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Edited Transcript of MCS earnings conference call or presentation 25-Jul-19 3:00pm GMT

Q2 2019 Marcus Corp Earnings Call

Milwaukee Jul 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Marcus Corp earnings conference call or presentation Thursday, July 25, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Douglas A. Neis

The Marcus Corporation - Executive VP, CFO & Treasurer

* Gregory S. Marcus

The Marcus Corporation - President, CEO & Director

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Conference Call Participants

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* James Charles Goss

Barrington Research Associates, Inc., Research Division - MD

* Michael Joseph Hickey

The Benchmark Company, LLC, Research Division - Research Analyst

* Ryan F. Hamilton

Morgan Dempsey Capital Management, LLC - Portfolio Manager

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Presentation

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Operator [1]

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Good morning, everyone and welcome to the Marcus Corporation Second Quarter Earnings Conference Call. My name is Chris, 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, Executive Vice President, Chief Financial Officer and Treasurer of the Marcus Corporation. At this time, I would like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

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Douglas A. Neis, The Marcus Corporation - Executive VP, CFO & Treasurer [2]

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Thank you and welcome everybody to our fiscal 2019 second quarter conference call. Now you know as usual, I do begin by stating that we plan on making a number of forward-looking statements in our call today. And these 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 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; expectations about the future trends in the business group and leisure travel industry and in our markets; our expectations and plans regarding growth and number and type of our properties and facilities; our expectations regarding various nonoperating 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 and our 10-K and 10-Q filings, which can be obtained from the SEC or the company. We'll also post our Regulation G disclosures when applicable on our website at www.marcuscorp.com.

So with that behind us, let's talk about our fiscal 2019 second quarter and first half. Thanks primarily the Movie Tavern, we are reporting a record second quarter for our theater division, despite the fact that comparable box office revenues were down versus the prior year. And as we noted in our press release, last year's second quarter was not only a record for that particular quarter, it was an all-time record for any quarter in our history. And you may also recall that we outperformed the industry by approximately 10 percentage points last year. So to report another record quarter and to beat the industry again is actually a great accomplishment by our theater division. And on the hotel side, without the nonrecurring expenses related to the closing and subsequent preopening of the Saint Kate, we would have reported a nice increase in our operating results in that division as well. All-in-all, a pretty good quarter.

As is our usual practice, before we get to Greg's comments on the quarter, I'm going to take you through some of the detail behind the numbers, both on a consolidated basis and for each division. Now there's not much to say about the line items below operating income. Investment income itself was up only -- up over last year because of increases in the value of marketable securities held by the company. And interest expense decreased compared to last year due to reduced borrowing levels compared to the last year periods, partially offset by a slightly higher average interest rate. None of the remaining other income and loss items really changed very much. So there's -- I'm not going to comment on those.

Income taxes declined for 2 reasons. First off, the most obvious is that we had less pretax income this year; but secondly, our first half effective income tax rate, which is adjusted for losses from noncontrolling interests is currently at 22% compared to 25.3% last year. We have benefited from excess tax benefits on share-based compensation and certain nonrecurring adjustments specific to the second quarter and first half of the year. We'll continue to anticipate that our effective income tax rate for the remaining quarters will still be in that 24% to 26% range, depending upon the amount of any excess tax benefits on share-based compensation and any other adjustments that we may recognize in any given quarter.

Shifting gears away from the earnings statement just for a moment, our total cash capital expenditures during the first half of fiscal 2019 totaled approximately $60 million, keeping in mind that half of that was related to the Movie Tavern purchase. And that compares to approximately $32 million last year. Approximately $43 million of our total spend during the fiscal 2019 first half was incurred in our theater division, again, with approximately $30 million of that being the cash component of the Movie Tavern purchase price. The remaining dollars related to our continuing DreamLounger seating projects and premium large-format conversions referenced in our press release. The approximately $17 million of capital expenditures in our hotels and resorts division were primarily related to the 2 major renovation projects at the Saint Kate and the Hilton Madison, plus various normal maintenance projects.

