Marcus Corp (MCS) 2016 Q2 法說會逐字稿

Good morning, everyone, and welcome to The Marcus Corporation second-quarter earnings conference call. My name is Liliana 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 2016 second-quarter conference call. As usual, I will 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 revenue and earnings expectations, our future revPAR occupancy rates and roommate expectations for our hotels and resorts division, our expectations about the quality, quantity, and audience appeal of film products expected to be made available to us in the future, our 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. And we'll also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com.

So with that behind us, let's talk about our fiscal 2016 second quarter and first half. Not unexpectedly, it was a more challenging quarter for our theatre division due to difficult comparisons. But once again, we outperformed the industry. And thanks to another strong performance from our hotels and resorts division, we reported another quarter of increased earnings over the prior year.

Following our usual format for these calls, 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.

Now there were no significant changes in the line items below operating income or our effective income tax rate. So other than noting that the losses on disposition that we reported, both this year and last year, were once again related primarily to write-offs of old theatre seats and equipment as we continue our theatre renovations, we'll skip that portion of my usual comments this quarter.

Before I get into the division detail, I want to note two items that impacted last year's results and the corresponding comparisons in this year. But first of course is the $2.6 million impairment charge that we took during the comparable second quarter last year related to one specific hotel. Comparisons to last year in our hotel division were obviously favorably impacted due to this item.

And the second item was in our corporate segment. You may recall that last year at this time, we recorded the reimbursement of approximately $1.4 million of costs, previously expense, related to a mixed-use retail development known as the Corners of Brookfield. As a result, comparisons to last year in our corporate segment were unfavorably impacted.

In addition, before I dig into each division, I'm going to shift gears away from the earnings statement for a moment and tell you about our total capital expenditures during the first half of the year. They totaled approximately $42 million compared to approximately $45 million last year.

Approximately $36 million of our total spend during the fiscal 2016 first half was in our theatre division, the majority of which related to the completion of multiple DreamLounger seating projects, UltraScreen DLX screens, and new food and beverage outlets as well as the purchase of land for a new theatre in Minnesota, now under construction, and the purchase of a closed theatre now under construction on the southside of Chicago.

I believe we are still on pace for our total capital expenditures for fiscal 2016 to be in our originally estimated $75 million to $95 million range, recognizing that the timing of several of our planned expenditures are still just estimates at this time. And that it's appearing more likely that we will end up in the lower to midpoint of that range at this point.

We are still finalizing the scope and timing of many of the various requested projects prior to revisions and we anticipate proceeding with many of these projects as the year unfolds. The actual timing of the various projects currently underway or proposed will certainly impact our final capital expenditure number as will any currently unidentified projects or acquisitions that could develop during our fiscal year.

So now I'd like to provide some financial comments on our operations for the second quarter and first half, beginning with theatres. Our box office and concession revenues each decreased 4.4% during the second quarter, but have increased approximately 3% each during the first half of fiscal 2016.

Now I want to remind you that while the periods we are comparing in today's release are both 13 and 26 weeks, keep in mind that because 2015 was essentially a 53-week year for us, the weeks that we are comparing to do not match up on the calendar. More specifically, this week's numbers -- this year's numbers include the 13-week period from April 1 through June 30, 2016, for the second quarter, a straight calendar quarter. And the 26-week period concludes the January 1 through June 30 for the first half, again a straight calendar first half of the year.

However, using our last Thursday December fiscal year end, the numbers that we are comparing to cover the period from March 27, 2015, through June 25, 2015, for the second quarter last year. And December 26, 2014, through June 25, 2015, for the first half last year. So this is particularly significant when looking at the first-half numbers because as you all know, the week between Christmas and New Year's is historically one of the busiest, if not the busiest, weeks of the year for movie-going.

So as a result, there are really two ways to compare our second-quarter and first-half results to the industry. And I'll try to explain this as succinctly as I can because it can be confusing. We have established that our weeks in both the second quarter and the first half this year are misaligned when comparing to last year. So when we compare our results to the industry, our first option is to compare our change in box office revenues for our misaligned weeks to the change in the national box office for those same misaligned weeks.

So when we do that, based upon US box office numbers compiled by us using data from Rentrak, a national box office reporting service for the theatre industry, we find that the national box office decreased by 7.5% during our second quarter and 1.5% during our first half. Meaning that we outperformed the industry by 3.1 percentage points during the second quarter and 4.4 percentage points during the first half of the year.

What probably interests you more is how did we compare to the more comparable 13 and 26 weeks last year, as that more closely matches what you're going to see reported from others in our industry. And there, the story only gets better.

Again, using Rentrak, we calculate that the US box office decreased 10.4% during the second quarter of calendar 2016. Meanwhile, adjusting our reported last-year numbers by removing the last week in March and adding the last week in June, thus fixing that misalignment, if you will, what we find that our box office revenues decreased 5.9% compared to the same weeks last year, which is 4.5 percentage points better than the US average for the quarter.

