Marcus Corp (MCS) 2014 Q4 法說會逐字稿

Good morning, everyone, and welcome to The Marcus Corporation fourth-quarter earnings conference call. My name is Tony and I will be your operator for today. (Operator Instructions). As a reminder, this conference is being recorded.

Joining us today are 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 2014 fourth-quarter 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 about our future revenues and earnings expectations; our future RevPAR occupancy rates and a 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 regarding growth in the number and type of our properties and facilities; expectations regarding various non-operating line items on 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 section of our 10-K and 10-Q filings, which can be obtained from the SEC or the Company. We will also post our Regulation G disclosures, when applicable, on our website at www.marcuscorp.com.

So with that behind us, let's talk about our fiscal 2014 fourth-quarter and year-end results. It was another very nice quarter for us, thanks primarily to another quarter of industry outperformance from our theatre division, and continued improvement from our hotels and resorts division. I'm going to take you through some of the detail behind the numbers, both on a consolidated basis and for each division, and then turn the call over to Greg for his comments.

Before I dig into each division, let me start with some of the general numbers. Now, I usually spend a few minutes on each line item below operating income. But as you can see, we had virtually no change in any of the four applicable line items during the fourth quarter, so that will save us a little time. I'm not going to rehash in great detail about prior-quarter variations that we've previously explained, but since this is also our year-end, I'll just remind you of three items that I think are pertinent.

Our fiscal 2014 increase in interest expense happened almost entirely in the first half of the year, and was due to two factors. One, the -- an increase in comparable borrowings during the first half because we borrowed funds at the end of our first half last year, in order to pay for our $1 special dividend. And two, a higher average interest rate due to our issuance of $50 million of 4%, 10-year senior notes in August of 2013, replacing borrowings under our credit facility.

Next, a reminder that our fiscal 2014 losses on disposition of property, plant, and equipment include a $750,000 loss incurred in our second quarter, related to the sale of our JV interest in a hotel in Columbus, Ohio. That really accounts for the entire year-to-date variation on that line item.

And finally, the largest unusual item of note in our reported fiscal 2014 year-end results occurred in our third quarter, and was the allocation of a portion of the fiscal 2013 income from extinguishment of debt to us during the current year, as a result of a legal settlement with our minority partner at the Skirvin Hilton in Oklahoma City. This item shows up on the loss attributable to noncontrolling interest line. And we've pointed that out previously, as well. But after accounting for income taxes, this amount favorably impacted our reported year-end results -- not the fourth quarter, but our fiscal 2014 results -- by approximately $0.08 a share.

Now, moving on, our year-to-date effective income tax rate, when adjusted for losses from noncontrolling interests, was 40.2%, which was slightly higher than last year, but generally right in our historical range of 39% to 40%.

And shifting gears entirely, our total capital expenditures during fiscal 2014 totaled nearly $57 million compared to just under $23 million last year. Now, approximately $38 million of this amount was incurred in our theatre division, the majority of which related to the items noted in our press release, and that we've been talking about for a little while now. Greg will expand upon some of this in his comments.

Keep in mind that this number comes from our statement of cash flows, and represents what we have paid to date on our various projects. We've been talking about $50 million in capital expenditures in our theatre division. And what that means is that due to timing of payments, and, in some cases, short delays in completing the work, we are carrying over about $12 million of expenditures to the first couple of months of fiscal 2015.

In addition, we spent approximately $19 million in CapEx in our hotel division during fiscal 2014, with the renovation of the Cornhusker Marriott and the Pfister accounting for the largest portion of that amount.

As we look forward to fiscal 2015 in our total capital expenditures, we're currently estimating that our fiscal 2015 capital expenditures may be in the $70 million to $90 million range, with approximately $45 million to $60 million estimated for our theatre division, including that $12 million carryover from this past year.

That would leave $25 million to $30 million currently estimated for our hotels and resorts division, with the largest piece related to the upcoming conversion of our Four Points Chicago hotel into an AC Hotel by Marriott. As is always the case at this point in the year, the range of the potential capital spending is fairly large, because either the timing on several of our planned projects is not finalized yet, or because some of the dollars are for several growth opportunities that may or may not come to fruition.

As a result, our actual fiscal 2015 capital expenditures certainly could vary from this preliminary estimate, just as they did this past year. In addition, if an acquisition opportunity were to arise, particularly in our theatre division, that could impact our actual capital expenditures, as well. Greg will expand on some of our capital expenditure plans for each division during his prepared remarks.

So now I would like to provide some financial comments on our operations for the fourth quarter and fiscal 2014, beginning with our theatre division. As you can see in our reported numbers, our box office revenues increased 8.2% during the fourth quarter, with concession and food and beverage revenues from this division increasing 15.5%. For the full year, fiscal 2014 box office revenues were up 8.6% compared to last year; and our concession, food, and beverage revenues ended up a very healthy 14.9%.

What's most notable about these numbers, and particularly the box office revenues, is that we once again significantly outperformed the national numbers. According to Rentrak, a national box office reporting service for the theatre industry, the US box office actually decreased 1.1% during the comparable 13 weeks of our fiscal 2014 fourth quarter.

So, for the second quarter in a row, we outperformed the nation by over 9 percentage points. The fourth quarter increases are attributable to an increase in attendance at our comparable theatres of a very impressive 21.2% for the fourth quarter. For fiscal 2014, our comparable theatre attendance ended up the year -- increasing 14.5%.

Just as we reported last quarter, we believe the majority of this attendance increase and the overall industry outperformance can be attributed to the new investments we're making in our theatres and innovative marketing strategies that we've initiated.

