Marcus Corp (MCS) 2015 Q1 法說會逐字稿

Good morning, everyone, and welcome to The Marcus Corporation first quarter earnings conference call. My name is Whitley, 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 would 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 FY15 first quarter conference call. As usual, I do need to begin by stating, 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 revenue and earnings expectations, our future RevPAR, occupancy rates, and room rate expectation 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, expectations and plans regarding growth in number and type of our properties and facilities, expectations regarding various nonoperating line items in our earnings statement, and 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 that by us, let's talk about our FY15 first quarter. It was certainly was a quarter impacted by a well-documented weaker summer film slate, but with many positive signs that should bode well for future quarters, when the movie lineup strengthens.

For the third straight quarter, our theater division significantly outperformed the industry, and continued improvement from our hotel and resorts division contributed to record revenues for the Company this quarter. I am 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.

Now before I dig into each division, 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 first quarter. So we will save some time, and skip that step this time.

Our first quarter effective income tax rate adjusted for losses from non-controlling interest was 39.1% compared to 40.2% last year, which was slightly lower than last year, but generally right in our historical range of 39% to 40%. And as the press release noted, comparisons to last year were negatively impacted by a sizable loss attributable to noncontrolling interests during the first quarter last year, which favorably impacted last year's reported net earnings attributed from The Marcus Corporation by over $0.01 per share.

Now shifting gears away from the earnings statement just for a moment, our total capital expenditures during the first quarter of FY15 totaled approximately $13 million, compared to just under $9 million last year. Approximately $8 million of this amount was incurred in our theater division, and the majority of which was related to the completion of multiple projects previously discussed as part of last year's $50 million investment in our existing theaters. At this early stage of our fiscal year, I have no reason to make any adjustments -- any major adjustments to our previous estimate for capital expenditures for FY15, of an amount in the $70 million to $90 million range. Recognizing however, that as we pointed out in our recent 10-K filing, the timing of several of our planned expenditures are still just estimates at this time.

We are still finalizing the scope and timing of many of the various requested projects by our two divisions, and we anticipate proceeding with some of these projects as the year unfolds. Greg will expand on some of these comments -- some of these in his comments.

I will say that if we let history be our guide, some of these projects could carry over to the next fiscal year. And if that occurred, it would be more likely that we would spend the lower end of that projected range. Of course, the actual timing of the various projects currently underway or proposed will certainly impact our final capital expenditures number, as will any currently unidentified projects that could develop during the year.

So now I would like to provide some financial comments on our operations for the first quarter, beginning with theaters. As you can see in the reported numbers, our box office revenues decreased 1.8% during the first quarter, but thanks to a 5.2% increase in concession and food and beverage revenues, our total theater division revenues were actually up slightly compared to last year.

Now at the risk of sounding like a broken record, what is most notable -- notable about these numbers, and particularly the box office revenues, is that we once again significantly outperformed the national numbers. According to Rentrak, which is a national reporting -- a box office reporting service for the theater industry, the US box office actually decreased 12.7% during the comparable 13 weeks of our FY15 first quarter. So we followed up two straight quarters, where we outperformed the index by over 9 percentage points, with a quarter where we over-indexed by nearly 11 percentage points. No small feat.

The first quarter increases are attributable to an increase in attendance at our comparable theaters of a very impressive 9.9% for the first quarter, despite a clearly weaker film slate. Just as we reported during the last two quarters of FY14, we believe the majority of this attendance increase and the overall industry outperformance can be attributed to the new investments we are making in our theaters, and innovative marketing strategies that we have initiated.

Our average admission price for our comparable theaters decreased by 10.6 for the quarter -- 10.6% for the quarter, due entirely to our $5 Tuesday program for all movies. Of course, as you would surmise, that also contributed to our attendance gains.

Our average concession food and beverage revenues per person decreased by 4.3% for the first quarter, due to promotional-related to our $5 Tuesday program. And not insignificantly by the fact that this summer's film slate was noticeably lacking in family films, a genre that typically produces higher concession per capitas as compared to other genres.

Conversely, I want to remind you that last year's top two films during the first quarter were the animated family films Despicable Me 2 and Monsters University, further accentuating the impact this change in film mix had on our concession per capitas. Of course, with higher attendance, these changes in our per capita numbers don't tell the whole story as evidenced by an increase in total concession in food and beverage revenues for the quarter.

I also want to note that construction delays in several of our new Take Five Lounge and Zaffiro's Express outlets kept them from having much or an impact on our first quarter results. These new outlets should help drive higher food and beverage revenues per person at those locations in the future. I am happy to report that four of the five new Take Five Lounges and Zaffiro's Expresses are now open, and the fifth opens at the end of this month. So they should contribute to future quarter operating results.

I also want to point out, a couple of other numbers with you that definitely impacted our reported results over and above the disappointing film slate. First, there were a couple of one-time negative comparisons to last year. The first one is the fact that we incurred over $200,000 of pre-opening costs during our fiscal first quarter, related to the opening of some of these aforementioned new amenities.

In addition, last year during the first quarter, we received an unexpected property tax refund of nearly $300,000 at one of our Chicago area theaters, that consequently unfavorably impacted comparisons this year. These two items alone account for $500,000 of the $2 million decrease in theater division operating income this quarter, compared to last year.

You will also note that our depreciation and amortization from our theater division increased nearly $750,000 during the first quarter compared to last year. While obviously not impacting EBITDA, this increase is attributable to our recent investments in our theaters, and an increase in net depreciation of our digital cinema systems, as we continue to amortize our initial license fees and capital lease obligation against continued reductions of the obligation resulting from earned virtual print fees. All of this, of course, having no impact on cash.

Finally, we estimate that we incurred approximately $400,000 in costs this quarter related to our new loyalty program, including advertising, material costs, and the cost of accruing expected rewards being earned by our new members. I am not suggesting this is a one-time cost, it's not. But I am pointing out that in the early months of the program, we are incurring costs that are expected to reap future benefits, as we attempt to drive increased frequency, and ultimately employ other methods of monetization through targeted communications.

