Marcus Corp (MCS) 2016 Q3 法說會逐字稿

Good morning, everyone, and welcome to The Marcus Corporation third-quarter earnings conference call. My name is Kaylee 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.

Well, thank you and welcome everybody to our fiscal 2016 third-quarter conference call. As usual, you know I need to begin by stating that we plan on making a number of forward-looking statements on our call today. Our forward-looking statements could include but not be limited to statements about our future revenues and earnings expectations; our future RevPAR occupancy rates and room rate expectations for our Hotels & Resorts division; our expectations about the quality, quantity and audience appeal of film product 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; our expectations regarding various non-operating line items in our earnings statement and our expectations regarding future capital expenditures.

Of course, our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks and uncertainties which could impact our ability to achieve our expectations are included in the risk factors section of our 10-K and 10-Q filings which can be obtained from the SEC or the Company. We will also post all Regulation G disclosures when applicable on our website at www.MarcusCorp.com.

So with that behind us, let's talk about our fiscal 2016 third quarter and first three quarters. As you can see, it was another great quarter for us thanks to record performance from our Theatre division. As has been the case now for three years, we once again outperformed the industry and pretty significantly at that.

Results from our Hotels & Resorts division were down slightly this quarter but year to date we remain significantly ahead of last year and we're also outperforming in this division. 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.

So we will start with interest expense. You will notice that it was down slightly compared to last year due to a lower average interest rate and a small decrease in total borrowings. But other than that, there were no significant changes in the line items below operating income or our effective income tax rate, so we can skip that portion of my usual comments this quarter.

Before I dig into each division, I will briefly shift gears away from the earnings statement for a moment and tell you that our total capital expenditures during the first three quarters of fiscal 2016 totaled approximately $58 million compared to approximately $59 million last year. Now approximately $49 million of our total spend during fiscal 2016, the first three quarters, was incurred 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 costs related to two new theatres now under construction and the purchase and renovation of a closed theatre that now is open on the South Side of Chicago.

At this point in our fiscal year we believe we are on pace for our total capital expenditures for fiscal 2016 that will likely be in the $75 million to $80 million range barring any growth opportunities that could arise in the remaining months and recognizing that the timing of payments for several of our various projects could vary and carry over to fiscal 2017. 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 acquisition that could develop during our fiscal year.

So now I'd like to provide some financial comments on the operations for our third quarter and first three quarters beginning with theatres. Our box office and concession revenues increased 19.8% and 16.3% respectively during the third quarter and our total revenues have now increased approximately 8% during the first three quarters of fiscal 2016.

I want to remind you that while the periods we are comparing in today's release are both 13 and 39 weeks, keep in mind that because 2015 was essentially a 53-week year for us the weeks that we are comparing do not match up on the calendar. More specifically, this year's numbers include the 13-week period from July 1 through September 29, 2016 for the third quarter and the 39-week period from January 1 through September 29 for the first three quarters. Using our last Thursday in December fiscal year end the numbers that we are comparing to cover the period from June 26, 2015 through September 24, 2015 for the third quarter and December 26, 2014 through September 29, 2015 for the first three quarters last year.

Now that means during the third quarter we essentially traded a week in June last year for a week in September this year, which is not typically a favorable trade. And the calendar disconnect becomes even more significant when looking at the first three-quarters numbers because as you know the week between Christmas and New Year's is historically one of the busiest, if not the busiest, weeks of the year for moviegoing. So to be up nearly 8% year to date in revenues, when we are comparing to a period that includes the Christmas week last year, is pretty impressive from where I sit.

As a result, there are really two ways to compare our third-quarter and first three-quarters results to the industry and I will try to explain this as succinctly as I can because it can be confusing. We've established our weeks in both the third quarter and the first three quarters this year, we've already established they are misaligned when comparing to last year.

So when we compare our results to the industry our first option is to compare our changes in box office revenues for our misaligned weeks to the change in the national box office for those same misaligned weeks. 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 increased by 9.3% during our third quarter and 1.9% during our first three quarters, meaning that we outperformed the industry by 10.5 percentage points during the third quarter and 6.2 percentage points during the first three quarters.

What would probably interest you most is how did we compare to the more comparable 13 and 39 weeks last year as that more closely matches what you will see reported from others in our industry. There the story only gets better. Again using Rentrak, we calculate that the US box office increased 14.7% during the third quarter of calendar 2016.

Meanwhile, adjusting our reported last year's numbers by removing that last week in June and adding the last week of September that I talked about, thus fixing that misalignment, if you will, we find that our third-quarter box office revenues increased a significant 25.2% compared to the same weeks last year, which is once again 10.5 percentage points better than the US average for the quarter. Now going through that same exercise for the first three quarters of the year, we are now running 6.9 percentage points better than the US average year to date. This means we have now outperformed the industry during 11 of our last 12 reported interim periods or three years, something we are very proud of.

