Marcus Corp (MCS) 2004 Q4 法說會逐字稿

Good day everyone and welcome to he Marcus Corporation fourth quarter fiscal 2004 earnings conference call. Today's call is being recorded. With us today, we have Chairman and Chief Executive Officer Mr. Stephen Marcus; and Chief Financial Officer, Mr. Doug Neis. At this time I would like to turn the call over to Mr. Neis for opening remarks. Please go ahead sir.

Well, thanks very much. And welcome everybody to our fiscal 2004 fourth quarter and year-end conference call. As usual, I do need to begin by stating that we plan on making a number of forward-looking statements on our call today. Our forward-looking statements could include but not be limited to statements of our ability to successfully complete the proposed transaction in the sale of our limited-service lodging division. Our future revenue and earnings expectations, our future RevPAR occupancy rates, and room rates expectations for our limited-service lodging, hotels and resorts division. Our expectations about the quantity, quality and audience appeal of film products are expected to be made available to us in the future. Our expectations about the future trends in the business group and leisure travel industry and in our market, our expectations and plans regarding growth in the number and type of our properties and facilities and our expectations regarding future capital expenditures. Of course, our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks, and uncertainties, which could impact our ability to achieve our expectations, are included in the Risk Factors section of our Form-F3 self-registration statement dated August 15, 2001 and in our 10-K and 10-Q filings, which can be obtained from the SEC or the Company. We will also post al Regulation G disclosures when applicable on our Web site at www.marcuscorp.com. So, with that behind us, let's talk about another improved quarter for the Marcus Corporation. Before discussing these divisions, revenues and operating income, I do want to spend just a couple of minutes on couple of global issues that impacted our fourth quarter and year-to-date comparisons throughout the last year. Now, while focus in this call will be on our operations, there was a fairly sizable variations in each of our below the line items if you will this quarter and for the year. So, I want to briefly comment on those items. In order as you see among the earnings statements, the first variations on the investment income line, we show a significant increase on this line for the year compared to last year due primarily to the fact that as you recall and I've pointed out couple of times now. Last year we've reported onetime investment losses related to loan to and investments in Baymont Inns & Suites joint ventures of approximately $2.6m. The majority of this loss is recorded in our fiscal third quarter, so our fourth comparison are really not significantly impacted by this present item.

The second item is note the interest expense was down another $265,000 for the quarter, and ended up down $2.8m for the year due to both the lower rates and our variable rate debt and to the significantly reduced overall debt in our balance sheet. In fact, our overall debt-to-capitalization ratio at the end of the year was below 38%. So, our balance sheet continues to be in absolutely great shape. Finally, a comparison to last year's fourth quarter was favorably impacted by a significant increase in capital gains during the quarter compared to last year during the same period. The gains this quarter were primarily the result of the sale of three parts of land. As you know, with the large amount of real estate in this Company, it's not unusual for us to sell assets most often for a net gain. The timing of these periodic sales however can vary from quarter-to-quarter often resulting in noticeable strength in this line item of our earnings statement. As you can see for the full year, despite this reason in this gain category each quarter, we actually ended up the year with approximately same amount of capital gains in total as we did last year.