Now, if we go through that same exercise for the first half of the year, we are now running 5.6 percentage points better than the US average year to date. This means we have now outperformed the industry during 10 of our last 11 reported interim periods, which is nearly 3 years now, something we are very proud of.

Now again back to the reported comparisons for the quarter, the second-quarter decrease in our box office revenues is attributable to a decrease in attendance at our comparable theatres of 6.9%, partially offset by an increase in our average admission price of 2.4% for the second quarter. For the first half of the year, our 2.9% increase in box office receipts is attributable to a 5.1% increase in our average ticket price, partially offset by a 2.4% decrease in attendance.

The fact that we've increased our number of premium large-format screens with a corresponding price premium certainly contributed to our increased average ticket price during the fiscal 2016 periods. As did a higher percentage of box office receipts attributable to 3D films and a modest price increase taken in January.

Conversely, I will tell you that our growth in our average ticket price was tempered this quarter by the fact that two of our three highest-grossing films were animated or family-oriented films compared to none of our top three last year. Meaning that we had a much higher percentage of our box office mix that came from the lower-priced children's and matinee pricing.

Now we also were very pleased to report an increase in our average concessions revenues per person of 2.3% for the second quarter and 5.1% during the first half compared to the same periods last year. Our investments in nontraditional food and beverage outlets continued to contribute to this outstanding performance. But once again, they were tempered in our second quarter by that same change in film product mix, as animated and family pictures tend to not draw as many people to our nontraditional food and beverage outlets compared to more adult-oriented films.

Now shifting to our hotels and resorts division, if you do the math, you'll see that our overall hotel revenues were up 1.1% for the second quarter and down 0.5% for the first half. But if you eliminate the hotel that we sold in October, the Hotel Phillips, from last year's results and the Safe House restaurant that we purchased last June and you take that out of both years, you'll find that our revenues were actually up 4.7% during the second half -- second quarter and 3.2% during the first half compared to last year.

Now as noted in our release, our total revPAR for 8 comparable properties increased 6.9% during the fiscal 2016 second quarter compared to the comparable period last year. And 5.9% for the first half of fiscal 2016 compared to last year. As we've noted in the past, our revPAR performance did vary by market and type of property.

Breaking out the numbers more specifically, our fiscal 2016 second-quarter overall revPAR increase was due to an overall occupancy rate increase of 1.8 percentage points and a 4.4% increase in our average daily rate. Year to date, our occupancy rate has increased 2 percentage points and our average daily rate has increased 2.9%.

Now according to data received from Smith Travel Research and compiled by us in order to compare our fiscal-quarter results, comparable upper upscale hotels throughout the United States experienced an increase in revPAR of 3.4% during our second quarter. And competitive hotels in our collective markets experienced an increase in revPAR of 4.7% during our fiscal 2016 second quarter. Thus, you can see that we outperformed in this division as well this quarter.

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

Thanks, Doug. I'll begin my remarks today with our theatre division. With last year's second quarter being the highest on record for the exhibition industry, we all knew that the industry would have difficult comparisons during this year's second quarter. And while the 10.4% decline in the national box office for comparable calendar weeks during the quarter that Doug shared with you a few minutes ago certainly reflects that reality, I would suggest that there were some surprises this quarter.

With last year's May and June film lineup including blockbusters such as Avengers: Age of Ultron, Furious 7, Pitch Perfect 2, and the fourth-highest grossing film of all time, Jurassic World, I think most people assumed that the overall decline in box office would be even greater this quarter. I'm here to tell you that thanks to a deeper lineup of films this year and the strong performance of films such as Captain America: Civil War, Finding Dory, and Jungle Book, we actually performed pretty well during May and June when all was said and done. In fact, we actually had more weeks with increased box office than we did weeks with decreased box office during the quarter.

So it may come as a surprise to you to hear that our entire net decrease in box office during the quarter occurred during the first two weeks in April and is directly related to the fact that Easter was early this year, falling in our first quarter. As you know, movie-going generally increases when the students are out of school and Hollywood adjusts their film release schedule to reflect that. Thus, this year's first quarter benefited from the early Easter, but last year Easter was in the second quarter, thus the difficult comparison in early April.

What I hope doesn't come as a surprise to you is we once again outperformed the industry. The investments we've been making in our theatres and our innovative marketing and pricing initiatives along with our loyalty program that is now up to 1.6 million members and counting continues to make a difference.

I think our performance this quarter, even with the headwinds of the difference in the calendar and the weaker film slate, reflects the benefits of the strategies we've been executing on for the past nearly three years now.