Now shifting to our hotels and resorts division, as we noted in our release, our overall hotel revenues were up 4.1% for the first quarter. Total RevPAR for nine comparable properties was up 6.5% during the quarter, compared to the same period last year. Now as we have noted in the past, our RevPAR performance did vary by market and type of property, and all but three of our nine comparable Company-owned properties reported increased RevPAR again this quarter.

Now according to the data received from Smith Travel Research and compiled by us, in order to compare our fiscal year results, comparable upper upscale hotels throughout the United States experienced an increase in RevPAR of 8.1% during our FY15 first quarter. Breaking out our numbers more specifically, our FY15 first quarter overall RevPAR increase was due to an overall occupancy rate increase of 3.7 percentage points, and a 1.9% increase in our average daily rate. With that, I will turn the call over to Greg.

Thanks, Doug, and I will begin my remarks today with our theater division. You can see the numbers, and Doug shared a lot of additional detail with you, in order to help you understand our reported results. There certainly is plenty to be happy about this quarter, obviously, beginning with our continued industry outperformance.

Clearly, the investments we have made in our theaters, and our new marketing and pricing initiatives are driving customers to our theaters. And not only, are we over-indexed in the nation as a whole, the numbers we are getting from Rentrak suggest that we are once again the top performing theater circuit among the top 10 chains in the United States.

But the fact is, it was a challenging summer film slate for the industry, with box office down approximately 15% for the summer as whole, and about 13% during our specific 13 week quarter. The first three weeks in June started our first quarter off in pretty decent shape, and our August box office revenues were up approximately 30% compared to last year.

But the weeks in between, a time in the theater business when we should really be at our busiest, the film product was found significantly lacking, and it was just too much to overcome. To put this in perspective, the week that includes the 4th of July weekend is historically one of the busiest weeks of our entire fiscal year, often second only to the week between Christmas and New Years. And this certainly was one of the best weeks last year.

This year, the 4th -- the July 4th week was our second worst week of our entire 13 week first quarter. There was an interesting article in the Wall Street Journal a few weeks ago that may have shed some light on why the summer's film slate was disappointing. In the article, it attributed the decline to the fact the studios released only 12 movies with budgets close to or more than $100 million between May or August, compared to 22 films during the same period in 2013. Apparently, production delays on several would-be block busters such Fast & Furious 6 contributed to the downturn in releases.

So it certainly was significant, that we were able to keep revenues relatively flat in the face of this steep industry-wide decline. Clearly, we have been able to move the dial on top line performance materially. Yet with flat revenues, our bottom line declined. Doug went through a series of numbers with you that highlighted most of the differences in our bottom line, and the common thread is that we are making investments in our business that we believe will position our Company to compete for the long haul.

Some of these investments have more front-loaded costs, such as the loyalty program and pre-opening costs. And some of the investments add fixed costs such as depreciation, but they are all designed to grow revenues and bottom line over time.

Having said that, there is no question we still have work to do, as we adapt to our new environment. We have had a lot of new initiatives, added new staff in both the field and in our corporate office, and have introduced many new amenities in our theaters over the past year. We intentionally staffed up at our theaters, as we focused on rapidly increasing our new loyalty program membership rolls.

We also had several theaters open throughout the summer, that were not by design construction zones, as we finished up our recent $50 million reinvestment in our theaters. As a result, there is no question in my mind that we had some inefficiencies this quarter, particularly from a staffing perspective, and particularly when put in the context of the disappointing July box office.

But we have begun to address these, and we have already started to see improvement. In fact, as recently as our third period, we began to see traction from our efforts with more to come. We have been through difficult box office quarters before. So I am confident that our outstanding management team is prepared to address any and all future challenges, as they always have. And I firmly believe that the programs we have put in place, and the investments we are making are putting us in a position to continue to excel in the future.

One example of a program that is poised to provide dividends for us in future is our new Magical Movie Rewards loyalty program As our press release notes, I find it astounding that we have signed up more than 640,000 members in just the first six months of the program, and we are just scraping the surface of what this program will do for us in the future. In fact, as Doug shared with you, during these early months it would be pretty easy to argue that the program has primarily only added costs at this point.

The fact is, we are really only just getting started tapping into the real strength of the program, which is our ability to actually know our guests, know what their preferences are, and ultimately target communications and programming to them as individuals, in order to deliver an enhanced movie-going experience to our members. And our belief is that this will translate into increased frequency, higher per caps, additional monetization strategies, increased loyalty to Marcus Theaters, and ultimately continued improved operating results.

Of course, another reason we have outperformed the industry has been the strategic investments we have been making in our theaters. With the recent completion of projects included in last year's $50 million investment, we are prepared to make further investments in Dream Lounger recliner seating, UltraScreen DLX auditoriums, Take Five lounges, Zaffiros's Express lobby dining, and Big Screen Bistro in-theater dining.

Our recently filed Form 10-K highlighted some of the growth we are targeting in these successful concepts. And I am pleased to tell you that our investment committee has already approved FY15 projects that include one new full theater conversion to Dream Lounger seating, and two conversions of existing UltraScreens to UltraScreen DLX auditoriums with recliner seats, Dolby Atmos sound and reserve seating.

We have also green-lighted one new Take Five Lounge so far, as well as two new Zaffiro's Express outlets, including one that will serve beer and wine. Additional projects for FY15 are also currently under review. Add to all this the new state-of-the-art theater that is -- add to, sorry -- add to all this, the new state-of-the-art theatre that is under construction in Sun Prairie, Wisconsin that will combine all of these new features, and you can see that we continue to focus on a holistic approach to growth, that doesn't just focus on new locations or acquisitions, but strives to achieve meaningful growth from our existing asset base as well.