Our average admission price for our comparable theatres actually decreased by 10.6% for the quarter, due entirely to our $5 Tuesday program for all movies. Of course, as you'd surmise, that also contributed to our tremendous attendance gains. For the full fiscal 2014 year, our average admission price decreased to 4.8% compared to the prior year.

Our average concession and food and beverage revenues per person decreased by 4.6% for the fourth quarter, due to promotions related to our $5 Tuesday program, but increased 0.7% for all of fiscal 2014 compared to the same period last year. Of course, with significantly higher attendance, these changes in our per capita numbers don't tell the whole story, as evidenced by our significant increases in total concession and food and beverage revenues, due in part to our continued focus on additional food and beverage concepts.

And finally, as great a quarter and year as it was for our theatre division, believe it or not, it could have even been better if not for the harsh winter we had in Midwest this year. March was extremely cold in our Midwest markets, and energy prices skyrocketed. Our full-year heating costs ended up approximately $475,000 higher than they were last year. Add to that increased annual snow removal cost of another $475,000 over last year, and it's fair to say we're glad summer has finally arrived.

Now, both of these numbers that I just quoted are annual numbers. The energy costs are what impacted us the most during the fourth quarter. We certainly did -- we had a couple of Mondays where schools were closed; and so that, certainly, on the other side, probably helped us a little bit. But these are still pretty significant increases in costs.

Shifting over to our hotels and resorts division, as we note in our release, our overall hotel revenues were up 4.2% for the fourth quarter, and 5.9% for fiscal 2014. Our total RevPAR for nine comparable properties was up 3.3% during the quarter, and our total RevPAR for eight comparable properties was also up 3.3% for fiscal 2014 compared to the same period last year. We didn't have the Cornhusker for a full year last year, so they are excluded from our year-to-date RevPAR comparisons.

As we've noted in the past, our RevPAR performance did vary by market and type of property, and all but two of our nine comparable Company-owned properties reported increased RevPAR again this quarter. According to data received from Smith Travel Research, and compiled by us in order to compare our fiscal year results to comparable upper upscale hotels throughout the United States, those comparable hotels experienced an increase in RevPAR of 6.1% during our fiscal 2014.

Now, we believe our RevPAR increases during fiscal 2014 were likely negatively impacted by a difficult comparison in the Chicago hotel market -- although I will point out that our hotel actually outperformed the market during this time period -- and a difficult Midwestern winter; a recent increase in room supply in our Milwaukee market; and the fact that we had rooms out of service at our Pfister Hotel, as a result of the tower building and room renovation that was completed at the end of May 2014.

RevPAR increased in six of our eight comparable Company-owned properties during our fiscal 2014 compared to the prior year. And if the two hotels with RevPAR declines -- and that would be that Chicago hotel and the Pfister with the rooms that were out of service -- if we exclude those two hotels, our remaining six comparable Company-owned hotels reported a RevPAR increase of 6.2% during fiscal 2014 compared to the prior year, which actually slightly exceeded the national average.

Our fiscal 2014 fourth-quarter overall RevPAR increase was due to an overall occupancy rate increase of 1.6 percentage points, and a 0.9% increase in our average daily rate. Our fiscal 2014 full-year overall RevPAR increase was a result of an overall occupancy rate increase of 0.7 percentage points, and an average daily rate increase of 2.2%.

Finally, while this didn't have a significant impact on our fourth-quarter comparisons, I do want to remind you that our comparisons to last year in this division for the full year benefited from the fact that last year's results included $3.3 million of final legal and settlement costs related to our Las Vegas property.

With that, I'll now turn the call over to Greg.

Thanks, Doug. I'll begin my remarks today with our theatre division. Once again, we're pretty proud of the results we're announcing today for this division. And what makes this fourth quarter different from our record result that we reported during third quarter was that this time, we didn't have the benefit of a particularly strong slate of movies. In fact, as Doug shared with you, the national box office was actually down slightly compared to these same 13 weeks last year, due primarily to difficult comparisons during the month of May.

Last year, our number-two movie for the entire year, Iron Man 3, played during May, and there were several other strong openings as well. Yet, as you saw in our press release, this year not one of our top movies in our fiscal 2014 fourth quarter cracked our fiscal 2014 top-five list. But we talked about this dynamic in our last call. It is difficult to project how the movies are going to do in any given quarter, and there are going to be some ups and downs. We can't control the product we get from Hollywood.

Our goal is to consistently outperform these national numbers. In that regard, this quarter was another rousing success. Doug shared with you the numbers: we followed up our third-quarter 900 basis point outperformance, compared to the US numbers, with a 930 basis point outperformance during our fiscal 2014 fourth quarter. For the second quarter in a row, according to the box office results compiled by Rentrak, we were the top-performing theatre circuit among the top 10 chains in the US during this corresponding time period.

We believe this is an indication, once again, that our investments and operating strategies are making a difference, and a significant one at that. As evidenced by the numbers Doug shared with you earlier, we were able to drive attendance and, ultimately, box office revenues by making strategic investments in our theatres, and by implementing innovative operating and marketing strategies.

By now, you know one of those strategies was our $5 Tuesday promotion, rolled out to all of our theatres in mid-November in an effort to go after a mid-week value customer who may have reduced their moviegoing frequency, or stopped going to the movies completely due to price. We also included a free 44-ounce popcorn for a temporary time period as an added incentive. We continue to be delighted with the customer response to this program. Coupled with an aggressive local marketing campaign in each individual theatre market, we have seen our Tuesday night attendance increase dramatically, and the program seems to be getting stronger every week.