And I'll be honest with you. I believe our outperformance versus the industry during the quarter would've been even greater if not for a weather-related dynamic that we believe we face every spring in our Midwestern markets. We had several weeks in May where we underperformed the industry that directly corresponded to the first weekends of spring, when the weather finally turned nice around here.

I know that may sound strange to some of you, but those of you who live in the Midwest know about this dynamic. After a long hard winter, people flock to the outdoors those first few weekends when the weather turns. It happens every year. Going inside a movie theatre on one of the first beautiful spring days is not something everyone wants to do, regardless of the movie.

And as evidence that I believe our outperformance would've otherwise been even stronger, I will tell you that during June, as our normal movie-going patterns returned, our review of the numbers from Rentrak indicate that we outperformed the industry by over 8 percentage points, 4 points higher than where our outperformance ended up for the quarter as a whole.

Now, while hopefully Doug and I have given you a little more color on the ups and downs of the second quarter, you also know that what matters most to us is how we execute over the long haul. And by that measure, we are all pleased, having sustained our box office outperformance for nearly three years now.

Over the last nearly 3 years, we have invested over $150 million in our theatre circuit. And the results have made us an industry leader that boasts the highest percentage of recliner seating auditoriums, premium large-format screens, and innovative food and beverage outlets of any of the top chains in the country. Add to that our groundbreaking $5 Tuesday program and what we believe is one of the best loyalty programs around and it is not surprising that we continue to meet our goal of outperforming the industry.

As we look ahead, we are excited to continue to invest in both new and existing theatres during the remainder of fiscal 2016 as we further expand the successful concepts and amenities that have contributed to our industry outperformance. By later this fall when renovations are completed at our Orland Park Cinema and recently purchased Country Club Hills Cinema, both in the Chicago marketplace, our industry-leading percentage of auditoriums offering recliner seating will be nearly 48%.

We opened one new Zaffiro's Express and two new Reel Sizzle lobby dining outlets during the second quarter and expect to open two new Zaffiro's Express and Take Five Lounge outlets during the third quarter of fiscal 2016. We are also in the process of converting one UltraScreen to an UltraScreen DLX and converting another screen to a SuperScreen DLX at two existing theatres as well as adding two new screens to our Marcus Palace Cinema in Sun Prairie, Wisconsin.

And besides getting DreamLounger reclining seating to the [close leader] we purchased in April, we are adding one UltraScreen DLX and one SuperScreen DLX auditorium as well as a Take Five Lounge and Reel Sizzle outlet to this theatre. We currently expect the newly remodeled theatre to open early in our fiscal 2016 fourth quarter.

We also have begun construction on a new theatre in Shakopee, Minnesota, and we expect to begin construction in the fall on our first stand-alone all in-theatre dining location, which will be in Greendale, Wisconsin. And I would be remiss if I didn't note that we continue to be very interested in expanding our circuit with selective acquisitions if the right opportunities arise.

From a film perspective, our stated goal is to continue to outperform the national box office regardless of how the films do compared to the prior year. We're off to a very good start towards that goal in July, as some of the films listed in our release have performed very well and we have performed even better.

With filmed like Jason Bourne and Suicide Squad still ahead, we hope the summer ends strong before we start competing against the Olympics and enter the traditionally weaker late August and September period, when movie-going decreases as the kids go back to school.

With that, let's move on to our other division, hotels and resorts. You see the segment numbers and Doug gave you some additional detail. And it was a very good quarter for this division. Of course, it all starts with revenues.

Our industry and market outperformance in revPAR that Doug shared earlier reflects a great job of revenue management by our team, with a particular focus on increasing our ADR this quarter. All eight of our Company-owned and operated hotels produced an increase in ADR during the second quarter. And the tremendous efforts of our sales teams were evident as well, as additional group and transient business contributed to our overall increased occupancy percentage during the quarter.

But ultimately, you have to convert those increased revenues to profits. Once again, our hotel team was up to the task as they did a great job of managing costs and increasing profitability while continuing to maintain our high levels of customer service.

As we noted in our press release, after adjusting for last year's impairment charge and excluding the Hotel Phillips and Safe House from both years in order to get an apples-to-apples comparison, our team was able to produce an operating margin of 12.7% this quarter compared to 8.6% during last year's second quarter, an improvement of over 4 full percentage points. In fact, after adjusting for these same items, for the second straight quarter, nearly 100% of our revenue increase this quarter flowed through to our operating income line, an outstanding achievement.

Certainly, a portion of our improvement can be directly attributed to our AC Hotel in Chicago, which is in the midst of a major renovation and was operating without a flag during a portion of the quarter last year. But it is important to note that the story was not about just one of our hotels. All but one of our hotels reported improvement over the prior year and that hotel was in the midst of a significant renovation during the quarter.