I also want to point out that, as we near the completion of our first full year with our original four Dream Lounger locations, one of them opened last summer and the other three in time for the holiday season last year, it will be an appropriate time for our team to review the right pricing adjustments for our upgraded theaters.

We haven't increased box office or concession prices in nearly 1.5 years. And with the price value proposition we are now providing through the improvements in our theaters, we believe there is some room in the marketplace to make selected price increases in the months ahead.

Some of you have heard me say this before, but I liken this pricing discussion to the revenue management practices we use in our hotel division. There is a place for both premium offerings and value offerings in our theaters. Ultimately, our goal in both our divisions is to provide the right price, at the right place, at the right time.

Finally looking ahead, we listed some of the movies scheduled to be released during our FY15 second quarter, and the early look at the holiday season looks promising as well. And, of course, the entire industry is talking about the calendar 2015 film slate. And I must admit on paper it looks very good, but here is my take on that. I bet 12 to 18 months ago, not many people were suggesting that July 15th would be as bad as it was.

So I always try to view the movie slate through a longer-term lens. There will with some really good movies that everyone expected to be good, some surprising movies, and some disappointing movies. Some quarters will be outstanding, and some will be challenging. But regardless of the strength of the film slate in any particular quarter, or year for that matter, our team has established a goal to outpace the industry, and that is what we are going to strive for. If we do that, I am confident that the favorable results will speak for themselves.

With that, let's move on to our other division, hotels and resorts. You have seen the segment numbers, and Doug gave you some additional detail. It was another quarter of steady year-over-year improvement from this division.

We reported solid increases in RevPAR, and came within about $25,000 of reporting record divisional operating income. As noted in our release, our $11 million in operating income was the highest we have reported since FY07, prior to the recession.

So as we have been talking so much about outperforming the industry in our theatre division, I thought I would spend a couple of minutes talking about how we evaluate our hotel division performance, compared to the industry as a whole. And then more specifically, within our specific markets or competitive sets as we call them in the hotel business.

The best way to compare ourselves to the industry as a whole, is to compare our occupancy, average daily rate, and revenue per available room growth to the industry segment that most closely aligns with our owned hotels, the upper upscale segment as defined by Smith Travel. Earlier, Doug told you that this segment experienced higher revenue per available room or RevPAR growth, than we did during our FY15 first quarter, specifically, 8.1% compared to our 6.5%.

The challenge with this comparison, is that with only nine hotels in our average, individual hotels could have a proportionately larger impact on our results. In our case, increased supply in two of our markets, Milwaukee and Oklahoma City, has exceeded supply growth on a national basis.

In addition, the fact that our owned hotels are primarily in the Midwest also makes a difference, as there are many markets, particularly on the coasts that have been experiencing more robust ADR growth, than seen in the Midwest, which is why the second way of comparing how we are doing against our competition becomes more relevant, as it takes individual market factors into account.

Smith Travel also provides us with nine individual market indices for RevPAR, occupancy, and average daily rate for each of our owned and operated hotels. These indices are indicators of market share, are you getting your fair share of your respective market? To understand how this works, if every hotel in your competitive set was getting their fair share of business based purely upon room count, everyone would have an index of 100.

If your occupancy, average daily rate and our RevPAR exceed the average of your competitive set, you would then have an index greater than 100, and vice versa, if you were below the average. So when we look at this measure for our combined owned hotel portfolio, we see that, like our theater division, we consistently over-index in all three key revenue categories.

The Smith Travel numbers are not in yet for August, so we can't calculate our first quarter index yet. But our combined RevPAR index during our recently completed FY14 first was a very healthy 121.9[%], indicating that we are over-indexing our combined competitive markets by nearly 22%. And we are getting this outperformance from both occupancy and average daily rate, as we over-index both of these measures as well.

As we have shared with you in the past, occupancy in particular has been the main driver in this current recovery, and it remains at historic highs. Our combined first quarter occupancy for our nine owned hotels was a record 86%.

The success of our FY15 first quarter was driven by strong group business at several hotels. The fact that we were able to increase our ADR by as much as 8% to 9% in a couple of selected hotels that had strong group business, demonstrated the rate power we gain with non-group business when we have substantial blocks of rooms committed to by groups. And ultimately, our best way of improving margins in future periods is by increasing our average daily rate.

By the way, this was our 15th straight quarter of reporting increased average daily rate, so we are headed in the right direction. And overall, our group booking pace for FY15 is now running ahead of FY14, another encouraging sign.

As we noted in our release, we recently finished the final phase of our major renovation of the Cornhusker, and we are looking forward to what should be continued improved operating results from that hotel as a result. Now we are 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 expect to begin the major renovation in November, with a goal of bringing this stylish urban lifestyle brand to this outstanding Chicago location next spring. Looking ahead, our outlook for the future hasn't really changed.

I hope that we will continue to experience favorable trends in our revenues and operating income, even if it continues to be slow and steady. Milwaukee saw yet another hotel open in the market late in our first quarter, this time the 380 room casino hotel near downtown. Time will tell what impact this hotel will have on the market.

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 and Resort to our list of managed properties during our FY14 fourth quarter. And I think ownership would agree we added value during our first summer with this property.

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

(Operator Instructions)

We will go to Jim Goss with Barrington Research. Please go ahead.

Good morning.

Hey, Jim.

How are you doing?

Fine.

I thought I would start with hotels this time. I am wondering in terms of the strategy you are using to try to add to the management contracts, could you discuss the process of securing management contracts, and the areas of focus you might have in terms of types of hotel properties or geography? Or whatever else you might think is important? And to the extent that you are trying to do it in terms of your management skills rather than the financing part, would you have a -- sort of a REIT financing partner you would partner with in securing such contracts?

