality, quantity and audience appeal of film products expected to be made available to us in the future. Our expectation about the future trends in the business, group and leisure travel industry and in our markets. Our expectations and plans in regarding growth and number of type of properties and facilities and our expectations* regarding future capital expenditures. Of course, our actual results could differ materially from those projected or suggested by forward-looking statements. Factor, risks and uncertainties which could affect our ability to achieve our expectations are included in our risk factors section of our statement dated August 15, 2001 and 10 K and 10 Q filings which can be obtained from the SEC or the company*. With that behind, we'll follow our usual format. I'm going to make some comments more from a financial nature on the second quarter and then turn the call over to Steve.

Before discussing each division's revenues and operating income, there are a couple of things I want to touch on that are more on a global in nature that didn't impact our second quarter comparisons last year. The first significant item to impact comparisons last year was our income tax provision. Now, as I mentioned in last quarter's call this is really a last year issue as last year's taxes were significantly favorably impacted by the historic tax credits from our hotel Phillips project. In fact, if the second quarter provision last year, second quarter provision last year was even more distorted by the fact that we needed to adjust our year-to-date tax expense to reflect a new projected tax rate for the year. After taking into consideration the significant negative impact that September 11th had on our consolidated results. So to put this adjustment into perspective, if last year's result had a normal tax rate, basically this year's tax rate, our reported earnings last year in the second quarter would have been 2 cents per share instead of the 7 cents that we reported. So compared to our 9 cents per share that we did report this year, you can see that we maybe not unexpectedly performed significantly better than last year*. Now I say not unexpectedly because of course the other most significant item to impact comparisons of last year was of course September 11th and the aftermath of that. It was one of the most challenging quarters in our history and the resulting significant negative impacts to our lodging businesses was there for all to see*. Therefore, we should be reporting better results this quarter. While we're certainly pleased to be reporting a 40% increase in our operating income for the quarter, you can look back at our lodging results from two years ago and see that we and the industry still have recovery ahead of us.

The strength of the second quarter was again our theater and hotels and resorts, with both divisions reporting significant increases in* operating income for the quarter. As you'll hear in the moment even though limited service lodging* operating income was down slightly in the quarter, we have some pretty good things happening in that division as well. Our total capital expenditures during the first half fiscal 2003 have totaled just under $11 million versus $28 million last year. The breakdown is roughly $5 million in our limited services lodging division, $3 million in our hotels and resorts, $2 million in theatres* and about $1 million for corporate and other. The biggest project under way currently is the downtown Chicago Baymont renovation and based on my current review of the timing of our upcoming capital* expenditures I think it's likely that our total capital expenditures* for 2003 could now end up at or less than $50 million which would be very similar to last year.

Before Steve talks to you about the progress of each of our divisions, let me provide a couple of additional* financial comments on each of these divisions, starting with theatres. As you can see, box office revenues were up nearly 11 percent and concession revenues were up nearly 5 percent for the second quarter with ten out of 13 weeks during the quarter reporting increased revenues. While the theater business performed much better than others in the weeks following September 11th last year, box office results were consistently 25 to 30 percent higher than last year in the first seven weeks after September 11th. I suspect this was a result of both strong films this year, but also some level of reduced tenth last year in the immediate wake of the tragedy.

Now having said that, keep in mind that last year's second quarter still ended up extremely strong driven by some outstanding results from movies such as Monsters Inc. and the first Harry Potter movie. We once again were able to leverage* the overall 8.3 percent increase in revenues into a 17.5 percent increase in operating income during the quarter and total attendance increased 4.7 percent for the second quarter and a total of 4.3 percent for the first hast of the year. Taking into consideration we have less screens this year compared to last, our calculations of same theater attendance show an increase of 6.2 percent year-to-date. Our average admission price was up 3.3 percent for the quarter and average concession revenues per person was flat for the quarter. Year-to-date, our average admissions and average concessions are up 3.3 and 3.2 percent respectively.

