Marcus Corp (MCS) 2009 Q3 法說會逐字稿

Good morning, everyone, and welcome to the Marcus Corporation third quarter earnings conference call.

(Operator Instructions)

Joining us today is Greg Marcus, President and Chief Executive Officer, and Doug Neis, Chief Financial Officer of the Marcus Corporation. At this time I'd like to turn the program over to Mr. Neis for his opening remarks. Please go ahead sir.

Thank you very much and welcome everybody to our fiscal 2009 third quarter conference call. As usual I need to have you bear with me, as I once again state that we plan on making a number of forward-looking statements on our call today. Our forward-looking statements could include, but not limited to statements about our future revenues and earnings expectations, our future RevPAR, occupancy rates and room rate expectations for our hotels and resorts division, expectations about the quality, quantity and audience appeal of film products expected to be made available to us in the future, expectations about the future trends in the business group and leisure travel industry, and in our markets, our expectations and plans about regarding growth and number and type of property and facilities, our expectations regarding various nonoperating line items in our earnings statement, 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 sections of our 10-K and 10-Q filings which can be obtained from the SEC or the Company. We will also post all Regulation G disclosures when applicable on our website at www.MarcusCorp.com. So with that behind us, let's talk about our fiscal 2009 third quarter and first three quarters results. This is one of those times when we certainly appreciate the diversity of our business operations. During this difficult economic environment, it's no secret that hotels are struggling across the country and we are no exception. Yet we are reporting third quarter results today equal to last year, and above our low estimate due to our record setting performance of our theater division. But before I get into the operating results, first let me briefly address some of the variations in the line items below operating income versus last year.

As you can see, our investment income and interest expense did not actually vary very significant this quarter. In fact, net the two amounts combined were virtually identical to last year, despite a small increase in our overall long-term debt. But overall it was -- it didn't change because of a decline in our average interest rate. I wouldn't expect our net interest expense to vary significantly next quarter either. Our overall debt to capitalization ratio at the end of the quarter was a very strong 43.5%, down from 47.3% at our last May year-end. With cash in our balance sheet, limited debt maturities over the next three years and nearly $129 million in available credit lines, we also remain in an enviable liquidity position as well. Year-to-date of course I want to remind you that we reported investment losses, totaling approximately $2.2 million pretax during our second quarter. As a reminder these losses were related to declines in values of securities held by the Company, and declines in value of an investment in loans to a former Baymont joint venture that currently owns a piece of raw land.

As we indicated last year, last quarter actually, we believe our exposure to additional losses of this type is not significant. We also did not have any significant variations in our gains and losses from disposition of property, equipment and other assets this particular quarter, nor do I expect any major variations next quarter. Once again, I remind you that year-to-date however, we do have a significant variation on this line related to a second quarter $1.1 million pretax adjustment of the prior gains on the sale of condominium units at our Platinum Hotel and Spa in Las Vegas. I don't need to tell you that the Las Vegas real estate market is distressed right now. So we felt it was prudent last quarter to lower our estimate of estimated proceeds that will ultimately receive when we sell the remaining 16 units that we are still carrying on our balance sheet. Lowering those expected proceeds resulted in adjustment to previous gains that we had reported under the percentage of completion method.

As we noted in our release, these aforementioned items again, these were second quarter items, negatively impacted our year-to-date pretax earnings by over $3.3 million, representing approximately $0.07 a share based upon our year-to-date tax rate. Our equity losses from unconsolidated joint ventures were slightly higher than this last year this quarter. And that's related due to the fact that these joint ventures are related to hotels, that as you would expect are not performing quite as well during this current environment. And finally our effective income tax rate for the first three quarters of the year was 39.1%, and our quarterly rate was slightly lower than that due to a small adjustment to our estimated full-year rate.

Shifting gears our total capital expenditures during the first three quarters of fiscal 2009 now total approximately $21 million, compared to just over $18 million last year. Over $14 million of this year's amount occurred in our theater division and related primarily to land purchases, construction costs and our latest UltraScreen in Orland Park, Illinois, the purchase of 3D digital projectors, a food and beverage project at a theater in Minnesota, and the renovation currently underway at our North Shore Cinema in Mequon, Wisconsin. With two significant projects currently underway at our Hilton, Milwaukee and Grand Geneva resort properties, plus the completion of the North Shore Cinema project, I'm currently estimating that our total capital expenditures for fiscal 2009 that ends in May ,will likely end up in the $40 million range. This amount could vary a little bit depending upon the progress of these three major projects by the end of May.