Going back to our reported comparisons, the third-quarter increase in our box office revenues is attributable to an increase in attendance at our comparable theatres of 14.7% and increase in our average admission price of 4.2% for the third quarter. For the first three quarters of the year our 8.1% increase in box office receipts is attributable to a 3% increase in attendance and a 4.6% increase in our average ticket price. The fact that we have increased our number of premium large-format screens with a corresponding pricing premium certainly contributed to our increased average ticket price during the fiscal 2016 periods as did a modest price increase taken back in January.

Conversely, I will tell you that our growth in our average ticket price was tempered during the first three quarters of this year so far by the fact that two of our three highest grossing films year to date were animated or family-oriented films compared to none of our top three last year year to date, meaning that we had a much higher percentage of our box office mix come from lower-priced kids and matinee pricing. We are also very pleased to report an increase in our average concession and food and beverage revenues per person of 1.4% for the third quarter and 3.8% during the first three quarters compared to the same period last year. Our investments in non-traditional food and beverage outlets continued to contribute to this performance, but once again have been tempered this year by the change in film product mix as animated and family pictures tend to not draw as many people to our non-traditional food and beverage outlets compared to more adult-oriented films.

Finally, I will also note that other revenues for our Theatre division increased 28% during our third quarter and increased nearly 13% year to date with increases from Internet surcharge ticketing fees and pre-show advertising income contributing to our strong performance. I also want to point out that our agreement with our current advertising provider Screenvision includes a provision for a one-time incentive payment if a defined cumulative attendance milestone is reached within a defined time period.

Based upon our current projections we believe we will reach this milestone during our fiscal 2016 fourth quarter. As a result, I'm very pleased to tell you that our property results during the fourth-quarter fiscal 2016 are expected to benefit from this significant one-time payment which is currently forecast to be approximately $3 million or could even be slightly higher.

Shifting to our Hotels & Resorts division, if you do the math you will see that our overall hotel revenues were down 3.4% for the third quarter and down 1.6% for the first three quarters. But if you eliminate the hotel we sold in October 2015, the Hotel Phillips, from last year's results in the SafeHouse Restaurant that we purchased last June from both years you will find that same property revenues were actually up 0.3% and 2.1% respectively compared to last year's third quarter and first three quarters.

Now as noted in our press release our total RevPAR for eight comparable properties increased 2.7% during the fiscal 2016 third quarter compared to the comparable period last year and 4.6% for the first three quarters 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.

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 2.3% during our fiscal 2016 third quarter and competitive hotels in our collective markets experienced an increase in RevPAR of only 1.7% during our fiscal 2016 third quarter. Year to date the Smith Travel Research data indicates that upper upscale hotels have experienced an increase of RevPAR of 2.4% and competitive hotels in our collective markets have experienced an increase in RevPAR of 2.5%. Thus, you can see that we have outperformed in this division as well during both the quarter and first three quarters.

Breaking our numbers out a little more specifically, our fiscal 2016 third-quarter overall RevPAR increase was due entirely to a 2.6% increase in our average daily rate. Our overall occupancy rate was virtually unchanged. Year to date our occupancy rate has increased 1.4 percentage points and our average daily rate has increased 2.7%.

With that I will now turn the call over to Greg.

Thanks, Doug. I will begin my remarks today with our Theatre division where the numbers certainly speak for themselves. When we last talked in late July we told you that our fiscal 2016 third quarter was off to a very good start and that we were once again outperforming the industry but I suspect the amount of our out-performance may have surprised you.

From a pure size of out-performance perspective our 10.5 percentage point overindexing to the national numbers this quarter was the largest we have experienced of our three quarters so far in fiscal 2016 and one of the largest quarterly spreads in the last three years. Yes, we had a solid slate of films during the third quarter both in terms of quantity and quality, but don't forget that we also outperformed during the second quarter when film comparisons were much more difficult. The fact is that we continued to demonstrate that our business model is a successful one that has resulted in sustained industry out-performance, now three years worth to be exact.

As I indicated, we had a good film slate to work with this quarter. Box office receipts increased during 10 of the 13 weeks of the third quarter of fiscal 2016 with the greatest increase occurring during July and the first half of August.

Although attendance did increase during September 2016 compared to September 2015, historically the second half of August and the month of September have comprised one of the weakest periods for moviegoing as students return to school and the quality of films released tends to weaken. In addition, the Olympics likely had some negative impact on moviegoing during the third quarter of fiscal 2016 as television viewing tends to increase during the two weeks of events.

I know I will sound like a broken record but it doesn't make what I am about to say any less true. The combination of our investments we've been making in our theatres along with our innovative marketing and pricing initiatives, including our loyalty program that now it exceeds 1.6 million members, continues to make a difference. Our record performance this quarter once again is a testament to the benefits of the strategies we have been executing on for a number of years now.

So rather than just talk about the investments and strategies that have received so much attention, I thought I would devote my short time with you today on an element of our success that has been just as critical if not more so. If throwing capital at theatres was all it took to outperform the industry then you would think others would be outperforming to the same degree that we are. After all, we are not the only ones investing in their theatres these days.