Moving on to hotels and resorts. Overall hotel revenues were up 4.67 percent during the quarter but that needs to be further explained. The hotel Phillips opened during the second quarter last year and though not completely comparable so as the press release noted by stripping that property out, our comparable owned hotels saw an overall 8.5 percent increase in REVPAR during the quarter. Now as you might expect the majority of his increase was from improved occupancy although our average rate did increase 2.2 percent during the quarter contrary to what you may be seeing from others in the industry segment. We have obviously seen steady improvement in this division and our mix of hotels has continued to outperform national averages we're seeing. The primary reason that our overall revenues only increased 4.6# percent despite an 8.5%revpar increase was really due to our time share operation and actually the news there is that actually pretty good, too, even though it resulted in unfavorable comparison in our financial statements. We've now sold out all of our time share units in our original three buildings at grand Geneva and we are currently selling into a new building currently under construction. As a result we can only record revenues on what is known as the percentage of completion* method and we have a approximately $1.2 million dollars of sales currently deferred on the balance sheet while we continue to construct the new building. So there's a little bit of an apples and oranges comparison occurring there because of that accounting method. When this building is completed by May, we'll have doubled the size of this vacation ownership development.

Comparisons of last year's second quarter operating income. We should note were also aided by the fact that last year's results included approximately $500,000 in pre-opening expense related primarily to the Kansas city project. Very quickly, on limited service lodging, as you saw in the segment data, our first quarter revenues were up approximately 5 percent and operating income was down approximately 7 percent compared to last year. And as noted in the press release, Baymont's REVPAR was up 6.4 percent for the quarter. Steve will talk about that a little bit more in a minute. Although we would have expected to recognize a modest increase in division operating income* as a result of the REVPAR increases several mitigating factors contributed to the slight decrease in operating income for the quarter. We continued to spend additional dollars* on national cable advertising in order to increase our brand awareness. In addition, our operating results at Woodfield Suites were down a little bit, particularly at select locations. With that, and with a little background there, I'm now going to turn the call over to Steve.

Thanks very much, Doug. I'll begin my comments where Doug left off with the limited service lodging division. And I may surprise you with this comment given this was the only division that didn't report an operating income increase during the quarter, but I'm very encouraged by the developments in this division during the last quarter. As I've said many times before, we have a long-term focus at the Marcus Corporation and I am very encouraged by some of the recent trends I'm seeing for Baymont Inns and suites. It's not news to tell you that our industry continues to operate in a very challenging environment. Business travel is still soft and our overall results will continue to be impacted until we see a greater upturn in that segment of the market. But the fact of the matter is that we're all operating in this environment and Baymont is beginning to significantly outperform its competitive set. We told you after the first quarter that we were beginning to see some improvement in our market share as measured by the REVPAR index metric which is available through Smith travel research. I'm pleased to tell you that not only did we see our market share continue to improve during the second quarter, but we've seen the improvement accelerate. Our press release pointed out that our REVPAR increases during the quarter were more than double that of the midprice without food and beverage segment during the same time period. Getting more specific to our properties during September and October, our REVPAR increase of approximately 6 percent compared to an increase of only .5 percent for our locations specific competitive set. While Smith travel hasn't issued final November figures as yet, the preliminary numbers suggest the performance improvement for our properties versus this competitive set widened even more during November. As a result we've seen our overall REVPAR index which measures our share of revenues in our respective markets climb from the mid to upper 80s to low 90s during the past few months. While the system as a whole hasn't reached market parity or REVPAR index of 100 percent which is where we would be at full parity, we've got a significant number of locations performing at an index well above 100 percent and I'm very pleased with the progress we've been making.

Our focus has been on increasing occupancy and as indicated in the numbers Doug shared with you we've been successful doing so in recent months. We believe our frequent stay program has contributed to more new travel and repeat business which is essential as we try to improve the public's awareness of the Baymont brand and distinctive amenities. While some investment spending for advertising* has negatively impacted operating results, it's an investment we believe has the potential to have a very big payoff over the long-term.