The halfway point of our fiscal year, it appears we're more likely to end up at or below the lower end of our previous estimate for capital expenditures for fiscal '19 of an amount in the $105 million to $125 million range, again, including the Movie Tavern dollars. Recognizing the timing of several of our planned expenditures are still just estimates at this time. We're still finalizing the scope and timing of many of the various requested projects by our 2 divisions, and we anticipate proceeding with many of these projects as the year unfolds. And the actual timing of the various projects currently underway or proposed will certainly impact our capital expenditures number as well as any currently unidentified projects or acquisition 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, and I will begin with the movie theaters. As you know, we completed our acquisition of the Movie Tavern theaters on February 1. And thus, throughout this year in order to make our comparisons to last year more meaningful, we'll try to distinguish how our comparable legacy theaters performed versus the prior year in conjunction with our overall results. With that in mind, while our reported admission revenues decreased 19.3% and our concession revenues increased 45.1% during the second quarter compared to last year, when you exclude the Movie Tavern numbers from those totals, you'll find that our comparable admission and concession revenues decreased 3.7% and 0.8% respectively due to a slightly weaker film slate compared to the prior year. Now year-to-date, if you once again take out the Movie Tavern theaters, our comparable admission and concession revenues decreased 10% -- 10.4% and concessions down 6.2%, respectively due, of course, to the industry's challenging first quarter.

Now according to data received from Rentrak and compiled by us to evaluate our fiscal 2019 second quarter and first half results, United States box office, after you exclude a handful of new builds for the new -- for the top 10 circuits, decreased 4.5% during the second quarter and 10.2%, respectively, during our fiscal 2019 first half.

Now as a result, we believe our admission revenues for the comparable theaters during the second quarter of fiscal 2019 outperformed the industry by nearly 1 percentage point, with our year-to-date results essentially even with the industry. Greg will address this outperformance as well as the outperformance of our Movie Tavern theaters during his prepared remarks. The second quarter and first half theater decrease in our admission revenues at our comparable theaters was attributable to a decrease in attendance at our theaters, partially offset by an increase in our average admission price at our comparable theaters of 3.7% during the second quarter and 1.5% during the first half of fiscal 2019 compared to the prior year periods.

Now our average admission price was favorably impacted by modest price increases taken at the beginning of the second quarter as well as a conversion to a sales tax additive or tax on top pricing model, which is consistent with the majority of our competitors. Conversely, our average admission price likely was negatively impacted from the fact that 3 of our top 5 films during the quarter, Aladdin, Toy Story 4, and Secret Life of Pets 2, were films that generally appeal to a younger audience, resulting in a higher percentage of lower price children's tickets sold.

Last year during the second quarter, only 1 of our top 5 films, Incredibles 2, was aimed at a younger audience. Now we're also pleased to report an increase in our average concession food and beverage revenues per person at our comparable theaters of 7% for the second quarter and 6.4% for the first half of fiscal 2019. Keep in mind, that's comparable theaters. Our investment in nontraditional food and beverage outlets continue to contribute to higher per capita spending. And if you add Movie Tavern to the numbers, our average concession in food and beverage revenues per person increased by over 29% this quarter.

Now our theater division operating margin declined during the second quarter and the first half of the fiscal 2019 year so far compared to the prior year same periods last year, due in large part to the inclusion of the Movie Tavern operating results. Our Movie Tavern theaters will have a lower operating margin than our legacy theaters due to the fact that all 22 acquired theaters are leased rather than owned and rent expense is generally higher than depreciation expense. In addition, the fact that a larger portion of Movie Tavern revenues are derived from the sales of in-theater food and beverage will also contribute to lower operating margins, as food and labor costs are generally higher for those items compared to traditional concession items. Of course, you've heard us say before, we take dollars to the bank, not percentages.

And lastly, our press release and attached table reconciling net earnings to adjusted net earnings highlight for you the significant impact that the nonrecurring acquisition and preopening expenses related to Movie Tavern had on our reported year-to-date results, approximately $2 million or $0.05 per share, in fact.