But it also takes strong leadership and focused and collaborative execution on the part of the entire team in order to convert these investments and marketing strategies into real, sustainable profit improvement. And in this area I believe Rolando Rodriguez, his management team and our entire Theatre operational organization have excelled. Let me give you two examples out of many.

I believe that every successful team recognizes that not only is it important to have a strong offense but a strong defense, as well. As you know, with all of the new investments we have made in our theatres, including a number of new food and beverage amenities, we have significantly increased attendance at our theatres. With these new amenities we have added significant operating cost to our operation that in periods of business weakness could potentially impede our ability to obtain adequate returns on our investments.

So with that in mind, during fiscal 2016 Rolando and his team implemented a cost savings initiative dubbed CSI, for cost savings initiative, that specifically targeted opportunities to increase labor efficiencies and manage and/or reduce other operational and administrative cost items. They came into the year with a goal of identifying over $2 million in cost savings, and I'm pleased to report that they are well on their way to meeting or exceeding their internal target.

Another example of the importance of focused leadership relates to the outstanding execution of our strategy to implement classic revenue management concepts in the Theatre business. For 10 years now the growth of the national box office has been driven virtually exclusively by increases in the average ticket price.

When we began this current journey three years ago we made driving increased attendance to our theatres a number one priority. And by effective revenue management strategies, offering both premium pricing as well as discounted pricing opportunities in order to maximize box office revenues in a more effective manner we increased both attendance and box office receipts, a win for everyone involved.

And good things happen when more customers come to our theatres. It means more people see the previews for coming attractions, it means more people have an opportunity to try our expanded food and beverage options and it means more people see our pre-show advertising.

And speaking directly to that point, our team negotiated a mutually beneficial agreement with our advertising provider Screenvision that provided for the expected fourth-quarter incentive payments that Doug referenced earlier. It's just another example of a cohesive, focused strategy that continues to pay dividends today and in the future.

As we look ahead we shared with you our excitement about the recent grand opening of the Marcus Country Club Hills Cinema in Illinois and addition of DreamLoungers and the exciting food and beverage concepts, Take Five Lounge and Reel Sizzle, to our Orland Park Cinema. Notably, our percentage of first-run auditoriums with recliner seating is now 48%, a number we believe is easily the highest in the industry among the top chains in the country. We also listed a number of new amenities currently under construction as well as two new screens at our Palace Cinema in Sun Prairie and two new theatres currently scheduled to open in 2017.

We are also reviewing a number of new opportunities to add our successful amenities and concepts to existing theatres in 2017. We will keep going as long as the investments continue to meet our investment return threshold.

And I would be remiss if I didn't note that we continue to be very interested in expanding our circuit with selective acquisitions when the right opportunities arise. It is definitely a focus of ours right now.

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. Until this past weekend October films had performed slightly worse than last year, but I'm pleased to tell you that we've continue to outperform the industry early in the fourth quarter. We all know we will be going up against Star Wars in December and an extra week in last year's fourth quarter.

But the buzz around some of the upcoming films listed in our press release has been increasing as we've begun learning more about them. So we are looking forward to the opportunity to showcase our outstanding theatres to our customers during the busy holiday weeks ahead.

With that, let's move on to our other division, Hotels & Resorts. You've seen the segment numbers and Doug gave you some additional detail. It was somewhat of a mixed quarter for this division this time around.

On the one hand, overall revenues and operating income were down slightly during the third quarter due primarily to reduced group business at some of our hotels, particularly during August. And with reduced group business we experienced a corresponding decrease in food and beverage revenues as groups are a big contributor to banquet and catering revenues, a key revenue source for our hotels.

But on the other hand, just like our Theatre business we have to work with the hand we are dealt. And in that regard, it was a good quarter for us as our RevPAR increase once again outperformed both the industry as a whole and more specifically our specific competitors in our collective markets. The fact that our increases in RevPAR continue to come primarily from increases in our ADR is also good news as that is continuing to be an area of focus for us.

In fact, ADR has increased at six of our eight comparable hotels through the first three quarters of fiscal 2016. And while the third quarter had some softness in it, the fact remains that our year-to-date operating results continue to be very strong and significantly improved over the prior year thanks to a strong performance from our management team led by Joe Khairallah. Joe has built an organization focused on operational excellence, profitability, quality and integrity and under his leadership the team at the hotel division has enjoyed strong financial performance while continuing its unwavering commitment to exceptional guest service.

As an example of this focus on profitability, for the first three quarters of fiscal 2016 after adjusting for the hotels sold last year at the Safe House and last year's impairment charge, over 100% of our year-to-date revenue increase in our Hotels & Resorts division has flowed through to our operating income line. That's an outstanding achievement.