As we shared with you last quarter, we believe this program has created another weekend day for us without impacting the moviegoing habits of our regular weekend customers. It has increased frequency, added new customers, and ultimately contributed to our industry outperformance -- a true win-win-win for our customers, our studio partners, and for us.

We recently modified the free popcorn offer, restricting it to only members of our newly launched loyalty program, Magical Movie Rewards. Launched on March 30, 2014, this offer, combined with our attendance increases, has allowed us to enroll over 500,000 members in less than four months. The program allows members to earn points for each dollar spent, and access special offers only available to members. The rewards are then redeemable at the box office, concession stand, or at the many Marcus Theatres food and beverage venues. In addition, we have partnered with Movio, a global leader in data analysis for the cinema industry, in order to allow more targeted communication with our loyalty members.

The software will provide us with insight into customer preferences, attendance habits, and general demographics, which should help us deliver an enhanced filmgoing experience to our members, and lever the value of having data on such a large group of customers.

Of course, you also know that we've been making major investments in our theatres that are already paying dividends for us, and have contributed to our performance. You have heard us talk about the $50 million we committed to in fiscal 2014 to further enhance customer amenities across our circuit, most of which has now been spent, with the final dollars being incurred this summer.

Our four theatres that we had previously installed our luxurious, state-of-the-art DreamLounger recliners contributed significantly to our industry outperformance again this past quarter. And I'm happy to report that we completed our installation of our DreamLounger seats in four more of our theatres by the end of May.

We're already seeing the benefits of these new installations during the early weeks of fiscal 2015. We now offer eight all-DreamLounger locations, representing 15% of our Company-owned theatres and nearly 19% of our Company-owned screens, a percentage that puts us among the leaders of our industry. We also combined DreamLounger seating with our proprietary, premium, large-format, UltraScreen concept and the Dolby Atmos immersive sound system to create the premier presentation screen in any of our markets: the UltraScreen DLX.

We now have 11 UltraScreen DLX screens and nine traditional UltraScreen auditoriums in operation, meaning that [offer] 35% of our theatres offer a large-format option to its guests. Again, one of the highest percentages in the industry.

We have also been busy adding to our already strong lineup of signature cocktail and dining amenities in our theatres, nearly doubling the number of Take Five Lounges and Zaffiro's Express outlets in our circuit, each from 6 to 11 by the end of this summer. We're also adding a total of nine more Big Screen Bistro auditoriums to select theatres. As you know, we believe we have a unique advantage in the industry in this area, as The Marcus Corporation has over 50 years of food and beverage experience to draw from.

Finally, during our fiscal 2014 fourth quarter, we began construction on our latest new theatre, the Palace at Sun Prairie. Combining all the innovations we are currently expanding across the circuit, this new, 12-screen theatre will feature all reserved DreamLounger recliner seating in every auditorium, two UltraScreen DLX auditoriums, four Big Screen Bistro auditoriums, a Zaffiro's Express, and a Take Five Lounge. We currently expect this new state-of-the-art theatre to open in February 2015.

As you can guess, we're already looking at additional opportunities to further expand all of these innovative concepts in fiscal 2015, as we continue to invest in our business and customers while building the Marcus Theatres brand. We're still working our way through some of the numbers, but I will tell you that we are currently evaluating opportunities to add DreamLounger seating to another 3 to 5 theatres in fiscal 2015. We're also looking at several more Take Five Lounges, Zaffiro's Express, and Big Screen Bistro outlets in select theatres during the upcoming year.

Looking at the movies, it is no secret that the summer box office took a turn for the worse in July, after a decent June. We knew coming in that we would have some tough comparisons during our fiscal 2015 first quarter, compared to last year's record results. We do have cautious optimism that a few of the remaining summer movies mentioned in our press release might do quite well compared to the prior year. But as we have said before, the movies will be what they are. And I'm happy to tell you that we have continued to outperform the national numbers so far.

In fact, we remain number one of the top-10 chains during the early weeks of fiscal 2015. I know we're all looking forward to calendar 2015, when the film slate is scheduled to include films from well-known series such as The Avengers, The Hunger Games, Mission: Impossible, Fast & Furious, Jurassic Park, James Bond, and Star Wars. But right now, we're just focused on trying to be the top-performing chain in America again next week, while making investments in our business designed to keep us there for the long-term.

With that, let's move on to our other division, hotels and resorts. You've seen the segment numbers, and Doug gave you some additional detail. It was another quarter and another year of steady year-over-year improvement from this division. Having completed another fiscal year, I thought I would start my comments by addressing what we saw in our various customer segments this past year.

Leisure travel remained strong during fiscal 2014, although the difficult winter weather in the Midwest likely impacted this customer segment during the third quarter of fiscal 2014. Leisure customers tend to be very loyal to online travel agencies, which is one of the reasons why we continue to experience rate pressure. While we have been selective in choosing the online portals to which we grant access to our inventory, such portals are part of the booking landscape today, and our goal is to use them in the most efficient way possible.

Non-group business travel was also strong during fiscal 2014. Non-group travelers have increasingly looked for package deals, whether it is with parking, breakfast, or access to club rooms, like the ones we recently added to our Pfister Hotel and Grand Geneva Resort and Spa. Group business in total was down slightly during fiscal 2014, and group business remains of the segment of our hotels and resorts business that has experienced the greatest ADR pressure.

However, improved group occupancy at two of our largest properties contributed to our strong 6.1% increase in food and beverage revenues during fiscal 2014, compared to the prior year. The challenge with group business continues to be a tendency towards smaller, shorter meetings, often booked and executed within a window as short as 90 days. When meeting planners are working on such short notice, we believe we have distinct advantages that help us secure the business due to our strength and capabilities in amenities needed to make a meeting successful, such as special audiovisual needs, restaurant and catering options, and club rooms.