As I just indicated, additional group and transient business contributed to our higher-than-market revPAR during the quarter. Our owned hotels also had a solid group booking period during the second quarter as we experienced an increase in group room revenue bookings for future periods compared to advanced group bookings during the second quarter last year, something commonly referred to in the hotels and resorts industry as group pace.

Looking ahead, it certainly is our goal to keep reporting revPAR increases in line or above what is happening nationally and in our markets. The AC Hotel Chicago is beginning its second year of operation and we look for that property to continue to ramp up. We continue to closely watch hotel supply in our markets and we continue to watch the macroeconomic factors that impact our industry. In the near term, we are looking for continued improvement from this division.

In the meantime, we also continue to make selective investments in our assets, as evidenced by the recent renovation of the Safe House bar and restaurant in Milwaukee and our renovation nearing completion of the Skirvin Hotel in Oklahoma City.

And from a growth perspective, we've talked about how we are stepping up our efforts to increase our visibility as a national hotel management company. We hope to add to our portfolio of managed hotels in the coming year. Conversely, we continue to actively review opportunities to sell one or more owned hotels, hopefully while retaining management when so desired.

Before we open up the call for questions, I want to conclude my remarks by first making sure to say thank you to all of our associates who work so hard every day, led by Rolando Rodriguez in the theatre division and Joe Khairallah in the hotel division. This is especially true during this time of year when both our businesses are extremely busy.

Now I want to expand on the summary section of today's press release. Our balance sheet continues to be positioned in a way that provides us with a great deal of flexibility to respond to opportunities to grow our businesses while still returning capital to shareholders.

Let's just think about our last 13 months for a moment. During our seven-month transition period ended in December and the first half of fiscal 2016 combined, we invested over $86 million in our 2 businesses, sold a hotel and reinvested the proceeds in a tax-efficient 1031 transaction by purchasing a theatre and two parcels of land for future growth, increased our quarterly dividend by 7.1%, and opportunistically repurchased over 0.25 million shares of our common stock at a price of just over $18.

And 13 months later, our debt to capitalization ratio actually decreased from 42% of the end of May 2015 to 39% at the end of June 2016. And during June, we replaced our then-existing credit agreement consisting of a $37 million term loan and $175 million revolving credit facility with a new five-year $225 million credit agreement with our existing bank group. Needless to say, I believe we are in a great position to capitalize on opportunities as they arise in the future.

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

(Operator Instructions) Jim Goss, Barrington Research.

Thanks. I was wondering if you might start by looking at Q3 and Q4 in terms of the Rentrak comps you think you will face relative to the industry, that might give us a starting point for at least refining models.

Jim, I would leave that up to you. I mean -- (laughter)

Jim, look, we're not going to tell you that -- we're not going to give you some number and say that we think we are going to outperform by some percentage. We are telling you --

No, I'm not asking you that. But you've talked about -- like in this quarter, you had a 4% decline for the industry measure, but the industry was in their weeks were more like a minus 7% or minus 8%. And I'm just wondering is there are any variances we should be looking out for just in terms of the way your comps will match up with the industry comps to the extent you've worked out that.

So you are talking about that misalignment that I was referring to and whether that's going to create any --

Exactly.

Okay.

I was worried you wanted our crystal ball out.

Well, I was hoping yours would be better than mine. But we'll see.

So it's an interesting question, Jim. I'm going to go a little bit top of mind here on this because I haven't run those numbers. But I'll say this. So now the next quarter ends at the end of September. And so the fact is as we all know, September is the slowest month of the year. So trading the last week in September out for the last week in August -- or last week in June, I mean, I don't know that -- the biggest change was clearly what occurred in that first quarter with the Christmas week.

The reality is that this time around, the reason why there was a change of that 10.4% versus the 7%, 7.5% that I mentioned is because we are trading the last week in March for the last week in June, right? So that's kind of the math that you would need to do, Jim, is that you would need to take a look at the difference of what we are trading off.

In this case here, we are going to be trading the last -- we are going to have the last week in September in this year's results. And last year's second quarter -- or third quarter will instead have the benefit of that last week in June, because I ended on June 25. So that's not a favorable trade-off. That's the kind of math that you could do (multiple speakers).

So you might have tougher comps in the third quarter. And possibly even worse in the fourth quarter if last year you had an extra week of Star Wars.

Well, right. Then you got -- the fourth quarter, you got the whole issue of that we are going to be comparing 13 weeks to 14 weeks. So absolutely. And we helped with that by providing in our disclosures, if you look at our 10-K and things like that, we provided what we felt the impact of that 14th week was.

Okay. AMC has been talking about modifying their reseating types to look at different types of markets and different types of screens. You might have more consistency across your platform than they do.

But I'm wondering if you are going to look at any variances where you might have -- certain theatres where you, say, remove half of the seats rather than all the seats effectively in that process. Or rather than, say, two-thirds of the seats. Or if you think you are going to be consistent in the pattern you've been doing to this point.