Shifting to our hotels and resorts division. Our reported results for both the quarter and first half of fiscal 2019 were obviously impacted by the fact that we closed the InterContinental Milwaukee hotel after the first week of January in order to begin a major renovation that transformed this hotel into Saint Kate the Arts Hotel. We've reopened the new hotel in early June, but even then a portion of the rooms and food and beverage outlets didn't fully open until later in the month. As previously reported, we also were undergoing a major renovation at our Hilton Madison Hotel during the significant portion of the fiscal 2019 periods, which further negatively impacted our reported results from this division.

Now on its face, we're reporting slightly increased hotel revenues and decreased operating income during the second quarter in the first half compared to last year. But when you exclude the former InterContinental hotel, which is now the Saint Kate, from our results -- take the hotel out completely from both numbers, you'll find that our comparable hotel revenues actually increased 8.1% and 6.5%, respectively, during the second quarter and first half of fiscal 2019. And our operating income increased by approximately $300,000 or 5% during the second quarter and $1 million or 27% during the first half of fiscal 2019, all compared to the prior year periods. And those numbers are despite some negative impact at our Hilton Madison, as well due to the ongoing renovation. As the table in our press release highlights, nonrecurring preopening expenses at the Saint Kate negatively impacted our reported results by approximately $2.7 million or $0.06 per share during the second quarter and $3.9 million or $0.09 per share during the first half of fiscal 2019.

Now the biggest contributors to our same store increase in revenues were increased rooms and food and beverage revenues during our fiscal 2019 second quarter. Our total revenue per available room, or RevPAR, for our 7 owned hotels that were open for the entire second quarter and first half increased 3.4% during the second quarter and 1.2% during the first half of the year compared to the last year same periods. But even those numbers are deceptive because, as I just mentioned, we also had 1 hotel, the Hilton Madison, significantly impacted during the fiscal 2019 periods due to a major renovation. When you strip that hotel out, our true comparable hotels actually reported an increase in RevPAR of 5.4% this quarter and 4.3% year-to-date.

And as we 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 prepare our fiscal quarter results, comparable upper -- upscale hotels throughout the United States experienced an increase in RevPAR of 1.1% during the fiscal 2018 -- 2019 second quarter and 1.2% year-to-date. Meanwhile competitive hotels in our collective markets experienced an increase in RevPAR of 5% and 4.3%, respectively, during our second quarter and first half. Thus, our numbers easily beat the national numbers and our numbers without the Hilton Madison also compare very favorably to our competition.

Breaking out the numbers for all 7 of our opened hotels more specifically, our fiscal 2019 second quarter RevPAR increase was due to an overall occupancy rate increase of 0.4 percentage points and a 2.9% increase in our average daily rate, or ADR. Year-to-date, our fiscal first -- fiscal 2019 first half RevPAR increase was due entirely to a 1.9% increase in our ADR, partially offset by an overall occupancy rate decrease of 0.5 percentage points. With that, I'll now turn the call over to Greg.

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [3]

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Thanks, Doug. I'll begin my remarks today with our theater division. You've seen the numbers and heard some additional detail from Doug. We just finished a quarter that saw nearly every box office record known to man broken by a little film called Avengers: Endgame. We were going up against the best quarter in our history and thanks to our recent acquisition, we beat it. We were going up against a quarter where we outperformed the industry by 10 percentage points. And rather than reverting to the mean, which frankly might be understandable, we beat the industry again. Think about that. We spotted the rest of the industry 10 points and yet we were able to hold on to what we gained last year and still come ahead on a comparable theater basis. That's something our outstanding theater team led by Rolando Rodriguez should be very proud of.

I'm starting my comments this way to provide some perspective to the narrative about the future of our business. Yes, streaming is important to the home video experience, but it is home video. We are not the same. Ours is an out-of-home experience that is differentiated. And thanks to that differentiation, we reported the #1 and #2 best quarters in our history in successive years. Of course, if you have been following us for a while, you know that we have seen this movie before. Two summers ago, everyone was predicting the end of the world as we know after a weak summer film slate. We then proceeded to follow that up with record 2018 box office results. And keep in mind that 2018 was an unusual year, nearly 60% of our 2018 theater division operating income was reported in our first half of the year as film product was unusually front-loaded.