Our overall group booking pace for fiscal 2015 is approximately equal to the recently completed year at this moment. But we have seen signs of growth in pace during our recently completed fourth quarter that gives us optimism for fiscal 2015's booking pace.

We reported our 14th straight quarter of increased ADR during our fiscal 2014 fourth quarter, although an intentional strategy to trade rate for occupancy at one of our hotels kept our overall rate increase a little lower this quarter. We don't usually call out specific hotels since our portfolio is not particularly large. But as Doug pointed out, our fiscal 2014 results were also impacted by a difficult year-over-year market in Chicago, even though our hotel outperformed the market, and the fact that we had rooms out of service at our Pfister Hotel as a result of the tower building rooms renovation during our third and fourth quarters.

I'm happy to say that the Pfister renovation is now completed. The tower rooms look great. And as you know, we're getting ready to begin our major renovation of our Chicago hotel, converting it to one of the first AC Hotels by Marriott in the United States. We're excited to bring this successful brand to Chicago, and believe we have an ideal location for this stylish, urban lifestyle brand.

Looking ahead, our outlook for the future hasn't really changed. I would hope that we would continue to experience favorable trends in our revenues and operating income, even if it continues to be slow and steady. Milwaukee will see another hotel in the market shortly, when a 380-room casino hotel opens up near downtown. Time will tell what impact this hotel will have on the market. They believe that the majority of their occupancy will represent new demand to the marketplace, as people come to gamble at their casino. We obviously hope they are right.

Conversely, we're excited to finally have the Cornhusker renovation nearing completion. The meeting rooms are all that is left to finish, so we hope to start seeing the benefits of our investments there as time goes on. It is, far and away, the nicest hotel in Lincoln. And finally, we are still pursuing a number of additional potential growth opportunities, with a particular focus on management contracts, possibly with some sliver equity at times.

We were happy to add the Heidel House Resort & Spa to our list of managed properties during our fiscal 2014 fourth quarter. We also were excited to add another industry veteran, Tom Riley, to our development team this past quarter. Tom comes to us from Kimpton Hotels & Restaurants and has hit the ground running, looking for additional growth opportunities for this division.

Before I wrap up our prepared comments and open the call for questions, let me touch on two other subjects very briefly. There continues to be positive behind-the-scenes action on a number of fronts related to The Corners of Brookfield, our Von Maur-anchored mixed-use project that we've been advancing for some time now. We are nearing completion of our negotiations with our majority equity partner, and hope to have an announcement about that, as well as additional tenants that have committed to the project, in the very near future.

In anticipation of a fall start to this project, we have already demolished the former theatre on the site, with more to come. As we have said in prior updates, this is a complicated and finite process, and we plan to have a lot more to say about this in the very near future.

And lastly, as we noted in our press release, although our share repurchases slowed in our fourth quarter, we still ended up repurchasing 314,000 shares of MCS stock during fiscal 2014 at an average price of $13.30. Our Board also expressed confidence in our future by raising our quarterly dividend by nearly 12% during our fourth quarter. We obviously think our share repurchases over the last several years have been a very good investment. And our strong balance sheet continues to give us a great deal of flexibility in the future as we invest in our businesses, while still returning capital to shareholders through a variety of different means.

With that, at this time, Doug and I would be happy to open the call up for any questions you may have.

(Operator Instructions). David Loeb, Robert W. Baird.

I have a few, of course. Just broadly on capital allocation, Doug, you talked a bit about where you see the CapEx in theatres and hotels. And, Greg, you mentioned The Corners project and likely groundbreaking in the Fall. Can you just talk a little more broadly about how you look at using your balance sheet capacity between those kinds of normal CapEx projects -- The Corners, buybacks, and acquisitions?

I'll touch on The Corners first, David, and just -- we've only used our balance sheets there to fund the predevelopment costs. And that's -- as the deal as it's currently being contemplated, that's really the only thing. I think we've talked about in the past, the structure that we're working on will have a majority equity partner involved. We would intend to still have an interest in it. But keep in mind that we also have land. And so one of our opportunities potentially is to contribute the land to the project.

So, it really doesn't -- from my perspective, as I sit here, right at this moment -- it doesn't really have any capital allocation issues at all in this coming year, from The Corners perspective. We've been funding the predevelopment costs, and that's been our major outlay at this point. But ultimately, once the project gets going, that wouldn't be the case anymore.

Your remaining question related to share repurchases and dividends, is that correct?

Share repurchases and acquisitions.

On acquisitions, I'm sorry. Well, we'll look for the best deal, David. We're opportunistic with the capital, I think has been our history. If there's a good acquisition, we're going to make it. If we think the stock price is at a price where we think it's a good investment, we're going to make it.

And you've moved up that stock price a bit, because it's been pretty strong this quarter. Given the range where the stock has been trading of late, is it less of a good investment to buy back shares than other potential opportunities?

Here's all I can say about that, David -- I think you can understand the question, the nature of that question. We are not a company that simply says, we're going to buy back a certain amount of shares. We don't have a set target. It's that simple. I think there are companies that may do that. We don't. And we make -- at any given point in time, we're just going to make an analysis, and make a decision about what makes sense.

Okay.

And you framed it properly, David, from a capital allocation perspective. So we have to, I think, given point in time us and -- we're taking a look at what we have ahead of us, and from a capital expenditure perspective, the key levers tend to be -- well, you can rattle them off pretty quickly here: share repurchases, dividends, capital expenditures, acquisitions. And then maybe you'd throw into that any asset sales. Those are the five biggies. And those are the five things that we have to constantly be monitoring as we make those capital allocation decisions.