I don't know of any current plans to change what we're doing. And those become very tricky because you end up having to deal with customer expectations. And we were thoughtful about it when we've been -- the teams have been around long enough. We knew what it was like when you didn't have stadium seating in every auditorium.

It becomes challenging. We do do some where we just put the recliners -- our recliners are DreamLoungers. When we put our DreamLoungers in, we'll do them in UltraScreens or SuperScreen DLXs. But we don't have any current plans to change the model.

But that being said, look, we don't have the market cornered on good ideas. And if somebody does something that makes sense, we are going to keep our eye out.

What I would only add, Jim, is that we are up to -- we shared in our prepared remarks, by this fall, when the two Chicago theatres are completed, we'll be up to 48% penetration with our DreamLounger recliner seats in the auditoriums, following the model that we are following.

So I suggest that here you are talking about some of these other guys talking about playing different models. And they are not even close to that level of penetration that we are in.

Okay. One more and maybe I'll get back in the queue. But I'm wondering about M&A in the theatrical space. Assuming the AMC-Carmike deal closes, does that open the door for you to be more aggressive? Because perhaps one of the companies that's been most in your relative space would be off the table?

We hope so. We do. Hope that does create an opportunity for us and we are out there looking.

All right. Thanks very much. Appreciate it.

Mike Hickey, Benchmark Company.

Great quarter; congratulations. Two questions. Two big questions, I guess. This sort of dovetails to Jim's question, perhaps. And I'm just sort of curious what you're seeing from the rest of the domestic market. I guess maybe in response to AMC and Carmike.

And of course, sort of thinking about the 20,000 or so screens that are held by the privates, are you seeing any sort of change in deal pricing or activity or RFPs as I guess the privates sort of ponder the reality of maybe two of the bigger buyers leading the market. And perhaps also the consideration that at least one of the buyers that is still there theoretically would be looking for international growth, which is somewhat of a change. So any thoughts there would be helpful. And I have a quick follow-up.

Well, I guess it doesn't bum me out that a decent player is off the table. I like your thesis, but I don't think there's any -- we don't have any -- you know, I think the market -- I don't see much evidence of anything just yet that market continues.

I think the market has sort of been about where it's been. The activity level I don't think has changed. And we just continue to mine the market and continue to be out there. And we want people to know that we are interested and anybody who wants to can call me and we're happy to talk about anything.

Are you advertising right now?

Doesn't Warren Buffett do that? Like on his conference call, I know when he has one, he puts out like call me or email me if you want to sell your company.

You know, Mike, what I would maybe add is I think the more compelling thesis still remains the fact that the industry is in the midst of a major reinvestment period. And so the fact of the matter is I still think capital needs -- capital needs and then the expertise to be able to execute on these new reinvestments is probably a more compelling case for some of these guys to be thinking about.

Because to stand still is we would argue is not an option. And so we believe that the stuff that we are doing is what makes you competitive and keeps you state-of-the-art in the industry. And so I think that's the more compelling reason why some of those other 20,000 screens might want to consider someone like us.

Fair enough, guys. That's good. It's certainly an interesting time in the industry right now. Last question from me. Along the same lines, I guess, is if you think AMC is successful with Carmike. And then sort of curious on potential divestitures required by the DOJ, if you sort of think that that will go through the auction process, and if so, do you think you would still find an opportunistic price if it's an auction versus just sort of finding it in the market or them finding you.

And then the divestitures that you would anticipate, would those be in markets that are perhaps more competitive, assuming that there is -- that it's because of the overlap with Carmike and AMC and how forward AMC has been with recliner and amenity refreshes. That's it for me guys, thanks.

I have to say that you know, that trying to figure out what they are going to divest is about as likely as trying to figure out what the box office is going to be for the next quarter. We just don't know trying to guess what the government is going to have them do.

We've taken some looks at it and we -- but frankly, we don't want to spend too much time until we know what it is and what the process is going to be. And then we'll be there and we'll look at it and hopefully we'll be competitive. But once again, we'll be disciplined as we always are about what the acquisitions are and it will depend on what they are divesting.

Fair enough. Thanks guys.

Eric Wold, B. Riley.

As a follow-up question on Mike's question kind of around acquisitions, I know in the past, you've talked about using a tax strategy of if you were to sell a hotel property, identifying an asset I think within 45 days and then closing within six months -- correct me if I'm wrong -- to kind of get that tax advantage.

Can that be done in the reverse? If you see something to buy that comes upon quick and you buy some theatre chains or theatre properties and then sell a hotel afterwards, can you retroactively apply the tax benefit? Or does it have to be done in the correct order?

The short answer is yes. It can be done either way. The same timeline applies. So if we were to find something to buy that had real estate, you can do that in 45 days. You'd have to identify some potential things that you may consider selling here.