When you average the prior 2 years, 2016 and 2017, you'll find that we reported 50% of our operating income in both the first and second halves, about as evenly spread during the year as you can get. So again, I'm just trying to provide some perspective. Yes, our results in this division are currently down year-to-date, and we have some work to do. But perspective. Even if you strip out our new Movie Tavern theaters, we just reported our second-best quarter of all time. I don't know how the second half of fiscal 2019 will end up. I do know that most so-called experts felt this year that film product was more back-end loaded. So I'm looking forward to seeing how this all will play out.

Regardless, we play the long game here at Marcus. We're not big fans of riding the roller coaster. And please, don't take my comments as an indication that we don't recognize the challenges, the ever-changing entertainment landscape presents. The Marcus Corporation hasn't lasted and thrived for nearly 84 years now without adapting to our environment along the way. As I said, we're in the out-of-home entertainment business and our focus each and every day is to provide the best possible food and entertainment experience for the best possible value to our guests. And our results speak for themselves. We think we are among the best in the business at doing that.

So let me get off of my soapbox for a minute and share a few of the things that went really well for us again this past quarter. Thanks to a great effort and ground game by our theater team as well as what was likely a favorable film mix for us this quarter with films that played well in our predominantly Midwestern legacy markets. We once again outperformed the industry. Hopefully, that bodes well for the films that are scheduled to be released during the second half of the year as well. Of course, now that we've added Movie Tavern to our circuit, we also look forward to potentially benefiting from being in 9 new states in different regions of the country with a more diverse demographic at times.

For example, I will tell you the top 5 films for our Movie Tavern theaters during the first half were a little different than the top 5 films for our legacy circuit. And speaking of Movie Tavern, although they have had the same film slate the rest of our theaters have had, overall, we are pleased with the Movie Tavern performance to-date and the integration process continues to progress on schedule. We told you that we immediately introduced our popular $5 Tuesday movie program at these locations as well as other promotional and marketing initiatives. And we're really starting to see some traction with our attendance at these theaters as a result.

Building on that, we launched our Magical Movie Rewards loyalty program at all Movie Tavern locations in May and look forward to all the benefits we believe the -- that program brings to us over time. We also recently launched a new, and I believe, and we believe, improved menu that has been well received by our guests. I'm pleased to tell you that, based upon data available to us for prior year performance, our Movie Tavern by Marcus Theatres outperformed the industry during the second quarter. We believe this is a clear indication that our programs are already having an impact on their performance. As our press release notes, we also are making capital investments in these theaters.

Early in the second quarter, we finished the addition of DreamLounger recliner seating in 3 Movie Tavern theaters that the previous owner had begun, and we are also -- we also converted 11 Movie Tavern auditoriums into our proprietary SuperScreen DLX premium large format concept just in time for the Avengers film. We are in the process of converting 10 more Movie Tavern screens to our proprietary PLF concepts during the third quarter. We're also in the process of adding DreamLoungers to 2 movie -- 2 more theaters in time for the fourth quarter. And we are on track to open our first new Movie Tavern by Marcus Theatres in Brookfield, Wisconsin later this fall. As we look ahead, July looks like it will be a good month, thanks to the strong performance of films such as Spider-Man: Far From Home and Lion King. And we're looking forward to a pretty extensive lineup of film releases in the coming months, many of which we've highlighted in our press release.

With that, let's move on to other division, hotels and resorts. You've seen the segment numbers and Doug gave you some additional detail as well. Obviously, our reported results were impacted by having a hotel closed for most of the period and then incurring significant preopening expenses in order to get the Saint Kate opened. But when you look past the onetime expenses, you see that we actually reported a very solid quarter in this division: increased room revenues and increased food and beverage revenues, combined with another strong cost control effort. And a part of our outstanding hotel team contributed to nice increases and comparable year-over-year operating performance. And as Doug shared with you, we also outperformed the industry in the hotels and resorts divisions as well.