Okay. And in the prepared remarks, you mentioned acquisitions more likely in theatres than hotels. You have bought interest in couple of hotels recently. Is your thinking that today the better buys are likely to be in theatres?

Not necessarily. I think there's probably more capital that would go to theatres than to hotels, because of just our general idea of saying that, on the hotels, we're going to take smaller positions in properties as we grow our management business. This is opposed to theatres, where that's not really an option.

So it wasn't meant to reflect -- when I said that, it wasn't meant to reflect number of properties, or anything else like that. We could do -- maybe we could do five hotels with sliver equity. That dollar amount would still be a relatively small amount compared to if a theatre acquisition came along. So I was just trying to -- I was talking about from that relativity.

Yes. And it's been a few years since your most recent theatre acquisition. Do you think there are more of those, more groups similar to Douglas or the previous ones, that might be looking at their options now?

It's interesting, David. We've been giving this some thought. There was this whole theory that when digital cinema came along, there were going to be a bunch of guys who were going to be for sale because they couldn't make the investments in digital. But I don't think that panned out. Because there was basically this -- studios were that big beneficiaries of the digital rollout, but in essence -- they, in essence, financed on the digital rollout. So that didn't create the bottleneck that I think -- or the problem that some people were going to have.

Well, I will tell you what it was really interesting that we've been thinking about. It has now been this -- the investments that it takes to do the things that are potentially going to be competitive -- whether it's DreamLoungers, or Take Five Lounges, or food and beverage -- enhanced food and beverage concepts that take not only capital, but expertise. That might create opportunities. Now, I'm not sitting here telling you that -- I'm not giving you some window into something that's actually happening, or that I know of -- it's a theory. But the idea that everyone was meant to [sell up] for digital was a theory, too.

But we sort of wonder if that's where it's going to go. That's our current thinking right now, that that may present some opportunities. And just, again, it's one of those things where we just want to hang around the rim. We want to be there when people who have properties that -- that it's time -- they may not have people in their family who want to continue to run them. Because they tend to be more closely controlled. (technical difficulty) make sure about who owns them. Sometimes it isn't about the last dollar; it's about who is going to maintain their name. Because their name has been invested in these communities, and it's about going in; and that dynamic is important, as well.

And I would even say that sometimes the Justice Department may care about who owns them, as well.

Exactly. Great point.

So.

Very good point, yes. Greg, I knew that basketball scholarship you got when you were younger would pay off (laughter). It's a great segue into the theatres, and it's clear that your initiatives are really paying off, with the substantial outperformance relative to the industry. How big a role do you think the loyalty program is, relative to the things that are more capital-intensive?

It's too early to tell what -- where -- how much that is going to benefit us in the right now. There is no (technical difficulty) data, I don't have it. I can tell you that (technical difficulty) we're seeing a significant percentage of customers who are using it. That's very interesting data. So, would they be coming anyway, or not? We just don't know yet. But I will tell you this: I do believe this is a great asset for our Company.

It's going to allow so many things for us. It's going to allow us to communicate with our guests better, to give them more value. How great would it be for them to get a thank you for seeing a movie, after they go? Well, we couldn't do that in the past. Now we know they went. Or some added bonus material -- we can give them added value by knowing about them. On top of that, we can target our marketing to them. If we know what they like, we can go to them.

And the only way we know what they like is if we know who they are, and know what they've seen. For years, this has been a business that had a very -- basically an anonymous customer base. We didn't know who was coming. We didn't know what they were seeing. So to be able to add value, and then lever the knowledge that we've got of what they like, and what they tend to -- what they do, we should be able to treat that as a very valuable asset.

But we don't know yet. We're still only four months into it. I will tell you that we surprised ourselves with how much interest there is in the program. The team has done a great job. I will say they've done a great job of rolling it out.

Will, the results are impressive, and 0.5 million members is a big number. It's impressive, as well. To shift over to the final topic of the hotels, first a housekeeping. In the last Q, you mentioned a loan maturing on the Chicago asset, and the likelihood of refinancing that during the fourth quarter.

Doug, where are you in that?

You know what we actually did, David, was we actually ended up choosing to pay that off. We have significant excess capacity in our revolver, and so we actually are saving a few dollars during this time period. This is a wholly owned property. The only two mortgages that I currently have in place in hotels are on properties that we have -- that were majority owners, but that we have partners as well. And that's the Skirvin and the Cornhusker.

So, my thought was that at this point in time, we had an opportunity to just pay this off with all of our availability under our revolving credit. All things being equal, that's a fairly significant savings. That was a fixed-rate loan than we had in place. So in this coming year, that's a difference of $500,000 or $600,000.

As the year goes on, as we take on -- as we do this property -- and we've talked openly that any one of our properties -- and this certainly could be a candidate that, at some point, maybe we'd consider taking a partner on.

But as it stands right now, we are prepared to spend the money for the renovation, and I'll currently fund it out of our current facility.

And just for modeling purposes, can you tell us what date you paid that off?

Last day of the fiscal year.

Perfect. That makes it easy for us.

How clean is that?

Perfect. Okay, and on the leadership of that division, are you just going to make Tom Kissinger permanent?

(laughter) Tom, are you on the call?

(laughter) Yes.

I'll take that as a (multiple speakers).

David, when we make the final decision on that division, you'll know about it.