As I just indicated, while reduced group business during the third quarter contributed to our lower operating income during the quarter I'm pleased to report that our owned hotels had a solid group booking period during the third quarter. Looking ahead, it is not easy to read the crystal ball for our hotel industry, for the hotel industry and our hotels in particular. And we know comparisons to last year during our fourth quarter will be negatively impacted by the fact that last year had an extra week and included the busy New Year's Eve holiday.

This year's fourth quarter will end on December 29. So we won't have the benefit of New Year's Eve this year, which will negatively impact our food and beverage revenues. Group business continues to book with relatively short lead times, so it is hard to look too far ahead. We also continue to closely watch hotel supply in our markets and we continue to watch the macroeconomic factors that impact our industry.

When you put it all together we think it is likely that our fourth quarter will have some difficult comparisons. But we tend to agree with most industry experts who suggest that overall continued modest improvement in RevPAR is achievable in the near to intermediate term. Of course, there are a number of factors, many of which we have little or no control, that can impact future performance in our hotel business.

From a growth perspective we've talked about how we've stepped up our efforts to increase our visibility as a national hotel management Company and we hope to add to our portfolio of managed hotels in the coming year. We are seriously evaluating more than one opportunity at the moment as well as continuing to advise on the new Marriott Hotel under construction in Omaha, Nebraska that we will manage when it opens in 2017. Conversely, we continue to actively review opportunities to sell one or more owned hotels, hopefully while retaining management when so desired.

With that at this time Doug and I would be happy to open the call up for any questions you may have. But before we move to Q&A I do want to make sure to say thank you to all of our associates who work so hard every day.

We have a saying around here: our ordinary day is our customer's extraordinary day. Executing on that is not easy, and so for that I say thanks.

Now let's move on to Q&A.

(Operator Instructions) Mike Hickey, Benchmark Company.

Hey, Greg and Doug, congrats on a great quarter. I'm curious on your view on AMC and Carmike.

It looks like that deal has at least an increased chance of happening. So I'm wondering what your playbook is in terms of any potential DOJ spin of theatres in that sale and Rolando at this point has any sense of what the potential assets would look like that may come to auction?

You know, Mike, I really don't think it's a good idea for us to comment on somebody else's transaction. Obviously, to the extent -- and we talked about this, to the extent that there will be theatres that are available in the market we are going to look at them. And we'd be interested in acquiring them if the metrics make sense.

All right. Fair enough. I guess on the recliner installs, based on what you've announced so far how many theatre installations do you expect to have ending Q4?

In Q4 I don't believe there will be any more that will open up in Q4. We've worked really hard to try to get everything all set here by the end of October with a couple of additional locations. As you know we opened up our Country Club Hills.

So let me amend what I just said, I mean we've already talked about it in the press release, that's why I wasn't talking about it beyond that. But Country Club Hills did open up about a week or so ago, and so that's 16 additional screens that we didn't even have and they are all DreamLounger locations.

And then our Orland Park Theatre in Chicago also is just finishing up, as well. I believe we have all of the mainline auditoriums open and the UltraScreen will be opening up shortly if it hasn't already. And so we do actually have two new theatres, 31 screens that are part of that 48% that Greg was talking about because it's already now essentially completed.

But those last two are actually fourth-quarter additions. We're in the process now of taking a look at 2017, so I don't have anything to report from that perspective yet. But as Greg said in his prepared comments we do anticipate having some additional installations.

I would just add that Country Club Hills looks fantastic. It really is -- it really was -- the team did a fantastic job on that theatre. If anybody is in that area you should check it out, it really turned out beautifully.

Orland Park, as Doug said, most all the recliners are done if not all done. The lobby as of about a week and a half ago is still under some pretty heavy construction, but should be done shortly.

Okay, so Doug, just to clarify, is that 21 theatres then in Q4 that have been converted to your DreamLounger compared to 13 prior year, is that right?

Yes, 21 theatres have now completely converted to all DreamLoungers. Then, of course, we have some other theatres that might have just UltraScreen or SuperScreen DLXs. But we have 21 theatres now that have that are completely converted, correct.

Okay, thanks. Last question for me, just curious on the Theatre side how your current performance is relative to market in October? Thank you.

Thus far we continue to outperform. For the first 3.5 weeks or so of October we are outperforming, again, versus the industry.

All right guys, good luck.

Eric Wold, B. Riley.

Thank you, good morning. Obviously phenomenal continued out-performance on the Theatre side versus the industry. Can you maybe try to dig in a little bit and give us a sense of the trends you are seeing on the remodeled theatres in competitive zones versus ones that are maybe not so competitive zones, try to get a sense of how much of this is being driven by increased repeat visitation versus share shift?

Let me answer that question two ways, Eric. One is the increase -- the performance has been the performance of the entire circuit, and it's coming from -- and the reason I say this is because I will tell you, the ones, that theatres that have all the bells and whistles they are very competitive. And even where we are going up against in competitive zones or competitive areas, let's call it that, we are outperforming because I think that we have a very robust package that is very attractive to the consumer.