Now before I turn the call over to Greg, let me provide a few additional financial comments on our operations for the third quarter, and first three quarters beginning with theaters. As you see, our box office revenues were up 27.7% during the third quarter, with our year-to-date box office now up 21.8% compared to last year at this time. Concession revenues were up 26.6% for the quarter, and are now up 22.5 % for the year. Now of course these numbers were impacted by the seven Nebraska theaters that we acquired last April. If you exclude the seven Douglas theaters, our box office and concession revenues were still actually up approximately 10.1% and 8% respectively during the quarter. Year-to-date excluding these same theaters our box office revenues are up 4.7%, and our concession revenues are up approximately 4.3%.

Total attendance increased 22.9% for the third quarter and is now up 17.2% year to date. But again, that includes the Douglas theaters. If you were to exclude these acquired theaters, our same-store attendance was still up 5.2% for the quarter, and is now actually up for the year 0.2%. Box office revenues for these comparable theaters were favorably impacted by an increase in our average admission price for these theaters of 4.7% for the quarter and 4.6% year to date. Similarly, our concession revenues per person for these same theaters increased 2.7% for the quarter, and are now up 4.1% for the first three quarters of fiscal 2009. And when you take a look at what some of the top performing films were this particular quarter, you'll see that a fair number were -- had adult oriented type programming, which historically does not produce quite as much concession revenues proportionally compared to films that skew younger. That's why we are reporting a slightly smaller increase in per capita revenues in concession this quarter compared to our year-to-date trend. With this strong box office performance, our operating margins from this division during the quarter increased from 19.2% last year to 21.9%. And year-to-date, our margins have now increased from 20.8% last year to 21.3% year-to-date in fiscal 2009.

Shifting to our hotel and resort division, our overall hotel revenues were down 17%, and are now down 7.9% year to date. As we noted in our release, total RevPAR was down 13.5% during the quarter compared to the same period last year, and has declined 5.9% year-to-date, with food and beverage declines accounting for the major portion of our remaining decline in total revenues. As we noted in the past, our RevPAR performance did vary by market and type of property, but all of our Company owned properties were down this quarter with the exception of our Oklahoma City hotel. Our fiscal 2009 third quarter overall RevPAR decrease was a result of an overall occupancy rate decrease of 6.3 percentage points. With our average daily rate decreasing by a smaller 2.1% during the period. Year-to-date our overall occupancy rate has declined by 4.2 percentage points, and ADR is actually basically unchanged at -- it's actually plus 0.2% year-to-date. With that, I will now going to turn the call over to Greg.

Thanks, Doug. I'll begin my remarks with our theater division. Last quarter during our call I quoted the same National Association of Theater Owners statistic, that we used in our press release regarding the theater industry's performance during the last seven recessions this country has seen. I concluded that only time would tell whether we would be able to look back on this recession, and change our industry's recession busting static to read six out of the last eight from five out of the last seven. Well, while it's still premature to claim victory, we have had two good -- two record quarters in a row in our theater division, during a time when there is not a lot of good news coming across the wire these days. It's hard to argue with the fact that going to the movies remains an inexpensive form of out-of-home entertainment that consistently provides an escape from the challenges of daily life. I think when you add that environment to a collection of solid films such as those mentioned in our release, you end up with the results we reported this morning from the division.

The funny thing is we were a little worried as we were going through December, as the films were not performing particularly strong during the first weeks of the period. A very snowy month in the midwest didn't help matters but then Christmas week hit and everything came together. Better weather, quality films as well as a great variety of films opened during a time when people were looking to be entertained. When I look at our list of the top films of the quarter, what strikes me is the depth of the film products available. We have three films last year, "National Treasurer", "Alvin and the Chipmunks", and "I am Legend" that performed better than our top film this year which was "Marley and Me." Yet look at our overall results. The fact is that we had 12 films during our fiscal 2009 third quarter that produced over a $1 million in box office receipts for us, compared to only six films last year that reached that mark.

That depth in product is something to be excited about, and I hope that Hollywood continues to modulate its release patterns such that it's spreads good product throughout the year as it's doing now. There were films for all demographics and they were producing during a time of year that is not traditionally thought of as a peak period. But if you were in our theaters on Valentine's weekend you would have thought it was July. As our press release notes, our first weeks of our fiscal fourth quarter have opened fairly similar to last year on a same theater basis, with two weeks up over last year and the current week down.