Okay. And last one, interrelated to your comments about Milwaukee supply, but what are your thoughts about the Intercontinental? I gather that the franchise life on that isn't all that much longer. So what are you thinking about the future of that hotel?

We very much like the location. We think that's a great location for a hotel. You're absolutely right -- the brand is not going to have to be on that hotel much longer. And I would tell you, the brand is not the strongest brand. So we'll be looking forward to the opportunities we've been making -- we've been starting to think about, what are we going to do? What's the game plan for it? And part of it is, let's see what's going on with Milwaukee; let's see what's happening as the market evolves. And it's nice to have the flexibility to do what we want.

That's great. This is terrific. I really appreciate your candor on all of this. Thank you.

Mike Hickey, Benchmark.

Great quarter, guys.

Thank you.

For your new DreamLounger installations in fiscal 2015, do you have any color on the pacing of those installations as it relates to your fiscal year?

You know, Mike, we don't like to -- obviously, during the heat of the summer -- turn the theatres upside down. So we'll probably -- we'll get started on the next one very shortly. But I would say by -- we generally assumed mid-year for at least one or two of them. And then the others would probably be more spring. I got to tell you, we're still -- 3 to 5 is the number that we're looking at. But we're still going through the numbers, so I'm really just spitballing it right now, in terms of the guess -- just trying to guesstimate it.

Fair enough. And then on the locations you do have, obviously you're seeing some great -- looks like some great growth in a relative attendance. Have you experimented with any sort of premium on the pricing on those locations? And is that something you expect to do in the future?

No and yes (laughter). Our goal has been, first and foremost, to build attendance and get people in and experience what an absolutely wonderful experience it is to see a movie in a DreamLounger. There is no better way to see a movie. I say no better -- there's not a bad way to see a movie, but there's no better way to see it in a DreamLounger. But we do -- you're right, that we will have opportunities, we believe, to get the premium price for the seats. Except on Tuesdays.

Okay.

Mike, I'm going to use your question as a kind of also note that, just to be clear, in this quarter that we just completed, it was just the four original locations that impacted our results. The other four that we've opened up, really they opened up at the end of the quarter. And in fact, if anything, you could even argue that they -- that those locations suffered a little bit this past quarter, because we were under construction. And so we had auditoriums out of service. So I went to be clear, as you are thinking about what happened this past quarter, that was really still in the four original locations.

Okay. That's helpful, thank you. And it looks like obviously you have a really polished, next-gen auditorium model. And of course, calendar year 2015, we have what appears to be a magical slate in terms of driving the overall box office growth. Does that motivate you guys now to be more aggressive on the M&A front, to kind of get in front of that, and inject your new model into it?

More aggressive? I think we'll maintain the same pace of staying in touch with people; making sure people know that we are available, that we are an interested acquirer. But, again, it will depend on the pricing. I wish that what was coming in 2015 was a big secret, but it's not. So we'll have to see where the pricing takes us.

Yes, okay.

We look at every deal, and then we decide where to make our investments. And if the best investments are in our own properties, we're going to make them there. And if there are opportunities to acquire at good returns, we'll do it there, too. 2016 looks pretty good, too, so we can (multiple speakers).

Yes, no doubt. All right. Thanks, guys. Good luck.

Brian Rafn, Morgan Dempsey Capital Management.

Give me a sense -- and I know you guys have just started this, and you've talked about the Tuesday night $5 night. I'm wondering, as you rolled off with the free popcorn, has there been any more incremental sales in concession, food and beverage? And that Tuesday night customer, is he a guy that's going to traffic these Zaffiro's or the Take Five?

Yes, he is. I will tell you, yes -- I will still start with your first question. The box office -- sorry, the concessions -- our F&B numbers have gone up as we've modified the program. And yes, they do attend -- they do visit our other F&B outlets. Partly, too, understanding the nature of the customer, and that it is a value customer, we didn't restrict -- the offerings of value don't just stop at the box office.

We offer discounted candy. We will do a $2 hotdog at the concession stand. And at our more developed -- at the Zaffiro's, the more developed F&B outlets, we have $5 pizzas. We offer something for that value customer at those times, and we're seeing increased volumes there for it.

Yes, okay. Ex- your rollout, Greg, of your royalty program, have you been -- have you got any anecdotal -- maybe face traffic, visuals -- what that guy is? Is it kids? Is it mix? Is it families? Is it little old ladies? Who is your Tuesday night person?

Well, remember, loyalty is not just Tuesday night.

Right, right.

So, loyalty is our entire customer base. If you're asking about the mix of Tuesday night customer, it certainly is a customer that is a different customer in a lot of ways. Look, there's obviously some overlap. We see a little bit of overlap. It wasn't like we didn't have any customers on Tuesdays. And we've seen a little bit of Monday and Wednesday customers shift to Tuesdays. But when you look at, in the aggregate, the numbers that we're driving are clearly we're bringing people to the theatre who haven't come in a while.

And what's really, really interesting is that they are coming to just -- and this is what I frankly love the most about the whole program -- is they're not coming to see a movie. We've been talking about this a little bit. They're coming to the movies. And they'll see whatever is there. Because it is $5, they know the price is there. And so the idea of building frequency; and then, ultimately, building frequency into the more premium periods, too.

Not every customer is going to be a customer that can straddle both those. But the idea of them coming to the theatre and having a great out-of-home experience, and being able to have a drink at a Take Five Lounge or have a bite in one of our BSBs or our Zaffiro's Express or Zaffiro's full-service restaurants. And the experience -- as I've talked about before, we as an industry have not been very good at helping people understand.