Our total capital expenditures during fiscal 2004 totaled approximately $51m versus $26m last year. The breakdown was as follows. Approximately, $33m was spend in our limited-service lodging division, hotels and resorts had CAPEX of about $7m and Theaters had about $11m of CAPEX. The biggest project we are currently underway is the downtown Chicago Baymont Development, which accounted for over one-third of the limited-service lodging expenditures that I just noted. The remainder of the Baymont spending in fiscal '04 was primarily related to Scheduled 6 and 12 year renovation projects and various other maintenance projects. The hotel spending includes primarily maintenance projects and cost associated with construction of new site, our Miramonte prosperity. The theatre expenditure included six screens added during the year, including our and UltraScreen that opened at the end of the third quarter and performed quite well during our fourth quarter. Theatre expenditures also included several lobby re-models in conjunction with our previously discussed project 20-10. That included in $51m CAPEX. So, that's for fiscal '04 that I just talked about. Our additional investments and joint ventures made during totaling $4.5m. As noted in our previous discussion and disclosures, the majority of that amount leads through our investments in the Las Vegas kind of hotel project. As we look forward, capital expenditures for fiscal 2005, we obviously will likely be operating on a different playing field assuming a successful completion of a proposed sale of limited-service lodging division. Certainly the Board and management will have much to consider the reviews, various opportunities available to it upon receipt of the expected proceeds from the transaction. Setting that aside for a moment, we have established an initial budget of approximately $75m for CAPEX for the coming year. Based upon our current knowledge of the potential timing of various upcoming expenditures, we have already approved approximately $40m to $45m of that budget, which includes completion of the Chicago development, several theatre screen additions, our construction of a brand new theatre in Saukville, Wisconsin, and several hotel projects including a couple of significant renovations that are at Grand Geneva facility. We will of course monitor this closely as we have in the past and we will adjust our plans if we feel necessary in response to current condition. Now before Steve talks to you about the progress of each of our divisions, let me provide a few additional financial comments on each division. I'll start with theatres, and as you can see, box office revenues and concession revenues were both up 6.4% for the fourth quarter and they both were up 2.4% for the year. As noted in the release, our fourth quarter improvement can be attributed primarily to the result from The Passion of the Christ, which resulted in a very strong March and April for this division. We had much topper comparisons in May when were Van Helsing and Troy, couldn't keep up with last year's strong showing from pictures such as X-Men 2, Daddy Day Care, and The Matrix Reloaded. A strong final nine days of the fiscal year, quarter of Shrek 2 helped us end the quarter on an up note again. Our total attendance increased 5.1% for the fourth quarter and end of the year essentially even with last year, down actually 0.4% to be exact. Our average admission price was up 1.4 % for the quarter and our average concession revenues for first time were up 1.1% during the fourth quarter. For the full year, our average admission and average concessions were up 2.8% and 2.7% respectively. With a continued strong emphasis on cost controls and increases in other revenues, primarily pre-show advertising, the division increased its operating margin this year from 24% to 25%, and demonstrated the leverage available in this business by dropping over 50% of its increase in revenues this year's operating income.

On our Hotel and Resort division, our overall reported hotel revenues declined 3.4% during the quarter, but there needs to be an asterix next to that number. Last year, timeshare revenues during the fourth quarter were unusually high because we recognized sales that had previously been deferred while we were under construction on a new building. We were recording sales on our percentage at completion of that and the building opened up right at the end of the fiscal year last year. If you removed timeshare revenues from the comparison, total division revenues were actually up 3.7% this quarter. For the year, hotel revenues ended up 5% higher than last year with timeshare, 7% higher than last year without timeshare. Our overall RevPAR was up 1.6% during the fourth quarter and 5.9% for the year. And while we don't disclose individual hotel performance for competitive reasons, I will say that our fourth quarter was negatively impacted by a result of the Miramonte, which was hurt by delays in getting our new spa open. In fact, if you exclude Miramonte's results, our fourth quarter RevPar was up nearly 5%, and over 7.5% for the year. Having said all that, I'm happy to note that Miramonte's spa did open in May and it's a very nice review. In fact, while June is a very slow month in the desert, our RevPAR at that property was up nearly 8% last month, So, that is encouraging. Now, turning our attention to operating income, as you can see in the release, we ended the year with an overall increase in operating income for this division, which is a great news. Now, as we note in the release; however, our fourth quarter results and by inference our year-end results would have been better if not for three items. The first, I had already mentioned. The accounting treatment for timeshare sales last year negatively impacted the comparison of this year's fourth quarter operating income by approximately $350,000. Even when the , we are looking at the complete year results, time-share profits are down this year as the industry adapts to the impact of the New . The second item impacting the fourth quarter and union results, is our share of initial expenses associated with the Las Vegas project. Our fourth quarter had approximately $200,000 of these expenses and our full year had approximately $400,000 of these sort of expenses, reducing the divisions overall operating income. With the selling process concluding the pace of these expense is likely to decline, what we currently do anticipate we will have some additional non-capitalized expenses during the fiscal of 2005 for the project. Finally, the third item that impacted our fourth quarter results in this division have also already alluded to and that's the construction delay of Baymont. We are not having these kind of peak season that we were liked to this property and delays in opening the PAR contributed to this result. As I just noted this property has improved since the PAR opened. Moving over to limited service lodging, as you see in the segment data, our fourth quarter revenues were up 4.8% and our operating income increased approximately 83%. We ended the year, with an overall 0.9% increase in revenues and a 20% increase in operating income. As noted in the release, comparable Baymont - Baymont RevPAR was up 4% for the quarter and 1.4% for the year. With occupancy increases driving the improvement in both time periods. We took suites at a much improved quarter with RevPAR up a 11.2% during the quarter and well this product ended the year with an over all RevPAR decrease of 2.1%, the rebound during the fourth quarter was very encouraging. And with strong cost controls in place during the quarter, we are very pleased to report an improved operating margin as we dropped over 90% of the divisions overall revenue increase to a bottom line. Lastly, what you see, I don't have much to comment on regarding the corporate segment data, as it usually doesn't vary significantly from quarter-to-quarter and year-to-year, I do want to note the unusual increase in corporate expenses during the fourth quarter and full fiscal year. Over two-thirds of the fourth quarter increase and well over half of the full year increase in these expenses leads to one single item. During our fourth quarter, we paid an accrued our $600,000 pretax related to all the insurance claims, formally insured by now bankrupt insurance company. These particular claims are the largest of which were actually related to our former restaurant division, which is still open but the overall deductible and thus not our responsibility over these past few years. Unfortunately, they became our responsibility again when the insurance company in question went bankrupt resulting in this large one time charge to our corporate segment results. With that additional financial background, what I will now do is turn the call over to Steve, who would comment on the quarter and the year.