But that being said, and as we've talked about, it goes beyond just the physical improvements we are making to theatres. What we are seeing is really a lot of the marketing programs, we do the grassroots marketing, we do our loyalty program. It's really everything coming together and working across the circuit and the strategies that we are using to take advantage of finally knowing who our customers are.

I keep saying this and I will keep harping on it and I think that we are just at the beginning. I think there is opportunities for us that we haven't been able to mine yet because we are just really on the beginning of the loyalty journey of understanding who our customers are.

So I'd say that it really goes beyond simply just the theatres where we are getting, where we are doing that. But it's organic and share, but I don't think you can draw, to your question if you are trying to draw, well, how much organic growth are they getting from the theatres where they put all this in, I'm not sure that you will be able to pull that from the numbers that we've presented.

And Eric, I will even give you an additional number to support what Greg just talked about. So in this third quarter where I shared with you that comparing the misaligned weeks box office, national box office was up 9.3% and we were up 19.8% with those misaligned weeks. 42, we just established with Mike's earlier question that we have 21 theatres now that have the DreamLounger recliner seats, two of which just opened, they weren't really part of the third quarter at all.

So 19 theatres had the DreamLoungers during the quarter. 42 of our theatres outperformed the industry. So if this is much broader, I'm not trying to now slight the DreamLoungers, they've been a big part of what's been going on, but this is broader than just that.

Rolando needs to get on those theatres that are not outperforming the industry.

I'm sure he has it (laughter)

If I dig into the numbers a little bit, taking the simple ratio of concession revenues to admission revenues, that declined year over year in Q3 for the first time in quite some time. I can go back, it's obviously tough with the shift in the fiscal year, anything that's possibly attributed to that? Is it timing of when these maybe the remodels have opened, is it film mix, anything there or am I trying to grasping at straws here?

Actually you hit on two of them actually. Some of it is the timing. The reality is that when you look at when the additional amenities opened last year and this year, we've actually only had -- in these comparable time periods we actually only had two new Take Five Lounges open in the last year, and so we hadn't had as many in the past year.

We had a few Zaffiro's and Reel Sizzles open up in this past year. But just on a year-over-year basis this quarter we've now lapped a lot of those newer ones. And so that's a little bit of that.

Film mix absolutely had a play had part of this as well. As I noted, we certainly have seen some of these kids pictures do well and that's not going to drive a lot of liquor sales. So certainly there's a little bit of film mix going on there.

Look, this was July, a big part of this particular quarter was July and August. We've talked about in the past that during the summer we see a slight tilt in the mix related to the $5 Tuesdays, for example. And so in general our concessions are a little less on Tuesdays than they are on other nights because of the free popcorn for our members of the loyalty program.

And so it becomes not any one thing, it becomes a mix about these things and that's kind of the dynamic you are looking at in this particular quarter. We have not -- we've been very price conscious, too, and we have not done anything with our pricing for a little while now. That will certainly be something we will be taking a look at in the future.

Perfect. And last question on the Screenvision comments you made with the potential for the $3 million milestone payment in Q4, is that the only potential milestone payment in the current agreement? And then can you remind us when the current agreement with Screenvision expires?

The answer to the first question is yes. This is the big milestone payment.

Now once we reach the milestone our agreement takes on, has a slightly different formula driven to it that we think will be advantageous to us as well, given the amount of attendance that we are driving through our theatres. But it's the only milestone payment. And Eric, we haven't disclosed the length of our contract.

I didn't think you did but I had to try. Thank you.

Good, reminded me because I was grabbing for my computer.

David Loeb, Robert W. Baird.

Good morning. Doug and Greg, you've answered around this, you've talked a lot about the Theatre performance, but I wonder if you could distill it down. Of the 14.7% comparable attendance gain, what do you think were the biggest factors driving that?

Again, I'd say it's everything. It's the recliners, it's the food and beverage and it's the strategies that we are using with our loyalty programs and the marketing around all of that.

I mean, David, I wish I could point to one thing and say here is how we did it but it's a lot of things. There's a lot of tired people on 20 because it's a lot of things.

Yes, and it does seem to be, although the numbers obviously fluctuate you seem to be driving these gains with a variety of different kinds of film lineups.

Yes, I mean we have stuff we perform better on but, and we know what that is, but just given the nature of where our theatres are. But we perform very strongly with women-oriented films. We do very well with that.

We do very well with family films. And the more urban stuff is a little more challenging for us because of the markets we are in. But they play better on the coasts.

And then I've talked about this before, David, but one of the things that the team has been very very good, and this is where I think the tip of the iceberg is, we're looking ahead. We are looking at the film lineups. You just addressed it, the film lineups vary from quarter to quarter and our team looks ahead at what that lineup looks like.

They look at the genres, they look and say is anything missing, are we a little lacking in kids, are we little lacking in horror pictures or you name it, I mean all the different types of genre and then they look to try to fill in with that. And, again, now that we have the ability to communicate with our customers for the first time we can tell them about that.