There's the benefit of being in this business for three generations. My grandfather had a line: there's a kitchen in every home, but people still go out to eat. Well, why do they go out to eat? Because it is a differentiated experience. And going to the movies is not a substitute for watching something on your television screen. And so what we have to do is get people to understand that it's about going to the movies, and the experience.

And all the marketing that the studios do -- and they are geniuses; I will not take that away from them; they can get 10 million people to get off their sofa on a weekend, which is pretty incredible. But for all their marketing, they don't talk about the experience of the movies. But this program helps build that. And it's been really good for that to build that experience, and to bring people out who haven't come for a long time.

Yes, okay, okay. And I'm assuming in the four theatres that you have, Greg, with the DreamLounger, is that DreamLounger in every auditorium, or just selective auditoriums?

The four we're talking about, they are in all auditoriums. But we've done different -- where we're putting in the UltraScreen DLXs -- DLX, the DreamLounger Experience -- there are theatres where all we have is the UltraScreen with the DreamLoungers, and we have regular premium seating in all the other --.

Got you, got you, got you. And any (multiple speakers). You've only rolled it out for a short period. It's a beautiful seat. The complexity of the mechanisms, and cleaning them, I'm only thinking of my rambunctious 10-year-old with popcorn and liquids on those nice seats. You guys must have truckloads of Armor All somewhere. Is the maintenance of that -- and I know it's early -- is that going to be an issue with the DreamLounger? Or are they almost bulletproof?

You're right, it's early.

Okay.

It's got an electric mechanism. It's just early, so we'll see. And to clarify -- I want to clarify on your past question, Brian. So all eight now -- so the original four that you asked about, that was in every auditorium. And the additional four that we did were in every auditorium, as well. So the eights that now are -- that we've been talking about, are all completely DreamLounger locations.

Okay, okay. Greg, in the past you've talked a little bit about depth of movies. And you talked a little bit about top five. And you've talked in the past, year-over-year, movies 6 to 10; 10 to 20. How would that look, fiscal year versus fiscal year for that, in some of those lower -- not the top five or maybe top 10 -- the depth maybe of the quality?

You know, Brian -- well, Doug's looking for data, but I'm going to tell you. Who knows? We don't know. We're into this business for -- we look at this multiple years at a time. And I've seen this -- I know where your -- you've seen someone -- there's been some analysts who have written some research and talked about, well, yes, the top movies look really good, and the depth doesn't. And I read the research and I respect the research, but I don't think anybody really knows.

And they get harder to pick. There's an old line in the movie business: the only sure thing is a sequel; everything else is R&D.

(laughter) Yes.

You know? But the other side of that is, we know over time it's a stable business that, if you view it -- not quarter-to-quarter, or even year-to-year -- if you view it over a period of years, it's going to have a certain amount of growth. And you have to keep reinvesting in your business, and marketing and staying fresh and relevant; and then you'll have a nice business. And that's how we look at it.

Yes. Well --.

Brian, I do have access to that. They're talking about this as this past year.

Yes, right. The past, right.

It was pretty much a push. Our top 15 pictures this past year were 39% of our box office. The year before, our top 15 pictures were 38% of our box office.

Okay, that's what I was looking for. Yes, great, great. Relative to the Dolby Atmos sound system, is that just integrated -- is that a separate installation? Or are you mating that with new theatres, or mating it with DreamLounger, or mating it just to the UltraScreen?

Well, so far, we've only put the -- you can put them anywhere -- we've only put them in our UltraScreens. Though I would tell you that we are running a test in our Sheboygan theatre where we've done a -- what is the Superscreen, which is a little bit -- which carries less of a premium, and it's less -- it's our best house in a smaller market. And there we're testing a less robust version, but still very, very impressive. And so, where does that take us? I don't know. But right now, all it is in the -- it's just in the UltraScreens.

Got you, got you. And then I missed one of the opening comments. Did you give a sense on the hotel side what you're seeing -- trends in your business traveler, from an occupancy or volume?

Well, look, it continues to grow. We're seeing some positive signs. But it's not -- it is still -- until the employment levels really pick up, I don't know where that -- I don't see that as being -- going to be a big, robust turn. It's just going to continue to grow steadily with the economy.

Okay. And then just one more. When you talked about being -- playing around the rim, being some perceptively acquisitive -- for you guys, if you find properties, whether they be rural -- or maybe this is a geographic specificity that you have. Are you adverse at all to just knocking the thing down, buying the real estate, and building something new? Or do you try to rehab the current footprint? How much slash and burn reconstruction are you guys willing to -- would you do a turnaround? Or are you really looking at something that's just added to margins?

(multiple speakers). I can't think of any examples where that's happened right now, Brian. Maybe there's been one somewhere in the country. But as a general case, that would not be what you would do with -- generally, with a theatre.

Okay, okay, all right. Thanks, guys.

(Operator Instructions). Jim Goss, Barrington Research.

I've got a few. But first, regarding the hotel area, I was interested in your comments about possibly some sliver equity being perhaps either desired on your part, or the other parts. I just wondered if you'd go through the process of how you're going to select some of these additional hotel contracts. And if you are thinking of either branding or certain franchises you'd want to concentrate your dealings with, could you give us any color on that whole process?

We are out there in the markets looking at as many opportunities as we can look at. We have one great, interesting thing about us. If you look at our hotel business, and it's been over 50 years, we have such a variety of hotels that we run, from a full-service, 1200-acre resort to historic properties -- and whether it's Milwaukee, or in Oklahoma City, to convention center hotels to branded hotels to boutique hotels -- we've got a pretty broad skill set.