I want to express my thanks to our team that is working very hard to produce these great results. An increase in group business at several of our holders during the fiscal 2019 second quarter compared to the prior-year period contributed to our increased RevPAR performance for our comparable company-owned hotels. Our 2 open Milwaukee hotels, in particular, benefited from increased demand due to the Milwaukee Bucks making the NBA playoffs. Strong short-term group demand also allowed us to drive nongroup ADR growth during the fiscal 2019 second quarter, favorably impacting our reported results. And the increase in group business also accounted for the majority of our increase in food and beverage revenues, as increased group business often leads to an increase in banquet and catering revenues.

Looking to future periods, although our company-owned hotels experienced a slight decrease in group bookings during the second quarter of fiscal 2019 compared to the same period last year, our group room revenue bookings for future periods of fiscal 2019, commonly referred to in the hotels and resorts industry as group pace, is running ahead of our group room revenue bookings for future periods last year at this time. Banquet and catering revenue pace for fiscal 2019 is also currently ahead of where we were last year at this same time. Of course, the big news of the second quarter was the opening of Saint Kate the Arts Hotel in June. As Doug noted, we began with a soft opening while we completed some of the rooms and phased in our meeting space and food and beverage concepts. We had our official grand opening event 2 weeks ago. Initial guest and community reaction to the new Saint Kate hotel has been very favorable. It really does a great job of highlighting both visual and performing arts in this community, and we think guests are going to love it.

As an independent hotel, we expect that it will take a period of time for this hotel to ramp up, particularly with group business. And as a result, it is likely that our fiscal 2019 third and fourth quarter comparisons of Saint Kate to a stabilize branded hotel during the prior year will be unfavorable. Having said that, we believe that over time, the new hotel will achieve a higher average daily room rate than the hotel it replaced and ultimately outperform the previous hotel. It'll be fun to watch its progress in the months ahead. As we noted in our press release, the renovation of 240-room Hilton Madison is now largely completed. The renovation included all guest rooms, the lobby and the hotel's food and beverage outlets. A new one-of-a-kind events space is also being created to provide an exceptional setting for business meetings and social events. The hotel looks great, guests are going to love it.

From a growth perspective, as we previously reported, we added another new management contract during the second quarter as described in our press release. We also lost 1 management contract during that period as the Heidel House in Green Lake, Wisconsin was closed for good by its owners. We continue to actively review opportunities to add to our portfolio of managed hotels in the coming year. We also continue to seek opportunities where we might invest equity in new hotel opportunities as well. Before we open the call for questions, I want to once again thank all the people that work so hard every single day making our ordinary days extraordinary for our guests. We talk a lot about the investments that we make in our businesses, but we can never lose sight of the fact that our people are our most important asset. And they proved that once again this quarter.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Mike Hickey from Benchmark.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [2]

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Greg, Doug, congrats, guys. Great quarter. You've got nice data in there. I guess first, Greg, you talked about Saint Kate. Congratulations, a really beautiful hotel and experience and a great location obviously loyal to the arts in that area. I guess could give a little bit more data on sort of how it's tracking initially versus your expectations? And maybe a little bit more clarity just in terms of how you expect to sort of ramp business into 2020?

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [3]

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How's it -- well, I have very high expectations, Mike. But I thank you for your comments on it. It's -- it did turn out beautifully. It's just very hard to tell. This is some new ground for us and new territory. We have independent hotels, but you think about the Fister, it's independent, but it has 125 years of track record. So this one is new for us. It's ramping, yes, it's moving along. We're seeing progress. We're seeing great response, people love it. I don't think we've gone and actually made any comments about what we think it's going to do. But I think we'll -- it's going to do well over time and as people get to know what it is. That's for us, that's the big challenge is getting people to know about it. The fortunate thing is here in Milwaukee, we have an established sales team already selling 2 other hotels. And so I think that gives us a leg up over anybody else trying to do something like this.

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Douglas A. Neis, The Marcus Corporation - Executive VP, CFO & Treasurer [4]

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We mentioned, Mike, in our prepared remarks that group business is always a leg with that. And so think about like wedding business, for example. What I'm hearing is the initial reaction of brides when they have seen the -- it now has been fantastic, but there's a lead time to that. So now that people will get a chance to see the property, that bodes better for 2020, which is what part of your question was, is that we have a chance to start selling into 2020 now with groups and that's going to be really important for our success.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [5]

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Do you guys think if this sort of hits the numbers you think you can do, that you sort of expand the concept onto other properties? Or is this just sort of a one-off thing?