We can tell them about special series and things along those lines. I missed last night, I think last night at our theatres we showed Christmas Vacation. It's one of my wife's all-time favorite movies and we had hoped to try to get to see that, but again we look for holes in the schedule and we try to bring back pictures and show things like that.

Well, even in your family I'm sure you were competing with the World Series.

Yes, exactly.

Sorry, Greg.

No, that's okay. Go ahead.

No, I was commenting on Doug's World Series appetite. So next question -- from me, sorry.

Go ahead, David.

In hotels how has October been so far? What kind of trends are you seeing in transient and group?

The business right now has been a little bit soft. I don't think that I am going to tell you anything different than you are hearing anywhere else in the industry right now. Business, this quarter we're feeling some softness.

In our markets that fall is a pretty good time for us. It starts, as you know, it starts to drop off probably, particularly when you get to probably December in a lot of our markets. And certainly we're looking ahead, we are not we think we are going to be we are chasing some room nights in December.

We know that. And so it's, I'm not sure, as we've said in our prepared remarks I think that the fourth quarter is going to be a little bit of a challenge for us. It's going to be a challenge for our market and our goal certainly is to continue to outperform whatever those markets are.

Our challenge has been in a little bit of the group business. The transient I think has been okay, but the group business is a little soft.

Okay. And then a final topic, Greg, you mentioned looking at acquisitions.

Does the move in your stock price make those transactions a bit more likely? I guess what I'm trying to figure out is how are you looking at your cost of capital here and does that influence your potential acquisition decisions?

You know, David, I would say it does not, that does not influence our discussions because as you know our balance sheet is in a pretty good place. And so any acquisitions that we are going to do I think we are in a pretty good place to use our balance sheet to do that.

And that's because we know that we don't know where our stock price is going to be day to day but yet we want to be prepared to be able to take advantage of the opportunities that come our way at any time. And that's how we manage our business.

And in terms of the lifecycle investments on the part of some of the smaller family-owned theatre circuits, do you see more of those coming up in the near future?

I don't have a crystal ball. I don't know if more are going to come up.

We had a pretty robust period so people are doing okay. But the other side is they are facing some pretty significant capital investments. That is the way the industry is going, and if you are going to be competitive you are going to have to reinvest in your theatres and that puts us, again, in a place we've got the experience doing it.

And I would say the market is active. I would not, I'm not going to tell you that the market isn't active. The market is active.

There's stuff to look at. But we have to -- we will be disciplined about it and look to make investments where we can do what we've done here and that is find stuff that needs investment and to be prepared for the future.

Okay great. Thank you.

Jim Goss, Barrington Research.

Thank you. Returning to Screenvision for a minute, given that Carmike had and still has somewhat of an ownership element with Screenvision but some of that relationship must shift a little with their absorption by AMC assuming that goes through even if they still are affiliated with Screenvision, does that make room for you to take over some of that position? I would imagine Screenvision still has an interest in having an anchor tenant to the fact that they would give you a $3 million milestone payment, and would that alter your economics at all?

We have nothing to really comment on that. We've gotten -- we haven't heard anything as to what, and I don't think you have either, nobody has heard what the dispensation is going to be of Screenvision with Carmike and Screenvision and all that. And until that happens I don't think anybody is even in a position to start to guess, and I'm not going to guess what's going to happen.

Okay. You also mentioned the 48% reseated to this point. Is there some theoretical maximum beyond which there would be certain ones you would not be anxious to reseat for one reason or another as has been the case for some of the others?

I don't know that there is a theoretical maximum. People have been talking about where they think it's going to end up.

And, look, as you start to, as you redo theatres just as they come up on their lifecycles I think that if you are going to be in the business and you are saying, I will quote someone in our business who always says are we building the theatre of yesterday or the theatre of tomorrow, and we like to think we are building the theatre up tomorrow. And so as we cycle through them I think the percentage will increase, probably not as rapidly as it has, but we keep looking at them and as we said as long as they meet the hurdles we are going to keep doing them.

And you raised an interesting point, too, because to the extent that in a lot of cases theatres tend to be leased properties that since you have a higher ownership position, which gave you greater flexibility to go more aggressively into it, you may have less of the same driving factor of lease renewals to think about that. What is the process you go through in terms of thinking about when you should be changing and renovating theatres?

Well, my dad has a saying: if the customer can see it it's too late. And so we try to use that as our barometer. Sometimes we miss, but we are trying -- these things have life cycles, we know how long they take.

So as the theatres come up and they are on their lifecycle we start to look and make sure that we get them in the right place and make the improvements that need to be made. And so we work within those lifecycles.

Okay. Just a couple of other quicker ones. Alternative content, I'm wondering if that's any part of know your customer and reward program data usage, if that ties in and for greater utilization of your screen base?

Yes, again and Doug was starting to talk about it and I will hit on it again. Look, it's not a huge part of the business just yet, but I think that it's going to continue to grow. We are seeing growth in the numbers.