Early December our revenue results looked just as good. So why I must temper my remarks by recognizing we ultimately must translate those market share improvements into real bottom line improvement, I still am very encouraged by what I'm seeing. Using the analogy I referred to before, we're still running a Marathon not a sprint and our challenge will be to continue this progress in order to reach our long-term goals. With that, let's move on to our hotel and resort division.

As you can see, our biggest improvement during the quarter occurred in this division, but clearly that's because it was also the division most negatively impacted by last year's tragic events*. While we continue to outperform the industry averages, a trend we would expect to continue. None of our comparable properties produced results equal to those posted two years ago during a very strong fall time period. Having said that, we experienced better than average improvement at our two Milwaukee properties and continue to see good year over year improvement at our newest property. The Hilton and Madison, the hotel Phillips and Timber Ridge Lodge. As you heard in the numbers Doug shared with you, we have accomplished this overall improvement while avoiding the heavy rate discounting that’s occurring in many other markets in our industry segment.

The outlook for near term for this division is cautiously optimistic. I would expect modest improvement in our stabilized locations during the remainder of the year with potential for stronger growth at our newer locations. Long-term we're in great shape. With good assets that have been well maintained and positioned well in their markets poised to excel when business travel returns to normal. Our belief in this business is further borne out by our recently announced management additions referred to in the press releases* we have an excellent management team and we'll further our desire to increase the number of rooms under management by Marcus hotels and resorts.

Wrapping up with movie theaters, I know it's inevitable I won't be able to keep saying this every quarter, but we just completed our sixth straight record quarter, surpassing very strong results posted last year during the same time periods. As Doug pointed out, the quarter was quite strong from beginning to end despite particularly tough comparisons in November. Films that were expected to perform well such as Harry Potter and a the new James bond film came through and there were a couple of nice suprises* along the way like Sweet Home Alabama, Santa Clause 2, Eight Mile and of course, the amazing performance that we’re seeing from My Big Fat Greek Wedding which is going like the energizer bunny it just keeps going. Even though a different mix of pictures compared to last year, which included the kid friendly Monsters Inc. resulted in a smaller increase in concession revenues, management did another excellent job of managing costs and converting the increased revenues to our bottom line.

We continue to take steps during the quarter to remain the best and strongest theater chain in our markets rolling out a state-of-the-art store value gift card in time for the busy holiday season and opening our third giant ultra screen, this time in Appleton, Wisconsin in time for release of Harry Potter in November. The third quarter which is historically very strong for the theater division is off to a good start thanks to a strong Thanksgiving weekend. First couple of weeks in December traditionally drop off as everyone focuses on their Christmas shopping and other holiday activities but the next wave of big picture releases began yesterday with the second installment of Lord of the rings. Good reviews are coming in on this picture and we certainly hope it performs as well as the first. There are high expectations as well for Martin Scorcese's Gangs of New York with Leonardo DiCaprio and Steven Spielberg's Catch Me If You Can with Leonardo Dicaprio and Tom Hanks. With as many as a dozen other films to be released between now and the Christmas weekend*, we even hope there's a surprise or two in that bunch as well. We'll obviously face some tough comparisons throughout the remainder of fiscal 2003 particularly in the late third quarter and fourth quarter when we go up against such top performing films as Ice Age, Spiderman and Star Wars. The bottom line is that while we have been and will always be dependent on the release of quality movies, the theater division continues to perform at a very high level and we look forward to continued strong performance in the months and the years ahead. And that completes my portion of the report. Doug?

We would be happy at this time to entertain any questions you might have.

Thank you. The question and answer session will be conducted electronically today. If you would like to ask a question, you may signal us by pressing the star key followed by the number one on your telephone. We will take as many questions as time permits. Once again, if you do have a question, please press star one and we'll pause for a moment. We'll take our first question from David Cumberland with Robert Baird.