So what's important to us, though, is that we find opportunities where we can add value. We can add value in a lot of places. We don't want to take things that are going to last five minutes. There is a big upfront that people forget. It's our intellectual property, but there's generally a big upfront investment in getting these things up and going. Because we're probably coming into something that we're going to -- if we're going to add value, we're going to make changes to. We're going to come up with new ideas, re-concept restaurants. We could be involved in a big -- if you look at our Westin Atlanta, that was a significant rehab of that hotel.

And, again, we've done deep rehabs -- for multiple -- the stories that, over the years, of the deep rehabs we've done. So, we're going to put a lot of upfront time into it. It's got to have some length in the contracts, and have enough scale that for us it makes sense for us to take a small, little contract for a small dollar amount doesn't make a lot of sense. Because it's got to have some time to recoup that investment of our intellectual property.

So you feel there's a definite advantage to having that varied approach, rather than select one or two concepts that might make more sense to create a greater emphasis on?

I really do, because, again, because it gives us the ability to look a lot of different opportunities. Right now, Jim, given the market, there hasn't been a ton of trading activity in the assets. There's some; it's better than it was, but it's not a ton. So the ability to look at a lot of opportunity is good. If the market were to really get a ton of velocity, you might say, lookit, I've got to narrow my focus a little bit. But right now it's not as -- the trading market is not as robust.

Okay. And on the theatrical side, rather than being concerned that you'll be soon lapping some of the advancements you've made, should we be thinking more in terms of a continual evolution of either the re-seatings or the Zaffiro's and Take Fives, and that sort of thing, such that you don't necessarily see a quarter, over the next year or so, where we're going to say we've gotten to the end of the endpoint and we're in a more comparable basis and things would level off. You're still in that growth mode?

Jim, last quarter, someone asked if -- essentially asked whether we could -- it almost sounded like, could we guarantee another 900 basis point outperformance. And we understandably didn't say -- put a number to it. As it turned out, it was another 900 basis points. But I'm not again -- now, I'm not going to sit here and we're not going to try to suggest that we can sustain 900 basis points forever.

On the other hand, we do expect -- our goal and our plan is to continue to outperform. And we think with the investments that we're making, with the continued evolution of -- we introduced the $5 Tuesdays in November, mid-November last year. The first four locations opened up by late November. On the other hand, now we've gotten four more locations. We're going to do some more. The $5 Tuesday program has grown. We have introduced the Magical Movie Rewards program. We're opening up the new food and beverage outlets.

We just think we have a lot of things that still provide us some wind to our back. But we're not going to make some sort of projection, and say it's going to be exactly this number. But our goal is to outperform every quarter.

Do you have any sense of (multiple speakers).

You're right, it gets more challenging. But I promise you, there's a group of people sitting on the floor above me, sitting there trying to figure out, and paying attention to that and saying, okay, what is our next act? What do we keep doing? How do we keep outperforming? Again, what that level is -- you're right -- when we picked the DreamLounger stuff, we picked of the easiest theatres to do first. The decision has become more challenging. It's just like if you were going to go to a market with a piece of real estate to cover a market, you pick the best pieces of real estate first. And then you -- but you still build out your market, and you still do things that are accretive and good deals.

And to Doug's point, there's so many other levers still left to pull. And so -- and we will just keep doing it. And I know that they are sitting up there trying to figure out how to keep that going, and keep outperforming.

But could the $5 Tuesday be a $5 Tuesday and Wednesday, or Monday and Tuesday, such that even if you cannibalize it a little bit, you gave another option that sort of an increased -- basically prices the week in a different way, where the weekend is one package, and some of the weekly properties are another?

Look, I'll tell you: I don't know what they got planned upstairs. They may wander down with that idea. I would tell you that just at first blush, what I like about $5 Tuesdays, and we like as a business about $5 Tuesdays, is opposed to creating a discount period of the week or a couple of days, is that it eventizes the idea. It takes us as Tuesdays are special, and it creates an urgency. And it maximizes this idea we've talked about of yield management, the right customer, at the right time, at the right price.

And it maximizes that impact. Because that's what we're trying to do. We're taking what is a hotel maxim in yield management and applying it to theatres. But by creating that Tuesday, we really get a momentum that is really an energy in the theatres. You have to come see it. It's really interesting. And I worry that if you start to dilute that a little bit, you lose some of the magic beyond just having a discount. Because it's not a discount --.

That's a fair point. Last thing -- this Sun Prairie complex seems to have a number of different initiatives going on all at once. Is it -- what sort of configuration do you have? And do you have different pricing by types of screen? Does it get a little more complicated to manage that particular property when you have that many different elements going on?

We have other properties that are really doing the same thing. It's just the most modern version. We have other properties that have a Take Five Lounge and Big Screen Bistros in it, and DreamLoungers in all of our screens. We've got a number of those. They are more complex, there's no doubt about it, but this isn't the first one. It's just the newest, shiniest paint version of it we've got.

The only one that currently has any premium pricing associated with it is the UltraScreen DLXs. They do have a premium price, Jim. We answered an earlier question that suggested that at some point we certainly could be looking at pricing at our DreamLounger locations, but that's not how we came out of the gate.

Okay. Thanks to both of you.

Ladies and gentlemen, thank you so much for your participation. At this time, it appears there are no other questions.

I'd like to turn the call back to Mr. Neis for any additional or closing comments.

Well, listen, I want to echo that. I want to thank you all for joining us again today. We look forward to talking to you once again in September, just in two short months, when we release our fiscal 2015 first-quarter results. Until then, thank you and have a great day.

Ladies and gentlemen, that is the conclusion of the conference call. Thank you again for your participation. You may now disconnect, and have a great day.