Jim, the processes, we have a team of people devoted to looking for these -- looking for the different deals, and we will take multiple approaches to them. Some, it can be in a case like the Heidel House, where there was an ownership group that wanted to bring in a more experienced manager. They were only running one hotel, that hotel, and they have other investments. And they saw the need to bring in promotional management and dedicated professional hotel management. So there are those transactions where we are -- where you have an ownership group already looking. And so, we have going on, is we have an development person who is out calling on these people, and trying to make the sale.

Management, the management is a product. That's the way I look at it like -- so we are out selling our product. At the same time, we talked about Bill Reynolds before, and our development efforts inside the Company. That is where we are out looking for -- Bill is out looking for deals to put together, and where -- we put in a little more equity, but we also find partners. It could be a REIT. It could be private equity.

There is certainly a slew of hotel investors out there who are looking for management. And the one advantage we bring -- we bring a number of advantages to the table, to partner with these kind of people. First of all, we can bring capital, even in the form of sliver equity. For a lot of management companies they don't have the capital base we have. Then also because of the extensive properties we have in both our divisions, we have an infrastructure that really can take on very complicated projects, and bring them on more quickly, and add value. And that -- and so, we are not dependent on what -- we have got a team of people. And lots of parts -- lots of different pieces we can fit into the parts -- in the properties.

So the -- and the types of properties we are looking for, we are looking for full service hotels. We are looking for upper upscale hotels. That is what we focus on. Those are more complicated assets. That is where we believe -- we bring value to the Company through our experience.

Geographically, we will pretty much go anywhere. Because the one thing when you get into the upper upscale segment, the type of manager that we have to put at the property will -- is one that can -- is one that is going to be able to operate somewhat autonomously. That doesn't say we are not bringing best practices. That is the other thing, the other advantage we bring to an ownership group, best practices, purchasing scale, accounting scale, IT scale. We will then lever -- we will put that on top, but we can manage it from a distance.

The only thing I would add, Jim is, I think Greg nailed all of it with comments. So that the only thing I would add would be, we are not trying to position ourselves as a hired gun for a short-term period. We are looking for deals and arrangements where there is a mutual investment over -- for some time period. I mean, we don't -- we are not looking for 30 day outs and things along those lines. We are looking for things that have a little more time to it, and -- because as you know, we tend to look through things with a little longer term lens.

And to build on Doug's point -- thank you, Doug for catching that. The point is that, take on an asset, the kinds of assets we are talking about, with the complexity that they have, these are complicated assets. To do that, it requires an investment. It is an investment of time, but time is money. And so, we have to put up a good sized upfront investment to get it online, get our systems in place. And so, if we are working on 30 day outs, we can't get that investment back. So we need something with a longer term focus.

Nice, I assumed it was longer term focus, that there wouldn't be in character of Marcus to do otherwise. Although I wonder if you have any answer to a Polar Vortex 2, if that happens to materialize this year. But on the film side, what were your film rental margins in the quarter? Or can you at least speak trend-wise to what they are, since you -- I think don't break them out specifically?

Well, you correctly noted that we don't break them out specifically. And if there would have been a big variation, I would have highlighted that, at least noted that in the overall in terms of from a margin perspective. Film cost was not the issue with this quarter. And again, that is one of the weird factors about this business, right, Jim, is that when the film slate is stronger, that is when the film cost percentage goes up. And so, that -- but it was not materially different from previous.

Okay. Last couple of things, I don't want to take too much time. But when you talk about your reseatings, and getting strong attendance and outperforming, despite the film slate, do you think -- do you get a sense that you are getting attendance due to taking share from other theaters? Or do you think people like the experience so much that they are more likely to come, despite films they might not otherwise be tempted to go to?

It's both. We are seeing -- no matter what we are doing, we are seeing it be a mixture of both. When it's the reseating programs and the improvements to the theaters, we are seeing a mixture of share shift, and what we refer to as organic growth in the markets. And we are studying all the markets where everybody is doing this, and we are seeing a mixture of both. And the same thing on our programs with discounting, we are seeing people who clearly haven't been to the movies in a while.

I think that is less share shift going on, frankly, than when you see the reseating stuff. The stuff that is more value oriented, we are seeing a value-oriented customer. So probably that proportion then shifts more toward customers we haven't seen, which we love, customers we haven't seen come to the movie, come back. (Multiple Speakers).

And the last thing, Zaffiro's, have you detected any significant difference in the operating metrics for the Zaffiro's that are in or around the theaters, versus the ones that are free-standing in some other locations?

It really is a different model entirely, Jim. So the -- and we have, as you alluded to, we have three theaters that have free-standing Zaffiro's. When we say free-standing, they are built within the movie theater. We actually took an auditorium out, so but it is still a separate full-blown restaurant and bar. It's -- I mean, it is a restaurant.

Half of I mean, it was not even -- so it's a restaurant as well. And so, that whole cost structure is so different. Of course, we lived that, and being in the Appleby's business and a variety of other restaurant businesses over the years, versus the in -- the inline Zaffiro's Express is just a different model.

I mean, there still is -- by definition, and all these additional alternate food and beverage concepts, by definition the food cost, the cost of sales will be as a percentage higher than your base popcorn, soda, candy that we have all learned over the years. But they are incremental dollars, and our studies have shown that we are getting some incremental dollars. And so, it has kind of this two-fold effect. It has a somewhat slight negative effect on margin from a percentage basis, but again, it should be adding more dollars.

Okay. I'll leave it go at that. Appreciate it.

Thanks, Jim.

Your next question comes from the line of Eric Wold with B. Riley. Please proceed.

Thank you. Good morning. Two questions. One on the theater side, you mentioned you are looking at possibly taking selected price increases at theaters. I guess, as you come up to the comp against the start of the $5 Tuesday promotion, any thoughts on adjustments you may need to make or may make around promotions around that, in terms of going back and doing some things at concessions and all that? Or you kind of want to ride it out and see how that comps during the holiday?

Obviously, we are constantly looking at it and evaluating. We haven't come to any conclusions yet. I think that we are going to -- but as we come up on the first year, we are going to take a look at everything we are doing and make decisions on that.