Yes. Good afternoon, a couple of questions on LSL or BMONT on the additional investments in marketing programs there, when will you be cycling against that? When will that become a less negative factor or go away as a negative factor in the comparisons and what are your thoughts as far as continuing that program based on the results you've seen?

Well, we're sort of taking it as it goes. The first part of the program ran through the middle of December and our expectation now and we're going to be dark now for about a month with that --with the extra spending and during that -- this time period we will evaluate exactly what the impact has been and make determinations that will then probably carry on through the end of the fiscal year.

As far as where it cycles up against, David, we really started this extra spending, if you will, with this fiscal year, although I think we got out of television in the spring last year, if I'm not mistaken.

Yes, but the extra pending, the extra spending really started in -- really started in the second quarter. The extra spending.

Extra spending.

Okay.

The one you just reported?

That's correct.

Okay. Also in LSL, how would you describe the pricing environment you mentioned in hotels and resorts some aggressive pricing by competitors, how about in the mid scale area?

I think that the pricing is aggressive there also.

But not anywhere near. The numbers that I'm seeing that are coming from Smith travel show that being relatively flat in terms of average rate for that segment. So it's not as dramatic or anywhere near as dramatic of what you're seeing on the high end of the markets.

Well, on your Woodfield business, that was mentioned a couple of properties, you expect challenging conditions to continue to weigh on results in the next couple of quarters?

Yeah, you know, it's interesting there, we only have seven properties, David. It was not an across the board thing. It was just a couple of markets that I think have been hit a little bit harder than others*. Interestingly enough our overall REVPAR* was up for that segment. So it was like the entire division or that brand by itself really had necessarily a problem it was just a couple of locations. It's hard for me to say looking ahead on those particular ones, I don't anticipate it being any significant drag. In fact, the first quarter was when that really popped up, otherwise, we've done a pretty good job of watching costs and certainly don't look at that as being a major impediment at all.

Then one more question. On the REVPAR index, you gave an update there. I think in the past you may have talked about a higher REVPAR index on properties that had undergone a reimaging or had some other features. Can you comment on perhaps a subset of your Baymont that have undergone the reimaging and where they stand in terms of market share?

Well, that certainly still holds true. When we look at the same REVPAR indices* and things along those lines, the properties that have had that have performed better and as a result we have added a next wave of properties. So some of the spending that we've had recently or will have for the remainder of the year is going towards just that, the additional exterior reimaging on some of the additional Baymonts.

As a matter of fact, if I recall my timing correctly, the REVPAR in those properties , the spread has been expanding.

Yes, it has.

Compared to what it might have been six months ago.

Then one general type question. Doug, you mentioned a new cap ex forecast. I think in the past you've said a lot of the earlier forecasts had not been allocated to any specific projects. So is this, as you progress dilute year, simply a matter of, you know, more definition of the projects?

Yes.

And not really of much of a change in investing plans ?.

that's correct. It really is more of just as I'm seeing the year come out, the wild cards they still have out there, they're still out there, we're still working on the potential to try to get involved in, you know, expanding our hotel base, which could include some equity investment, but nothing specific in that regard as I look ahead. I think it's not likely that there's a lot of dollars going to be committed to that during this fiscal year. I'm looking at the timing of other projects and saying that, you know, with $11 million spent only for the first half of the year, I'm looking at more of a timing issue. The plan has not changed.

Thank you very much.

Once again, if you would like to ask a question, please signal us by pressing the star key followed by the number one on your phone. We'll pause for a moment. Gentlemen, it appears there are no further questions.

All right well, we certainly appreciate the fact that once again, you've taken the time to join us today and hear a little bit about the Marcus Corporation. We appreciate your continued interest and we look forward to speaking to you in March when we report our fiscal 2003 third quarter results. We wish you and your families a very Merry Christmas and Happy New Year and a safe time for all your families. Thank you.

That concludes today's conference. We thank you for your participation.