Thanks very much Doug. I will start my comments where Doug left off, with the limited service lodging division, as you know, I spoke a great deal about this division in our special conference call a week ago, so I will keep my comments relatively short. Now, I had the chance to see our most recent numbers which provide further evidence that the conditions are improving in the lodging sector and for Baymont, in particular. We were pleased to see occupancy continue to increase and as you can see management did a very good job of delivering an improved bottom line as a result of those revenue increases. Our focus right now is really threefold. First, we, of course, have a significant effort currently underway focused on completing the proposed transaction with La Quinta. Many of our dedicated associates are working closely with La Quinta as they completed their due diligence and integration plan. Our time spent with them this far has only confirmed our earlier statements that we believe the sale of Baymont to La Quinta will be a very positive development for our many associates and franchisees. La Quinta is a well-managed professional organization that we believe can truly take Baymont to the next level. Second, we have spent and we will continue to spend a great deal of time communicating with them focusing on the needs of our associates. My father always said that our associates are most valuable assets and we are committed to assisting them in this significant transition. For the vast majority of our 2400 plus associates, in that division the transitions should be relatively seamless. For our outstanding headquarters staff we have obviously impacted their lives and we are committed to helping them find new positions either with La Quinta, another part of our own organization or elsewhere. And, thirdly we must remember that while this is going on, we still have a business to run, the summer is an important time for both Baymont and Woodfield Suites. We are committed to operating this system with the same focus on the guests that has made Baymont one of the leading mid-price brands in the nation. So, let us move on to our hotel and resorts divisions. We were pleased to report our highest operating income since fiscal 2001 in this division, despite a couple of the items that Doug just went over with you. The division posted solid increases in revenues at virtually all of our properties as we continue to see signs that business travel appears to be on the rebound. Excluding the Miramonte, our overall occupancy at our hotels and resorts was up nearly 4% and our average rate increased slightly as well. Keeping with past patterns for the industry as it recovers from a downturn, increased occupancy typically comes first to be followed by increased average rate as demand continues to increase. Fiscal 2004 was clearly a year of improvement for our portfolio and the industry as a whole and we remain optimistic that fiscal 2005 has even better results in store for us. We dig into our fiscal 2004 results. One of the most encouraging items to note was the increases we experienced at our Hotels is focused on individual business traveler, particularly, the system in the Hotel Phillips. The individual business traveler is a segment of our customer base, its been lagging the market, as you heard us say before. So, we are pleased to see the steady progress being made at these particular hotels. The group business segment, which is the lifeblood of several of our other hotels, most notably the Grand Geneva and Milwaukee Hilton continues to be improved but sporadic. Corporate spending certainly is now back to pre 9/11 . The Chicago market is recovering slower than other areas of the country, which has had some impact on Grand Geneva. But, advanced bookings, which seem to indicate that a recovery is underway. Overall, the advanced booking space at all of our hotels is good and we even see some lengthening of the booking window for some of our larger conventions and groups. From a growth perspective, Doug has already mentioned the Las Vegas and Oklahoma City projects. We are understandably excited about both of these opportunities. In addition, a number of potential opportunities to expand the number of rooms we have under management is increasing rapidly. We are working on quite a few projects right now and we hope that several of them will come to fruition in the near future. I think it's a very exciting time in our industry and we are committed to grow in this segment of our business.