I would add, Eric, that we have already -- when we first introduced it, if you recall, and that would be -- we will come up on that in November, early to mid-November. It was that free 44 ounce popcorn for everybody. When we rolled out our Magical Movie Rewards program, the loyalty program on March 31, we transition into only free popcorn then for reward members. And so, that was already an initial change. And we are not -- our guys will constantly look at that, in terms of what the promotions might be. That's the current promotion that's going on. But we will certainly be looking at all those things.

And trust me, we do test. We have got -- we have enough locations that we tested, that we test different opportunities in different markets. So we are studying it.

So $4 Wednesday is probably off the table? (Laughter).

You made my day, Eric.

So on -- switching to the hotel, with kind of -- you talked about taking price on the theater side, you have done a lot of remodels there. With completion of some of these hotel remodels, what has been the impact to ADRs at those properties? Have you pushed them up, once the remodels are done, or are you kind of holding the line for some period of time to see how kind of consumer -- customers react?

No, it is market dependent. And we are trying -- we are -- hopefully, the idea is that we are doing these renovations, and we are driving more business, and then the ADRs do push up. And we are seeing the ADRs go up on these hotels with the renovations, there is no doubt about that. The trick to the hotel business is, as we alluded to in the comments is, as this group business comes back, the strategy is to lay -- to put in a layer of group business. So you essentially shrink the size of your hotel. And then, by constraining that supply, you are able then to drive more price on what is left. That is the simple strategy that we try and go with. And so, as you put in these improvements in place, you become more attractive to these groups. And we then are able to-- layer in that group base of business, and then build from there.

One thing I would add to this, Eric, is that the one particular project that we have coming up, that we have been talking a lot about and that's the Chicago one, that is a complete repositioning. So I mean, that's taking -- that is rebranding the hotel. The market position of that asset will be significantly different than it is currently as a Four Points. And frankly, we would expect that it's going to be positioned with a higher ADR.

Yes.

And so, that is different from like for example, the Pfister, where we just did a renovation where it's still a Pfister. And so, so it really depends on a project by project basis.

Okay. And then the last question, sort of taking the opposite of Jim's question around, you are going out looking at properties to kind of take sliver equity/management contract stakes, and as you have done. Have you experienced any of the opposite, in terms of other interested buyers coming and looking at properties you own for potential opportunities?

Nope. Nobody has come and knocked on our door. But that doesn't mean that we are not looking at the -- at -- we always look at our portfolio, and that we are not analyzing our portfolio. We are, given what is going on in the markets.

Yes. I mean, it is no secret. We have been talking about this openly, Eric, that we take a look at each of the assets in our portfolio. We think we are in a decent window. I don't think the window has shut -- slamming shut tomorrow. I think we are in a decent window here for us, that we should be evaluating some of our assets and we are doing that.

And the way we are looking at it is, we want to -- we have a couple goals. We wanted to make sure that we are keeping management of the properties, because that's -- keep our infrastructure. And then to make sure that the pricing is -- if there is a transaction, the pricing is appropriate. And we keep investing in the assets, so we are comfortable no matter where the strategy takes us.

Perfect. Thank you.

Your next question comes from the line of Michael Bellisario with Baird. Please proceed.

Good morning.

Hey, Michael.

Just a few questions for you, and wanted to start on hotels. As you evaluate the Milwaukee market, does the additional supply that has been announced, and that is the Kimpton that is now going to break ground by year end, and the Westin which is a little bit further out? Do these new projects force your hand to evaluate the rebranding opportunities at the InterCon, sooner rather than later in order to be ahead of that supply? And on that same topic, how do you evaluate the potential returns for a project like this, given that it would be more of -- more defensive spending rather than offensive?

I'm sorry, project like what? (Multiple Speakers). Like the InterCon?

Yes, like the rebranding project, where you would have to put some capital in, similar to what you are doing in Chicago with the AC?

We are evaluating -- we evaluate the market regularly. We have actually had pretty good success right now with that property. We don't get into specific details obviously. If you are in the market, you can see that that property has been [firmly] positioned to really -- we have gotten aggressive with rate there. You can see it, when you just go online, look at our rates. And yet we have, when the market is strong, we are taking advantage of that as well.

It is -- I would tell you, we evaluate it at all times. We are under a license agreement with them now, so there is no changing anything right this second. And we will make -- we will make the investment we feel needs to be. The additional investment is going to be looked at as, what, how will it do.

These other hotels, if they are going to come, they are going to come, and they are going to cause the impact, they are going to cause. What we do then has to be sort of say, well, okay, well, then what will be -- what would be the -- assuming something happens, what would be the return on the additional investment. And we would assume there will be some return there then.

Got it. And is that return that you are requiring, is that different for a project like this, that was kind of what I was asking? Where it would be more defensive, rather than putting new capital to work for a potential acquisition either on the hotel or theater side. Sounds like that is not the case.

No, I mean --

Look, there is some capital you have to put into a hotel no matter what. It's not like every dollar you put into a hotel has got pure ROI, because there is -- these things depreciate. So you have to figure in as you know, there is a certain amount of just replacement that we have to put in to keep the asset stable. So a chunk of that doesn't have return associated with it a. And then a chunk of it needs to have returns, and it has to have returns based on our return models.

Sure. That makes sense. And then, just switching to theaters, the Tuesday $5 promotion. Jim touched on it earlier, on one of his questions. But do you have a Tuesday only attendance figure, and a non-Tuesday attendance figure that you could share with us? And I ask because we have yet to really see the bottom line EBITDA boost, and just like to get your take on the potential cannibalization, and how you track success? Not in terms of revenues but really in terms of profits for this promotion.

Well, unfortunately, Michael, no. We are not going to provide, and we don't provide it for this, and we wouldn't provide it for anything else either in terms of -- in fact, you will notice that we don't actually even give our total attendance. We only talk about change in attendance, and we are in a competitive business, a competitive marketplace, and so, we have chosen not to do that. So no, I can't help you out from that perspective.