There is a limit to how much you -- it can't be a shotgun approach, where you have named 20 things. But you can over-identify and then you have 180 days to close. So it goes in both directions there.

It's called a reverse 1031.

Would eight hotel properties be considered shotgun?

That might cross the line. Yes, it might.

And then the question that you made you are looking to get kind of more of a national hotel management strategy and kind of get the word out and do that. I know looking for properties to take over a management contract is one thing.

Would you do it in a larger fashion, where you would consider acquiring an entire hotel 100% interest and then sell off a majority stake afterwards to maintain a minority stake in the management contract? Or is that too big of a risk and too big of a purchase you would want to go after?

We've done it.

Right.

We have done that in the past. It would depend on the transaction if we really did it. Because my feeling is we'd have to be prepared to own it if something didn't work out. So just when I say something doesn't work, you know, all of the sudden, times -- weird things happen and markets shift. And all of a sudden, you can't move assets off the balance sheet. It's not a strategy we are looking to actively employ, but I wouldn't -- again, it would just depend on the asset.

Okay. And then just last question on just underlying trends on the hotel resort side. Very strong ADR of 4.5% in the quarter. What are your general thoughts on the trends you are seeing in your regions? How is that -- I guess it's tough to tell each competing chain or location, but how would that 4.5%, 4.4% compare to what you are seeing other competitors do? And do you feel you have more room to take that number up meaningfully higher without impacting occupancy trends?

We've been saying that ADR was likely to be the larger component of our revPAR growth in 2016. And certainly there's been a conscious effort on our part to make that happen.

As we look at the -- kind of the -- I shared with you some broad revPAR numbers for that -- kind of the upper upscale segment and then also the comp sets, if you will. I will tell you that in -- and then we outperformed both of those, as I shared with you.

When I take a look at that mix of ADR and occupancy for those competitive sets and for the upper upscale segment, I look at the upper upscale segment and I shared that for the quarter, it was up 3.4%. Looking at the numbers that we got from Smith Travel, about two-thirds of that was rate and one-third of it was occupancy. So that's pretty much tracks what we saw as well, only we saw it to a greater degree. So we were up 6.9% and 4 point -- and our ADR was up 4.4%.

So I think the relationship was in general the same. But we were just -- we were more successful overall in driving the strategy.

Perfect. Thank you, both.

David Loeb, Baird.

Good morning. Doug, can I just follow up on that revPAR question? It was sort of around one of mine. Was there anything going on in those individual markets? Any particular source of demand or anything you were doing in particular that led you to gain share in your markets?

Well, following up on what we just talked about, I was talking about the upper upscale. But I also shared in our prepared remarks the comp sets, where we take the same data from Smith Travel and we look at each individual hotel and the hotels that are kind of deemed to be competitive, as you well know.

So in our markets, our markets did outperform the national numbers. The numbers I shared with you was the markets were up 4.7% collectively and the national number was up 3.4%.

Now you try to bifurcate that, David, and start talking about in each of these eight markets, was there anything unusual? Nothing that rises to the level -- when I looked at the write-up from our division for each individual hotel, it was nothing that would result in me calling it out, if you understand.

It was of things so unusual -- we had some -- as we indicated overall, we had a good group period. We had a good non-group kind of transient business period, and it varied from hotel. When I looked at the increases that we had, I could look at one hotel and it was up entirely because of group business. And then you look at another hotel and it was up entirely because of non-group transient. So it was not any particular trend. I guess maybe a little longer-winded answer than you wanted, but that's what we saw.

No, that's actually a good answer. And if you strip out Chicago, just given the renovation disruption a year ago, what would that revPAR growth number look like in terms of direction, order of magnitude?

Well, I tell you, the -- I will tell you that for the second quarter -- without Chicago; I did the math -- we were -- I shared with you that we were up 6.9% overall. We were still up 5.7% without Chicago. So we still outperformed.

So it's really just preference execution, group booking, things like that, revenue management. It's really just kind of the day-to-day business that you guys are clearly succeeding in in those other markets.

I would agree.

Okay. On the theatre side, you've spent a lot of capital at your theatres. They are in great shape. It's clearly been a significant positive in your results. How much more of that is there to do?

That's the question we get every quarter, David. And you know so far, we've been able to keep that going. And as we've indicated, we've got for the rest of 2016 a number of food and beverage outlets still to open up. We've got some new screens that are going to open up, the 16 new screens in Chicago plus the 2 new screens in Madison.

We have more DreamLounger locations opening up in 2016 yet. And the guys as we speak, the team as we speak is working on their -- starting to do their strategic planning and working on their 2017 model. So it kind of goes back to that very first question that Jim asked in terms of with 48% penetration in DreamLoungers, for example, how much further can we take that?