We are seeing, again, using that loyalty program to be able to drive. And that's what's drives our marginal, I think one of the things that is driving our marginal improvement over anybody else is the ability to take advantage of that. That's what I said, and we are just at the beginning of it.

We are not even, I mean I know that we have lots of opportunities to do more things. But I can't tell you where I think it's going to end up, I just don't know, but I think it's going to continue to grow as we get better at it, as more becomes available. And, again, even whether the business is strong or weak I think that gives us the ability to be marginally better.

The quantity is certainly increasing as well, Jim. I haven't done a tabulation for this, but we will certainly do it at the end of the year where we will tabulate and say, look, we showed this many alternative content features this year versus last year. And I expect that number will reflect, again, an increase in quantity that we've been seeing the last couple of years.

And it's our hope -- the big one will be -- if we can get sports, sports could really be meaningful. And there is some, but if we can get some of the more majors. And I think as contracts turn over and the viewing and the way things are presented, moving from a linear broadcast format to a more on-demand format may change some of the dynamics and allow us to participate in some of that, I hope.

Nobody has offered me anything just yet, so I am not going to get up and say that's going to happen for sure. But it's a pretty great place to watch a sporting event. And you add in the food and beverage it's a really great experience.

Okay, and lastly, in terms of the strategy you laid out for your hotel group of trying to lighten up on the capital investment, maintain the management contracts, it sounds like very interesting strategy. I'm wondering how you think as you look back on the initial stage of trying to do that how successful you think that might be or if it's going to pose more of a challenge than you thought it was as you created the strategy?

I guess, Jim, I will say this, we've never said it's an easy strategy to execute because in our case our portfolio is made up of today now eight distinct assets, different markets, different types of assets. So really we view it truly as an asset-by-asset type decision and strategy.

And so, and I'm telling you what you already know is that certainly the tax consequences of several of them are significant. And so, again, the second half of that strategy that you didn't mention is that in some cases it might require us to find something to buy first in order to be able to effectively do a 1031.

So I'm just painting a picture saying that there's multiple elements to that strategy. We are still talking about it because we still think it's a good strategy and a valid strategy. But what you won't get us to do is that we are not going to ever talk about, well, which hotels we are looking at or where are we in the process there because it's a very sensitive process and the markets change constantly.

The transactional market is always there but there's some good and bad times during that transactional market. So we are just going to be very disciplined and very opportunistic, two words that I probably use the most when I talk to investors.

I guess the only thing I would add to that, too, is that, look, and Doug is right, it is a strategy we are working on, we continue to work on it and yet we also we face the same things, as you know, about the vicissitudes of the markets and when things can sell and trying to deal with the tax issues. Because at the end of the day we do have very strong hotel assets, and so we don't have to do something just to do something.

We know what we want to do, we know we want to execute on but we are going to be smart and disciplined about it because we feel comfortable with the assets that we have. We maintain them, they are very well maintained and they tend to be very, very solid assets, for the most part.

All right, thanks very much.

(Operator Instructions) Brian Rafn, Morgan Dempsey Capital Management.

Good morning guys. Great quarter. Awesome.

Let me just ask you on the food and beverage, you guys certainly have made great progress in there. If you were to look at food and beverage and strip out the popcorn and the Icee and the Zotz and the candy bars and looked at some of your higher end, your chicken or your hamburgers, more of a full meal from say a Take Five or a Reel Sizzle or your Big Screen Bistro, are you seeing a positive growth in the sales check per customer in what I would call more of a meal versus just a snack in your different theatres?

Well, the short answer is yes. The more nuanced answer, Brian, is that, and we saw a little bit of it this quarter, is that on a quarter-to-quarter basis we will see some swings depending on the type of film product that we are showing. So the mix of how much of it comes from those other food and beverage concepts, the full meal type things that you are referring to, will swing from quarter to quarter.

But overall we are pleased with the per capitas that we are getting. We think there is always room to make them better, and our team has got active strategies on every one of these concepts in terms of how to continue to drive incremental revenues from these concepts. But, look, the reason why we've kept doing them is because they are meeting our return thresholds, and so my short answer is yes.

Yes, well, you guys do a fabulous job. When you look at some of the other major chains, do they have as high-end food content as you guys have? Or are they a little more just popcorn and soda?

What you are seeing is people are getting into more of the you call it high end but let's call it a more developed and robust food and beverage mix. But I would tell you of everybody I've seen I would say that we probably have, not probably, we have I think the best offering.

Everybody else is doing it. Now I think maybe that just comes from the fact that we've been in the food and beverage business for 50 years and so when we approached it we approached it from a very food and beverage oriented perspective and quality and understanding they just need to be something different. I think that's been that has worked to our advantage.

Yes, you guys have a hallmark. You guys are so good at that. You really have done a fabulous job in that.

Me ask you on some of the retro series that you guys, you talked about looking for holes in that. What kind of attendance traffic do you get if it's not a matinee and you are in a prime slot?