I might take issue a little bit with your comment that we haven't -- you haven't seen any, because the fact is that in our third and fourth quarters, we had some -- we did have some pretty good performance. And certainly, this summer, I can't underplay the impact of what July was. Because that is -- that should be the month that we are making hay. That should be the month, where seven days a week, never mind Tuesdays too, seven days a week, you are just packed, because that's when all the big pictures are playing. And last year it was.

Look, that's the business we are in -- that -- we are going to have times like that. And so, I am not sure that I agree with what I think I heard you saying, was that we haven't necessarily seen any EBITDA from that. I think we have seen some. And I think overall it is accomplishing what we wanted to do, which is to take a business that -- everyone loves to talk about -- and you have seen our presentation, and everything else. And everyone else puts it up there, that chart, that 20, 30 year chart of box office revenues, and it's growing 3.7% compounded.

But no one likes to talk about that line that shows attendance, where attendance has been kind of flattish, or even down a little bit. And so, it is doing exactly what we want it to do, which is to bring people back to the theaters. And when we do that, again, we start looking at -- when you strip out all this other noise that's going on with the film product. And Greg. alluded, talked about a lot of the issues that we are dealing with, and some of investments that we are making. When you strip all that out, the fact is that it's a good thing that we are getting these customers coming back, going to movies, talking about going to movies again and spending dollars at the concession stand. Yes. Let's just build on that a little bit. And that is, to your point, and there is -- trust me, we look at this, and we analyze this in 19 different directions. Is there some cannibalization? Sure. There is a little bit of cannibalization, and at a lower margin. But the net-net, this is one where we are seeing Add to that the -- we firmly believe that, and have seen that. Because even if we look back, and say well, if we hadn't done this -- because trust me, we've done that -- if we hadn't done this, what would it look like? And it would look not as good as it looks -- not how it looks now. It would be a little bit less than it looks now. Now we have had to take some risk and stuff to do that. We have had to add, make investments to make that happen. But I would argue that's a great thing, because we have got a physical plan. And if you looked at what it looked like a year ago, and you look at what it looks like now, it has substantially improved.

So we are getting a little bit better result, with a much better physical plan, which then when things are cooking, it should really lead to good stuff for us. On top of that, the advantage of having more people can't -- coming to our theaters can't be underplayed, because what happens -- and there is some great dynamics. Obviously, they are buying more concessions. Obviously, there is more people seeing our advertising. There is a lot of ancillary revenue.

There is more people that now can be in our loyalty program that we can lever up. There is more people who now see the pre-show, the coming attractions. That is -- nothing makes me happier, than when the theaters are busy because people are being exposed to the marketing for the movies to come. Those momentum cycles work in both directions, good, and they can work against you too, when things aren't going so good. So there is a lot of positive -- in addition to just seeing a material -- we have done the math. And as -- at just a pure mathematics level, we are ahead.

Sure. That all makes sense. It's still early days for a lot of your investments. Appreciate the comments.

Thank you, Michael.

Your next question comes from the line of Mike Hickey with The Benchmark Company. Please proceed.

Hey. Good afternoon.

Hey, Mike.

The -- obviously, we have had some weakness here in the box office, but I think everyone is still enthusiastic for 2015 and 2016. Are you seeing any sort of impact in the M&A environment on the theatrical side? And obviously, haven't seen a deal there for a while, but any thoughts, that would be helpful? Thank you.

I'd say that's sort of the pace sort of what is out there seems to be about the same. We have looked at some stuff. The -- but we are not in a period where anybody feels pressed to sell, and they are looking ahead. I mean, it is not a secret that things look like they could be great for the next few years. We will see what plays out. But to answer your question, no change in one direction or the other.

Okay. Fair enough. And then, can you update us on your headcount? And I think you sort of alluded to this in your prepared remarks, but where the headcount is going to trend through the remainder of the year?

Are you talking -- when you say headcount, on the corporate side, on the administration side or?

Total headcount.

Yes. I mean, we pretty much have made the investments now that we intend to make. And so, in this past year -- and you are right, we did a little -- talk about that. And I have separately talked to -- at these investor conferences and things along those lines. We -- I mean, you can start with marketing, where in the old days, you never really had a marketing department. And so, we have -- we certainly have made some investments in people. But I think we are for the most part now, we are where we think we should be. And so I don't see if -- the best answer I can give you -- I am not going to give you a number per se, but best answer I can give you is that, I don't see that changing significantly from where we are now.

Okay. Fair enough. As it sort of relates to your attendance growth, obviously the $5 Tuesdays seems to be a huge boost for you guys. But thinking about maybe the theaters where you have retrofitted with recliner seating, what sort of attendance outperformance are you seeing in those theaters, versus your standard seated theaters?

Significant.

Yes, I mean. (Laughter).

It is, Mike. The fact is that while we have refrained from putting the specific numbers, we have -- I mean, you have seen some of the other numbers. And some of the -- one of our major competitors who has been touting some of their numbers, and we have seen some pretty similar improvements as we put some of these things in. As we have talked about, we are now into kind of the second wave of some of those. And so, it's really a little hard to look at -- the last four that we did, basically opened up at the end of May. So all we have to show for it is this summer, which was a pretty -- not so great film slate.

But still, so we are seeing some nice increases. We have greenlighted one more location. Right now, we are looking at a couple more. And they all are -- we are all -- we are performing in these things. We are penciling things out to have still some very healthy increases once you put them in.

And then obviously, those are the candidates for the more significant pricing increases.

Yes.

Because we have added -- we have driven -- we are providing a spectacular product. And we have looked at our competitors, and seeing what they're doing. And clearly those -- they are taking advantage of that as well, and they have stated it publicly.