And that's the challenge that we are taking a look at right now. We do believe that we still have some more opportunities. And then the wildcard is in the second set of questions that we got, which is can we start the cycle over again with some additional acquisitions?

Yes, that is going to be the driver really at the end of the day. As you noted, David, the base circuit has been -- the team has done a great job of reinvesting and revitalizing the base circuit. But there's not -- there aren't too many more.

Again, what you're seeing is more lumpy stuff. We got the Country Club Hills in Chicago. That's -- Shakopee. So we are now dealing with more stuff where we are building or taking over a different theatre. But there is again -- and yet sporadic -- we are in Orland Park putting in DreamLoungers there. We are -- but it is less so on the base circuit.

Right. I certainly noticed the shift in CapEx to more newbuild kinds of efforts, including the Chicago acquisition. And it also is pretty clear you've gotten a lot more questions about acquisitions. So it sounds like you are ready for those.

I'd ask you if you thought the sellers were more interested, but I don't -- well, let me just ask. If you think the sellers are more interested today, do you think the revised offer for Carmike helps in that process or does it make sellers unrealistic in their expectations?

I think it cuts both ways. But I think -- because again, there's fewer players on the table with what's going on. So that could dampen some enthusiasm. The -- but the multiples are -- there have been some, but the multiples sort of also become unique circumstances, too.

So you have to be a little careful about extrapolating a multiple from one transaction. And that's part of what we do. If we look over time, there is more sense to the multiples than just the last transaction.

So much goes into the capital needs as well, David. So you have kind of your -- you kind of have your going-in multiple and then you have your multiple that you have to consider when you evaluate what kind of capital has to go into those properties.

Because again, the thesis here is potentially that we are looking at some things that -- some properties where maybe they've been a little -- where they need capital. And so we've got to really evaluate and show discipline as it relates to both multiples.

Yes, okay. Great, thank you.

(Operator Instructions) Ryan Hamilton, Morgan Dempsey Capital Management.

This is actually Brian Rafn. Let me ask you now that you guys have had the Marcus Rewards going, I'm wondering if you guys have seen any ability to drive traffic or attendance behavior by, you know, different film genre in kind of your advertising and your interaction over the Internet with your customers.

Absolutely. That so far has been the first, let's call it the first step on that -- the first steps on the journey of our loyalty program. And it's a long journey still yet to be played out.

The first step is just using that knowledge to attract our user, to use our user base and let them know what's playing. And we absolutely see growth in our business by leveraging that knowledge. The next steps are then taking that and finding out what else we can do to leverage that base of 1.6 million and growing. And there are lots of opportunities there.

That's awesome, awesome. You know, you guys -- one kind of double question. The concession sales for your Tuesday night value guy, and also how popular has been, if you still have it, the Thursday night kind of -- I think you had a $5 student night traffic there. And then that kind of student, what's his kind of concession per ticket?

The student night is growing. It's been very nice. It's not growing at the level -- it's not obviously $5 Tuesday, but it is a growing program. And we look at it -- we do compare it to the circuit to make sure that it is effective and it is clearly effective and will continue to grow. It is a smaller -- again, the per cap is a little bit less. But it is a -- but we believe it is a good program.

Okay, awesome. Greg, you mentioned by two parcels of land. How viable is that the kind of one-off where you actually buy the real estate and do a greenfield? Are there a lot of locations to do that or is that kind of a niche market?

Well, I don't think there's a ton of new greenfield development for the theatre business. With all the screens in our country, I don't think we need a ton more. But if the opportunity presents itself, we do take advantage of it.

Okay. The 20,000 and you guys kind of -- the concentration urban suburban, if you look at that kind of 20,000 plus mom-and-pop rural one-ball market, what is your ability to go in and, like your legacy Ripon campus, where you might find a rural location that you might add screens to or make it a little bigger.

Or is that rural concept, where you are kind of way out in the sticks and you have to draw from a huge geographic area? I would look at Ripon, where you are pulling in from Berlin and Green Lake. And you know, I don't think Fond du Lac, but how viable is that rural if you start going out to some of those mom-and-pops for you guys?

That is not a market we've been playing in. We have Ripon, but that's -- we call it The Shrine.

Okay, okay. Of those 20,000, then, are they driven by retirements? Are there still old analogs that don't have the ability to convert to digital? What is that market from your standpoint? Is it smaller chains? What do you see?

As I said, Brian, we don't even play in that market. So I can't even -- I couldn't really give you much commentary on that.

Brian, it's so fragmented. I mean, the fact of the matter is that in that 20,000, which includes us, because the top four guys have got 20,000 screens and the next --

(multiple speakers) population. Oh, I'm sorry.