Last but certainly not least, is our largest and most profitable division, Marcus Theatres. A very strong fourth quarter capped another record year for this division. As Doug indicated, we continue to be very successful at converting a strong into an even stronger bottom line performance. Attributing to the improved operating margins have been reduced film and concession cost and reduced fixed occupancy cost as a percentage of revenues. Increases in other revenues, which includes management fees and pre-show advertising income have also contributed to our improved operating margins. Of course, we first must start with the of movies. In that regard, Hollywood has generally been holding up their end of the bargain. As our press release indicated, our first quarter is off to a great start and the release indicated a few of the movies that have contributed to that start. On paper, the rest of the summer looks good as well. So, it looks like this division has a good chance of starting the year ahead of last year's record setting pace. There were a few tough pictures to go up against later in the year, most notably, Lord of the Rings and the Passion. So, it's important we get off to a good start. The bottom line is that we obviously continue to feel very good about our ability to leverage good film products into significant profits to our companies in months and years ahead. As I noted in our previous calls, after two years of very little growth, capital spend in this division, we are now once again focusing on opportunities to further strengthen our already strong market position. Six new owned screens including our fourth UltraScreen and six new managed screens have opened this past year and we could add at least another 20 screens or more in fiscal 2005, including one new theatre. In addition, we are once again reviewing several opportunities to develop new locations in and around our existing markets. As always, the actual timing of these plans can and will change as we proceed through the development process. But, like our hotel division we are committed to grow in this business in the future. Now to wrap up my comment, we are pleased to be reporting our best results in six years. Our industries have gone through some very difficult time. Yet, as we sit here today, we believe we've taken steps in the last year that have further strengthened our balance sheet unlocked hidden value for our shareholders and positioned our Company for future growth. We certainly, will likely have challenges ahead of us. But, nevertheless, we believe in the underlying value and the strength of our assets and businesses and that should bode well for the future. Our focus will remain on producing long-term sustainable growth and shareholder value for the Marcus Corporation and with that, at this time, again I would be happy to entertain any questions that you may have.

Thank you, sir. Today's question and answer session will be held electronically. If you would like to signal to ask a question, please do so by pressing the star key followed by the digit one on your touchtone telephone. Once again, that's star, one to signal to ask a question. If you do find that your question has been answered, you may remove yourself at any time from the queue by pressing star, two. We would like to remind our audience that if you are using a phone with the mute function, we do ask that you disengage that function to ensure that your signal may reach our equipment. Once again that's star, one to signal and counter remove yourself. We'll move first to David Cumberland with Robert W. Baird.

Good afternoon, Steve and Doug.

Hi, David.

Hi. Steve, I would like you to briefly elaborate on couple of items you just mentioned. First, in hotels and resorts, you talked about opportunities to manage the properties increasing rapidly. Could you elaborate on what you're seeing lately in that area?

Most of these opportunities relate to -- and I always speak generally about them, because there tend to be situations that are under negotiation right now. But, most of them tend to be properties that will require some minor levels of equity participation that -- we prefer that in any case, because it provides more stability in the contracts and if you are just in there on a contract basis. And with the business trend, I was trying to comeback into the market, particularly in full service. More and more of these projects -- either renovations projects of older hotels or even conversion of building into hotels, particularly the upper-middle end of the market seems to be -- that pace seems to be quickening now. There seems to be financing available for them and investors were interested in making the equity investments.

And then on the theatre side, you mentioned lower film cost and more concession cost. On the film cost, what would be the reason for a lower trend there and you didn't keep that sustainable.