Yes. Yes, no, thanks. Last question from me, I don't think you guys have talked much about this recently at least, but your entertainment network as it relates to alternative content. And I' am just curious how you see that as a potential growth opportunity, in particular you now that you have a lot of success it looks like here out of the gate with your membership program. And thinking about maybe ways that you could leverage that membership program, in terms of marketing potential alternative content to that base of potential business?

You are exactly right about using that, using loyalty as a -- because using that program and knowing who to market to, as a way to drive some of that business. It is still -- I can't tell you where it's going to end up. It's incremental. It should be incremental dollars for us. But even being able to make it better by using tricks like loyalty, because it addresses the big -- what you hit on is the key issue, right?

On any given weekend, it's amazing. On the big weekends, Hollywood can get 10 million people off their couches. Well, when you're playing a film, if you have got a 3,000 print release, right? And you are playing it seven days a week, and you are playing it five times a day at an absolute minimum, you have got hundreds of thousands of show times which to throw against marketing, as opposed to independent, something alternative content. If you were to play it on if you're lucky 1,000 screens twice, so how much money do you throw against 2,000 showings, as opposed to 200,000 showings? So the marketing becomes a challenge.

That's why Hollywood gets the kudos they get, and where they -- the scale they have is so necessary. But to the extent we are able to do things like lever our knowledge of our customer base, to be able to more efficiently market the smaller things, we are going to do it. And it will continue to grow, and it will continue to be a nice add-on to what we are doing. The Indy-focused stuff we are doing now, I think has been a nice add-on. We are able to do more independent marketing. And I think that will continue to flourish. But I can't tell you where I think it's going to end up as a percentage of our revenue or anything.

No. Fair enough. Thanks, for your insight. Appreciate it. Good luck.

Thanks, Mike.

Take care.

Your next question comes from the line of Brian Rafn with Morgan Dempsey Capital Management. Please proceed.

Good morning.

Hey, Brian.

Give me a sense, you talked in the past, maybe a question for you, Doug, reel relative to the film slate, we certainly from your 4th of July weekend. As you move down from the top 5 or top 10 pictures, was that same weakness from picture 10 to 20, 20 to 30, and where that was year-over-year? Was there any strength as you went down into some of those smaller pictures?

I would love to say, yes, but not really. I mean, in fact, I mean, look, it's all relative to -- because we are doing all these comparisons to last year, and so the film mix itself was changed, right? I talked about that in terms of how we had these two family pictures, our top two pictures last year, and this year you've got to kind of go down to our number six picture -- it didn't make the press release, would be How to Train your Dragon 2. Otherwise, that is where that -- kind of the equivalent, the first time it shows up.

But no, if you look at it in total, it was -- there was no -- because you are right. Sometimes we will have a particular quarter, where it is just deeper than usual, and that makes up for the fact that maybe you don't have a bunch of those big blockbusters. This was not one of those quarters. And Greg kind of alluded to the -- when he quoted that Wall Street article. I mean, there just were -- I don't know pure quantity, I don't have that number in front of me, if we played less or not, b there certainly were less bigger budget pictures, not just the top two or three. There were 10 less $100 million type budget movies. That is a big change.

So basically, the highs were -- the highest highs were lower, and the middle was not so strong. And frankly, we looked at it. And part of it was just what they released, they didn't release the kids movies as Doug pointed out. They didn't -- movies like Fast & Furious 6 got moved. There could be something, I have seen some banter, but we don't know for sure, about with this international focus of the whole movie business with World Cup in the middle of summer, I suspect that there were some that on the margin said, gee, I don't want my film out during World Cup time.

And so, that causes them to move some stuff out of the summer. You get all that together, it can be challenging summer. But we had an unbelievably great spring. So this is a business that just -- if you look at it quarter to quarter, you are going to be frustrated. But if you look at it over time, you will be satisfied.

Yes, do you get a sense of -- I have asked this in the past -- of shifting seasonally pictures, not just saying, hey, we are Hollywood, we are going to make our money in the summer, and then at Christmas. But starting to spread it out over and really looking at the business as a four quarter business, not just summer, 4th of July and Christmas?

Well, we are seeing some spread-out. Captain America came much earlier than it might have come in prior years, and frankly, Guardians came pretty late. So we are seeing some spread of the films. There is no doubt about it. But it's not just a spread of films. There was less product.

Less strong product.

Yes, okay. I get it. Relative to your $5 Tuesdays, and I know you don't break out attendance, can you given us a qualitative delta change at all? Are you still seeing a build in traffic on $5 Tuesdays, or have you reached a level of saturation?

I mean, I guess, my reaction is still we are seeing a build. I mean, this was our first summer where we had it, and so we had some really big Tuesdays. Maybe it kind of goes to -- there was an earlier question that kind of dealt with this a little bit, in terms of since the slate wasn't so good -- yes, I suspect that in some cases, people who just last year -- without this program they would never have come. I am sure we got some people who said, well, for a $5, I will even see this movie, even though I am not super excited about it. So look, we had -- I think we definitely had growth throughout, continue to have seen some growth. We are going to lap it in November. But frankly, I think we will -- even when we lap it, based on the growth that we saw when we first introduced, versus where we are now, I suspect we still will see year-over-year improvement for at least some time period.

Yes, okay. No, that's fair enough. That's a good answer. Let me ask you that value customer, that is usually a $5 guy, how have you witnessed again just since summer, from the standpoint of concession penetration as you roll off some of the free popcorn and that, is this the guy that smuggles in M&Ms, or do you get that guy to do anything at the beverage and food area.

Are you tipping your hand that that's what you are doing, Brian.

No, no. (Laughter).

We installed a specific M&M detector for -- at the front door to catch people. (Laughter). With changing it, it has helped our per caps, with changing our policy from free popcorn for all to free popcorn for loyalty, but we are still working on ways to improve our per caps. Because they are still obviously, and they will never be at the level where they are during the regular time, for the value oriented customer. We need to continue to work on ways to sell to that value oriented customer. We continue to make progress with it.