And then a question out of ignorance, what kind of, do you get a favorable negotiated share with the Hollywood studio, how does the revenue? Or is that something you keep 100% or how does that revenue migrate on those retro series?

You know, Brian, our team is going to work right away. I like that idea of keeping 100%. I like that.

They've got a new goal.

No, not 100%. It really varies from product to product. It just depends on what it is we are showing and who it is, what the take is of the distributor.

Really at this level it's not a huge absolute dollar contributor. But it is becoming meaningful and it's growing and I think it's something that will continue to build as people start to view us as a place to see alternative content, too.

You can't just show it once in a while because people forget about you. You have to build the habit, and so we are building that habit and we are starting to see that the fruits of that. But it's an investment and it's an investment of our time and our screen real estate.

Okay. If you look at you've got the Tuesday night $5 night and you've got I think the Thursday college student night or high school student night or whatever.

So what kind of runway do you have? Is the Tuesday $5 night is that really the primary focus and Thursday is an add-on or is Thursday, that $5 student night is that also a viable candidate for further growth in attendance and food and beverage concession sales?

Yes. It is.

We view them both. I mean, we don't view it as, well, okay, we are done. We've gotten as much as we can out of Tuesday and Thursday.

Our team is constantly challenging itself to try to continue to improve on what's been some pretty remarkable results. And Tuesday is the focus, that's everybody, right? But Thursday I think is a growth area for us, as well.

And so, look, we're now three years and actually we're just coming on the three-year anniversary of rolling the $5 Tuesday program out. So it's been pretty remarkable to continue to see how that has continued to grow and be established in our markets.

I think the bigger takeaway from it is, frankly, as we talked about on the call earlier, that is we continue to think about the revenue management strategies across the entire spectrum of films that we show and times that we show them and how do we maximize that, how do we offer the right price to the right customer at the right time? That's straight out of the hotel playbook. But that is what we do.

Okay.

And that doesn't always mean cheap. So that means premium pricing.

Right, right. Okay, let me ask you, Greg, you talked about the Marcus Rewards, loyalty program.

As you evolve that type of thing, right now you are able to understand your customer, to monitor, you are able to send emails and that drives some traffic. But as I view it, it is a little bit of a one-way communication, you surveilling, monitoring. Is that ever a two-way gateway where your customer might someday talk back to you or is that currently being done?

Well, I think you are right, there are opportunities to talk back to us. We are very active on social media. I'm active on social media.

We've got Marcus leaders active on social media. We want the customers to talk back to us. We actually go out, and this is one, here, great question that you asked.

One of the things that we are very focused on is that we when you come and you give us your loyalty card, now that we know who you are we send a certain subset of that, the people who show up, a survey and say how did you do -- how did we do, I'm sorry, how was your experience? And then they answer and they reply and we get we are very focused on how our scores are.

So we look to -- so it is a two-way communication. I think our opportunities are that kind of two-way communication, really providing more content to our customers that you only get if you are a loyalty club member. It shouldn't just be a sales pitch every time.

We want to give them content. We want to make this a very robust program that really people want to be a part of and it's not just a sales pitch. But it is great offers, it's great content, it's the ability to talk to us, it's really all those things.

Okay. Without going to the Marcus Country Club Hills that you guys just opened, is that a flagship scale like Sun Prairie and the Majestic? Or is that just an average theatre when you call it entertainment --

There's nothing average about that theatre.

Okay, all right.

It's spectacular. We took the structure and basically gutted it and all of our, you see that all of our amenities, as you said, all DreamLoungers, one UltraScreen, two SuperScreens, Take Five Lounge, Reel Sizzle, it's got all it's got the whole package there. And so there's nothing ordinary about that theatre at all.

Last question, Brian. We're coming to the end of the hour here.

All right. Just one on M&A, when you are looking at selective other theatres or whether they be spinoff sub deals with the DOJ or whatever or somebody selling, how attractive is you actually owning the real estate underneath the theatres? Is that a deal killer or is it much like the hotel chain where you want to be less perhaps capital-intensive going forward?

It's not a deal killer but we prefer it.

Okay, you do prefer it. All right. Thanks guys.

Our preference is on the Theatre side is we like owning the real estate. But if it doesn't have, it doesn't mean we are not going to look at it.

The point to make is, and it's a good place to finish, Brian, on this and that is we've been in this business a long time and owning our real estate has continued to work to our advantage. As Doug pointed out we have a huge percentage of recliners because we are not having to negotiate with landlords and cut new deals with landlords and trying to figure all that out.

We can move, we can be nimble and this has happened before in our industry and we have taken it. Every time that it happens it seems to drive home the point. When you own your own real estate man, you can really get ahead and get out in front.

Awesome. Great quarter, guys. Awesome job.

I would now like to turn the call back to Mr. Neis for any closing remarks.

Listen, thank you everybody once again for joining us today. We look forward to talking to you once again at the end of February now when we release our fiscal 2016 fourth-quarter and year-end results. Until then, thanks and have a great day.

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