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [6]

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Well, my entire hotel team, who's exhausted from what we just put them through to get it open. I'm not sure what I should say because they're probably -- most of -- many of them are listing right now. Let's take it one step at a time, let's see how this does. I mean look at it, it's not -- we didn't invent the idea of doing an arts-focused hotel. There are others out there who have done it and there are others who have repeated the concept. So but let's get this one working and then we'll go from there. We've taken a different tack with it in terms of adding the performing arts to it. And so -- and the way we've treated the -- the thing that we were very sensitive to, and I think you probably can attest to it having seen it. And a lot of arts hotels, they call themselves an arts hotel, it's a marketing gimmick, and it's typically just decoration. I think that we embrace the idea of really being an arts hotel and embracing the local community as well as an international arts community and that took a lot of work and getting it in place. So we'll see how it goes.

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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [7]

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All right. All right. Well, best of luck on that. I guess last question from me. You mentioned some menu changes to Movie Tavern, I think we were sort of expecting that, but if you could sort of maybe give us a little bit more info on the changes you made. And if at this point, maybe remind us what the operating income was from that asset, if you at this point think changes you've made and the growth, if you think you can expand upon your original? Or what the original range was for operating income when you acquired the asset?

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [8]

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All right. We'll take that in 2 parts, Mike. On the menu changes, the one observation that we made going into this was that the menu needed to be simplified. There was -- the previous ownership group had taken the tactic, strategy of really taking -- they wanted to take the menu up a notch. And then they had added a lot of complication to that, a lot of prep time. It took a lot of labor and it was very complicated to produce. We want the menu to be regarded as highly -- from a quality standpoint, if not higher, but we felt we could bring in the things that we do well.

The Zaffiro's Pizza, the burgers, our -- basically, our base where we started with our burger, the -- our smash burgers. Bringing those in, which we think are among the best in the business and taking -- and bringing that and then leading with that kind of product. So it was an approach to make the menu easier, which made -- which obviously that makes the kitchen a lot happier, and it makes the whole team happier because it's easier to staff. And that's been our big push. And I think we're going to continue to be focusing on how to make that menu easier to deliver because as we pointed out in our comments, we have been very focused on increasing occupancy. And as we increase occupancy, ease of delivery is going to be of paramount importance.

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Douglas A. Neis, The Marcus Corporation - Executive VP, CFO & Treasurer [9]

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Yes. And then just I'm going to talk, kind of at 30,000 feet, Mike, as it relates to the where we're headed towards the operating income. I think we generally feel like we're on the right path to getting to where -- to how we modeled this out. We're not there yet. Doing things like the menu changing that Greg just talked about, certainly is a big part of that because that goes to the cost. So it's a multiprong approach, right. We're trying -- we're putting a lot of -- many more people through these buildings now because of our focus on attendance. And then so that's certainly a key component here is to be able to be leverage some of the fixed costs that are already there and get more throughput, but then that creates the operational challenges. And so getting the labor and the food cost to where we want them to be, it kind of goes hand-in-hand with that.

So I mean our sense is that we're certainly on the path that we think we should be to get to the kind of the numbers that we've talked about. We're still looking at this thing in the first 12 months being accretive over that first 12 months and it's excluding the acquisition, preopening expenses. And again, all -- like our latest rollout of the loyalty program is a big part of that now. It's brand new, it's to that marketplace -- those marketplaces, and we're getting sign-ups and we'll be able to start communicating with those people. And it all becomes part of that puzzle towards driving attendance and then ultimately, driving the bottom line.

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Operator [10]

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Our next question comes from the line of Jim Goss with Barrington Research.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [11]

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I might just follow up a little bit more on what Mike was asking you about Saint Kate. One in particular that, are you anticipating that it should become somewhat of a tourist destination versus largely shifting attendance from other hotels, including your own? And sort of on a related basis, basis, what are the notable highlights of downtown Milwaukee is your spectacular art museum? I wonder if you do tie-ins with that sort of thing?