Yes, okay. You developed a Majestic out in Brookfield several years ago. And now it sounds like Sun Prairie may be the new big prototype. What kind of penetration, and have you changed with Sun Prairie? Are there more UltraScreens? Are there more Dream Lounger cinema theaters? What might be the difference as you look at Sun Praire, as the new big project?

Well, first of all, it's all Dream Loungers, so they will be all Dream Loungers. There will be two UltraScreens. We are going to have the BSBs, the Big Screen Bistros there. We are going to -- we will have -- it's basically the sort of -- it's the next version of the Majestic, but a bit of a smaller scale, in terms of the -- it's going to have all of the -- the different amenities we have been working on for all these years, but I would say more refined in a way, where we started with the -- if you think about it when we did the majestic, we were just -- we were at the front edge of all these -- of adding these amenities, of trying out in-theater dining.

If you remember, the Majestic, that in-theater dining has had three names. It is on its third name. First, it was the Palladium, and then it became CineDine, and then it became Big Screen Bistro. And we went from one to three, one auditorium there to three auditoriums there.

Our Take Five Lounge, that was the first lounge we ever have done in a movie theater. So it is using all the elements that we started back there, all those years ago, but have worked on and refined. And used -- it is that long-term outlook and the patience that we take with this business, it is which you see happening throughout our circuit, and coming to fruition in a new theater like the Palace.

Yes. Okay. Your Marcus, the movie loyalty program, 640,000 people signed up. Are you at a level or scale where you can really start doing the ad and the promotion, or is there a time period? Are you waiting to continue to build to a specific mass, or kind of talk about when you can really start going out and making those contacts? Or have you done it from day one?

It's just starting right now. But we are, absolutely -- I mean, look at, I would tell you, we have absolutely blown our projections out of the water on what we thought loyalty could be. I think that we were somewhere in the -- between 350,000 and 400,000 was our original projection for the first year of this. So we are significantly ahead of our projections.

So and we were planning on doing all the things we are talking about, with a smaller base, so yes, absolutely. But that being said, just getting all the -- we got caught with a wave of activity that we never even anticipated. So it has been sort of digesting that, that has been the challenge, and getting it all in a position. Because to market to those people, the technology has to be in place, and you have to be able to execute on these things. And we are just catching our breath and getting there.

Yes, you talked a little about price raising. Are you looking at raising selective concessions into the fall and the holidays? Have you made those changes already? Is that something you are phasing in over the next year? How do you kind of see the timing of that?

Yes, we will be looking at things as we head into the holiday season. We don't have -- we don't have -- I don't have a specific date or timing for you, but we will be looking at them in the coming weeks and months here. The -- as I did say in the prepared remarks, we really haven't maybe tweaking here and there, we have not had any circuit wide increases in either our concession or box office pricing since I believe it is April of 2013. And so, so, that was not -- that was intentional. There was a specific strategy in place here as we are creating this value proposition. We do believe that this fall will be the time for us to be looking at some of those.

Yes, I mean the idea to Doug's point, was that we were -- it's very intentional. The theater gang there said look at, let's put -- let's make these improvements. Let's get these -- let's put the stuff in. Let's let people come in, and see what we are doing. Let's give them a little taste of how good it is. And then, we will go from there as opposed to starting with a price increase. That didn't make sense to us.

Yes, okay. Okay. And then just one comment, Greg, you talked a little about layering in kind of the business group convention type stuff. How would you say across the nine hotels, what would you get a sense of that kind of business customer today? Has that continued to do well? Would you say you recovered to the old levels pre-2007? Where are you kind of with the business guy?

I would tell you it's getting better. It is not where it was. Because it is a combination of still -- still less group business and spending less when they are there. But it's better. It's improving, and it continues to improve. And I think it's going to be one of these cases of a -- slow and steady as she goes. And but that will -- that is going to be -- there should be some pretty good leverage in that as we move along.

Okay. And then, anything on the Von Maur project, the Brookfield at Road, or excuse me, the Bluemound Avenue, the project?

Yes, we didn't want to use this earnings release as a time to be talking, making announcements about that. But there is a lot going on behind there. We are still very excited about the project, and there is some -- I think we will be talking -- you will be hearing a lot more from us on that in the very near future. Good things are happening. And so, I guess I will just leave it at that for the moment, and but you will be hearing more from us on that shortly.

All right. Thanks much.

(Operator Instructions)

Your next question comes from the line of Ryan Hamilton with Morgan Dempsey Capital Management. Please proceed.

Hey, I was wondering if we could talk real briefly about Ghost Busters re-release. Is that something that you see happening more frequently, or is that something that is just happening because of a weak schedule?

I think you'll see more things like that again. All said and done, the question is how relevant is it? And I think time will play out. But for example, we got -- we were able to get an exclusive showing of -- I think in a bunch of our theaters the Wizard of Oz that first week in September.

Look, it's the benefit of digital.

Yes, exactly.

You're going to see more of it.

Yes, so.

You are going to see more [repetitary] film with the benefit of digital.

Yes.

Because they don't have to go out and strike 1,000 prints to do it.

Right.

They can start to move that film into our complexes much more easily, and much more efficiently. And so, you will see more of it. Absolutely.

Is that something you charge a full price for or is that a discounted price?

We are looking at each other right now. (Laughter).

I don't know. And yes --

I would love to tell you I have every answer you have a question for.

Well, I stumped you. Well, I appreciate it.

Thank you.

Thank you.

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

Well, listen, everybody, we sure appreciate you all joining us again today. Maybe we will see some of you at our upcoming annual meeting on Wednesday, October 1 at our North Shore Cinema in Mequon, Wisconsin, get to experience those Dream Lounger seats and our UltraScreen DLX there. And for those of you who cannot attend, we will be webcasting the meeting. We also look forwards to talking to you once again in December, when we release our FY15 second quarter. Until then, thanks, and have a great day.

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