I do want to note that last year, however, Easter was three weeks earlier than this year. So Hollywood has altered its film release schedule to account for the different time the kids will be off school. Last year the big spring picture "Horton Hears a Who" was released during this past week prior to Easter weekend. This year the bigger spring films are expected to be "Monsters vs. Aliens", "Fast and Furious 4" and the "Hannah Montana Movie" with each movie coming out on successive weekends starting next week. And with a strong May lineup highlighted by some of the films we again noted in our release, we hope we will be talking about another strong quarter next time we get together as well. I will remind you that we purchased the seven Nebraska theaters on April 3rd last year. So after that date we will once again have a more comparable number of screens that we will be reporting on.

But enough about the elements of the business we can't control such as film product and the weather. We also continue to execute on the many strategies we have highlighted for you in the past. Our press release mentioned several of these. We opened our 12th UltraScreen at the end of our second quarter, and we plan to open our 13th such screen at our North Shore Cinema in Mequon, Wisconsin in time for the summer season. We continue to be a fan of digital 3D, and benefited from two 3D releases during our third quarter at the 14 theaters in our circuit that had this new technology. As we have since reported, we are preparing to nearly double our 3D penetration in time for the upcoming "Monsters vs. Aliens" release on March 27th. Over 50% of our first run theaters will now have 3D capability, and over 90% of the communities we serve will be within 30 minutes of a Marcus digital 3D installation. The pipeline of 3D films scheduled for release over the next couple of years seems to be growing daily, which is very encouraging.

The one thing that still remains in a holding pattern since we last spoke, is a broader roll-out of digital cinema beyond the 3D locations I just mentioned. On that front we continue to test several systems in our theaters and have been pretty pleased with the results from an operational standpoint. The thing most of you know, the turmoil in the credit markets appears to be once again delaying the broader roll-out. I know it seems as if the roll-out of digital cinema has been a year or two away for the last 10 years, but I'm confident that the industry is heading in that direction, albeit slower than many might have predicted.

Another focus of ours is to increase our ancillary revenues from our theaters. Doug and I presented at a movie theater conference last week in New York, where we highlighted the opportunity to increase our revenues within our four walls by expanding these nontraditional revenue sources. Besides our recently announced new deal with Screenvision for our lobby and preshow advertising, and our existing arrangement with NCM's FATHOM division for alternative programming, we also continue to expand on our efforts to introduce food and beverage opportunities within our theaters. Last quarter we introduced our latest food and beverage concept dubbed the Hollywood Cafe to our Oakdale Cinema in the Minneapolis market. The Hollywood Cafe offers a broad menu including Zaffiro's pizza, hamburgers, sandwiches, appetizers, and ice cream in a quick service format.

This quarter we began a major renovation of our North Shore Cinema in Mequon, Wisconsin that will include a stand-alone full service Zaffiro's pizza restaurant, a hot zone serving burgers and sandwiches, as well as a cocktail lounge. Add to that new projects under development in Madison, Wisconsin and Omaha, Nebraska that will feature additional food and beverage outlets, and you can see we are continuing to work towards our goal of creating neighborhood entertainment destinations, not just movie theaters, though. And as I wrap up my comments on this division, I think it is pretty clear this remains an exciting time for the theater industry. Having said that, we have been in this business too long to take anything for granted, so we will continue to maintain our focus on running some of the best and most profitable theaters in the country, in both good times as well as bad.

Transitioning to our second division, hotels and resorts, we obviously have a different story to tell here. Since we last spoke with you in December, conditions have continued to soften, and our third quarter results clearly reflect that. As you heard in some of the statistics Doug shared with you, to date this has been primarily a lack of occupancy issue, as average rates have generally held up. Having said that, in these conditions we suspect there will be pressure on average rate in the future. All three customer segments, group, corporate transient and leisure have been impacted by the current recession. Although it is fair to say that on a year-to-date basis hotels that are more reliant on group business have generally been negatively impacted the greatest nationally, and we are no exception.