So then the next 800 guys have got the other 20,000 screens. We are the biggest of that, but if you look at the ranking, it falls off pretty quickly. There are circuits that have total screens in the hundreds and it just kind of keeps on falling off from there.

And we've -- look. In our history, let's use history as our guide, we've bought individual theatres, we've bought small circuits. We bought a $40 million circuit. We bought a $75 million circuit. We'll continue to look at all kind of shapes and sizes, but it's very fragmented.

Yes, no. I think you guys have answered that real well and I appreciate that. Let me just ask another one, relative to the DreamLounger. Absolutely a fabulous experience. Have you guys seen now as you've gotten into it any more mechanics and maintenance to that?

I always think of John Candy in Planes, Trains, and Automobiles where he breaks the car seat from multiple adjustments. Has that been an issue at all or have they been very, very durable?

So far, so good. But we are early in the game.

Okay. All right, thanks, guys.

Jim Goss, Barrington Research.

I was wondering in terms of your hotel approach, are there specific brands you are targeting or -- because you have quite an assortment of different hotel brands in your group. Or is it just whatever becomes available that makes sense to you?

Yes, it's always market specific. Depending on -- it just -- what's available, what does the location dictate? Is it more leisure? Is it group? Is it business? What is your -- those factors go into it in helping us decide if we are going to brand something, what the brand is going to be. And then it's okay, what brands are available that fit that. So there's no -- we're not targeting any one brand.

Okay. And then you tend to own properties rather than lease to a much greater extent than a lot of your peers. In an M&A environment, do you think that would change at all? Or --?

Look, I think we've always said our preference is to own the real estate. It's allowed us to be very nimble throughout the years. But realistically, we have to be realistic about if we are going to grow, and we want to grow, that we'll have to take on leases for certain chains. And that will then reflect -- the pricing will have to be attractive and the assets will have to be attractive. And then our feeling is just to remember that leasing is just a form of finance.

And with that in mind, that's -- one of the things that's always going to be paramount to us is maintaining a strong balance sheet. That's been one of our Company's hallmarks and it's allowed us to weather a lot of storms and I'm not about to go against that strategy.

Okay. Thanks very much. Good answer. Appreciate it.

Ryan Hamilton, Morgan Dempsey Capital Management.

Thanks. This is Brian again. Greg, I think you mentioned adding two screens to -- was it Sun Prairie? If you look at the fact that you guys own the bulk of the real estate under your theatres, is it a viable strategy to expand the legacy building? Or do you really get locked into the footprint that you already have on the site unless you demolish it?

The expansion when warranted is certainly acceptable. Although I will tell you that for the most part, the history of building, that we are probably not expanding too many theatres.

Okay. Then from the standpoint of geography, is there any ability or interest in, say, theatres in Canada? Or are you guys strictly domestic US?

Canada has an excellent operator up there in Cineplex. And I don't think we are going to go anywhere near Canada.

They've got like an 80% market share. So yes, probably not there.

I got you. Then just finally, Doug, maybe kind of the depth of the movie slate. Films 1 through 10, 1 through 15, second quarter 2016 versus 2015. Any comments?

We alluded to that in the prepared remarks, but we didn't throw any numbers out there. So here are some numbers. For example, our top five pictures during the quarter accounted for 49% of our overall box office during the quarter. Last year, during the same second quarter, our top five pictures were 55%.

So that's probably one of the best measures I can show in terms of -- if I take it even deeper and I look at it and go to the top 15 pictures, top 15 pictures in the second quarter were 77% of our box office. Last year, our top 15 pictures were 85%.

So you see that same kind of dynamic that would go to that when we say it's deeper, we are saying that just more pictures are contributing into our results. And that clearly was the case in the second quarter.

Yes. And then one more, Doug. How viable has your retro series been when you bring back, whether it's Godfathers or football or girls' night out, how have those been for you guys?

Talk about the first step on a journey. That's a great -- this will be a great way to tie things up to talk about the benefits of having a loyalty program so that we can -- the challenge is how do you market something that those are -- where they are really more one-offs?

Series allow you also to market more than one movie at a time, but still it's not a national marketing campaign. So we are going to be able to leverage our -- the goal is ultimately to leverage our loyalty club membership to know who wants to see movies like that, to be able to use films like that, and to utilize our screens when we have availability. To build a knowledge of it.

That is -- with going digital, that's one of the things that the journey of digital has allowed us to take and we are on the first step of that. And I know the team is focused on that and is starting to figure out how to make sure we can monetize those kinds of opportunities. And I think there's much more to come.

Awesome. Thanks, guys. Appreciate all the comments. Good luck.

At this time, it appears that there are no other questions. I'd like to turn the call back to Mr. Neis for any additional or closing comments.

Listen. Thank you, everybody, once again for joining us today. We look forward to talking to you again in October when we release our fiscal 2016 third-quarter results. Until then, thank you and have a great day.

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