Well, the reasons for -- I believe is because of the film companies -- I guess, we started getting back to more normal film terms, there was a kind of a bullet pipe I believe film cost that took them up over where they were and that was where they have been historically, and part of that was because of the rapid playoffs, where the gross was becoming very front-loaded, and just simply because the film companies were pushing additional screen count for the pictures in other worlds they went from 2000 screens a few years ago to 3,500 to 4,000 screens for these major releases. And as a result, in sort of a picture playing 8 weeks or 10 weeks getting into our lower film costs term time period, they were running out after four weeks, which was when we paid a higher film percentages. And -- but that became sort of unsustainable for most exhibitors and was facing havoc with their economics. As the result, now they sort of reworked the formulas and the film costs are coming down.

And then one other question also on theatres. Since the fire -- quarterly report, the Q3 report, it looks like that the number of screens has going down and maybe one location has been closed, if you could give a little detail on that and then in the fiscal year that has just started, do you see the need for any other closings?

David, there was one theatre, small four-screen theater and actually I think Beaver Dam, Wisconsin that was sold to kind of a local operator. So that -- and then there's also have been just a couple of situations interestingly enough where we've -- I'll use the word detwinned couple of theatres, were back and if you remember the -- it was back a few years but when taking some nice big auditoriums and twinning them was the rage before -- this is before kind of the latest phase. We had done that like every across the country did and we actually have just not gone back to a couple of auditorium and taking them unless we detwin them and made nice beautiful larger or show place kind of auditoriums, which is really what you need to have today with the wider screens and -- so we actually reduced couple of screens there. There are a handful as we -- I think we even disclosed before of theaters that we have identified that could -- handful of them that could close over the next couple of years, one or two of them are leases and couple of things like that. Again there certainly nothing strategic necessarily, they are smaller and there is no firm schedule to that, it's not anything defensive, but we have identified a few screens that could close over the next two years.

That's very helpful, thank you.

Once again, that's star one to signal to ask a question. We go next to Bookbinder with Wachovia securities.

Hi guys, can you comment on the purchase of Cinema Screen Media, and what this does to your relationship with NCN and what it might do to your growth in pre-show revenue?

Well, I'll make initial comment now. Let Stephen then talk about the areas. So, we purchased the minority interest and so it's a small equity investment in Cinema Screen Media, and we still have -- we actually have relationship with both Cinema Screen Media and NCN, and so it has had no impact on that relationship. And so we were -- we use them in both actually, and it's been a significant growth area as we've talked about and I guess, Stephen you want to comment in general about that area?

Yes, I think the reason that we took the small investment in Cinema Screen Media is so that we can participate in the growth of that particular part of the industry, if you will, and that is why we've got excellent relationships with both firms and they are coexisting quite well.

Do you have the ability to buy any more of Cinema Screen, or is it just a one-time purchase?

That is not precluded, there could be opportunities potentially, to buy a little bit more, but it's not necessarily being as a step one towards a step two. We just think that, as a business, that clearly is a growing business, we think the advent of that business goes digital as well, that there are going to even be increasing opportunities, and we want to participate in that.

I know, NCN is certainly supporting that digital network; do you have any screens that are set up to do digital yet?

We do have some in the Chicago area, yes.

The Chicago. Just a last thing, with the stock pulling back after all the announcement you had made, will a stock buyback become more of a possibility, going forward? Is the price a factor in your decision or is it not really an area that you are looking at?

I have to say, yes we are going to wait until we are closer to having the money in our hands before we make a decision about that, and obviously the stock prices that time it could well have influence on those decisions.

Okay, thanks a lot.

And once again, that's star one to signal, if do you have a question at this time. We are standing by, with no further questions signaled at this time.

All right we listened, thank you everyone, certainly want to thank all of you for joining us today and last week for that matters as well. I invite all of you to listen to our upcoming web cast of our presentation we will be making at Robert W. Baird's 2004 Small Cap conference on Thursday August 5 in New York. Details about this presentation and how to listen to the web cast will be available on the Investor information Website at www.marcuscorp.com. We will be back with you later in September when we release our first quarter results, and quite possibly may be we will see a handful of you at our Annual Shareholders meeting at the Hilton in October. And, once again, thank you very much for joining us today.

This does concludes today's conference, we do thank you for your participation. You may disconnect at this time.