It is also clear that the upscale market where we generally operated, has been among those hurt the most by the current environment, with the exception being the luxury segment which has far and away been hurt the most. I would also be remiss if I didn't reiterate something we mentioned in our press release. In recent weeks the industry has faced unusual headwinds produced by the pressure of government officials speaking out against conferences and incentive trips that help to drive lodging industry revenues, and provide a multitude of jobs in the sector. The travel and hospitality industry is a major job creator in our country, and housekeepers, servers, bartenders and front desk clerks to name a few are dependent upon a healthy hospitality environment. And the vast majority of business travel has purposes beyond incentives and is necessary to get our economy moving again. We should be encouraging travel, not discouraging it.

Earlier this week I was in Washington, DC along with many others in our industry trying to spread this very important message. In the midst of all this general gloomy news, our long-term view of the world causes us to look for some of the positive developments that can occur along the way. As Doug noted some markets have been stronger than others, and others than maybe Chicago, Las Vegas, and Phoenix. And other than maybe Chicago, Las Vegas and Phoenix, our exposure to the harder hit markets is not as significant as others. According to data available to us from Smith Travel Research, our RevPAR declines as large as they may be, are not as high as the national numbers. In fact, we see this difficult time as an opportunity to gain market share and it appears that we have done just that in almost every one of our Company-owned hotels.

The reality is that in very difficult -- that is very difficult to have a lot of visibility into the future right now. The booking tempo is not bad, particularly as we look ahead to our traditionally summer busy and fall seasons. We had a very good fourth quarter last year, so frankly, we are expecting to have a very difficult comparison in this division during the fourth quarter. And I wouldn't be surprised to see a worse overall RevPAR decline during this upcoming quarter than we just reported in our third quarter. But after that, I'm hopeful that we will start to see some of these declines moderate, as we head into our fiscal 2010. And once again, we start overlapping these poorer results beginning in our fiscal 2010 second quarter. I would like to think that the macro economic conditions we are currently facing will also begin improving as well.

Calendar 2009 will not go down as a banner year for our industry to say the least. but conditions will improve like they always have. And we continue to hope that will be sooner rather than later. Recognizing and accepting that we will continue to face these headwinds in the near term doesn't mean we as an industry or as a Company, just threw up our hands and say "what will be, will be". Rather, it is up to us as management to make the best of the situation and prepare for the future. Obviously cost controls continue to be very important during times like this and we are challenging all of our costs very aggressively. The key, of course, is to do this while not negatively impacting the guest experience. So this will require all of our years of experience to walk this fine line.

If not for the fact that last year's third quarter hotel division results included a one-time $900,000 development fee, plus several other smaller technical and development fees on new management contracts. Less than 40% of our overall revenue declined this quarter flowed through to our operating bottom line. We would love to have none of the revenue decline flow through to our bottom line, but that is certainly not realistic. And our results of this quarter reflect a concerted effort to minimize the damage during this difficult period. And with that eye towards to the future, we recently began the major renovations that we have previously discussed at two of our largest properties, the Hilton Milwaukee and Grand Geneva Resort and Spa. The first phase of these projects should be completed in early summer. And by the time these entire projects are done, we will have reinvested nearly $30 million into these very important components of our portfolio.

By tackling these projects now, we believe that when the market picks up, and it will pick up, we will be ready with the amenities and quality level our customers expect from the premiere hotels in their markets. We can do this because of the balance sheet Doug referred to earlier. Our philosophy of maintaining a conservative balance sheet, a hallmark of the Marcus Corporation since my grandfather started this Company, and further promulgated by my father, once again puts us in a position to be opportunistic. Whether it be by investing in our existing assets, to take advantage of the ability to grab market share or by taking advantage of growth opportunities that could arise in this environment. Our foundation is solid. We are confident that when the economic environment improves, we will be standing on the other side as strong as ever, and poised to continue to create value for our shareholders, customers and associates. With that, at this time we would be happy to open the call up for any questions you may have..

Thank you very much, sir.

(Operator instructions).

. Thank you, and at this time it appears there are no other questions. I would like to turn the call back to Mr. Neis for any additional or closing

Well, you guys were easy on us today, and I take it that means you approve of our results and so I appreciate that. Again, it's interesting time and was a great quarter for our theatre division. And we have a lot of challenges ahead of us yet, but appreciate your continued support. We would like to thank you for joining us today. We look forward to talking to you once again in July, when we release our fourth quarter and fiscal 2009 final results. Have a good day.

That concludes today's call. You may disconnect your line at any time. Thank you.