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [12]

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The -- Jim, you must have been in the meetings when we planned this hotel out. Because the discussion -- you are exactly right. And my operating team will be the first look at us and say, hotels, typically, when you build one, they really come -- they don't create demand. They come to the demand pool. They are just supply, and they expect -- you expect to get a certain share of that demand pool. And I said, "That's great. But if this is going to succeed, what we need is to create something that will induce demand." Obviously, look at, we are part of the -- we are dipping into the demand pool. I mean we just had Northwestern Mutual here in the city, it was a sellout for the city, and we all participate in that. It's a great conference. It's put on by one of our premium corporate companies in town. But the idea that someone in Chicago or Minneapolis or St. Louis, or you pick your market, says -- looks and says, boy, what should we do this weekend? I don't think anybody says, "I've heard there's this great pick your brand that just opened up in Milwaukee. We should go there." But what we do hope people say is, "I heard there's this really excellent arts hotel that is an experience." And it's this about experiential travel, that's what we are trying to tap into here. And that will in and of itself increase the side of the demand pie that we can all dip into. So you are right. That's where we're going with that. On the question of -- what was the question about -- what was your second question?

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [13]

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It was the tie-in with the Milwaukee Art Museum?

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [14]

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Yes. The art museum. We are working with the art museum, but our bigger tie-in actually has been -- and this has been a really great win-win, I think, for both of us, has been that we have -- our premier gallery when you come in, is a partnership with the Museum of Wisconsin Art, which is a wonderful institution, housed in -- its headquarters is in West Bend, which is about 45 minutes northwest of Milwaukee. And it is an incredible collection of art that they've put together. And they wanted a downtown venue and we provided that venue. And that's been -- and their first exhibit is focused on downtown Milwaukee in terms of the artwork they have put up. And they asked us some tough questions, and it points at the beauty and things that aren't so beautiful. And that -- which is exactly what we were going for. And it really is well done, and as -- I think it's a great asset for the hotel and a great asset for the Museum of Wisconsin Art. But that being said, we're working with lots of arts groups, and we curate our own exhibits, and we expect to have a good relationship with the art museum as well.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [15]

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Okay. And you were early on in this $5 Tuesdays idea, maybe you invented it. I'm wondering if your loyalty program data or other data supports your long-held view that Tuesday audience is incremental rather than shifted and to what extent?

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [16]

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Oh, absolutely. Because we do track the number of the guests who show up on the weekends, who show up on Tuesdays, and we see that. And we see an overlap, I don't have that number right at my fingertips. And that's generally not something we disclose, but we can see it. And we can see the benefit of Tuesday, when we look at our performance as it relates to the industry, we're able to see that we're getting incremental customers, clearly getting incremental customers. You can see it in numbers. You can see it -- if you just go to the theater, you'll see customers and you hear customers saying -- now, not anymore because it has been going on for so long, but when we first did it: "I haven't been to the movies in the long time, but you got me with this program." And so we can tell the data, that it's incremental, and that exposing people of the marketing and to the trailers is beneficial to (inaudible) overall.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [17]

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Okay. And Doug, you're talking about factors like the reseating and PLF factors and the film mix toward younger versus older that affected the pricing in the latest quarter. I'm wondering if you look at some of the same plans or the film schedule for Q3 and Q4, if you have any bias for pricing that you think we should build into our mindset going to these periods?

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Douglas A. Neis, The Marcus Corporation - Executive VP, CFO & Treasurer [18]

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I mean look, obviously the big movie playing right now is Lion King. And so that would logically skew a -- once again, similar to what happened in the second quarter. But -- and we've got Frozen 2 coming out in the fourth quarter. But I think from a -- just on a pure percentage basis, again, having 3 of our 5 films in this quarter be generally aimed to a younger audience, I don't -- the expectation generally in the second half of the year, the way that the studios release their film product, that's not typical. And so I don't -- based on the lineup and the number of the movies we list, obviously in the press release, and you've seen the lineup, it probably won't skew quite as much that -- in that direction in the second half of the year. And you've got some -- I mean look at some of the pictures. I mean you've got Hobbs & Shaw in August. It's going -- it should be really great business, and you've got it in September. And then you -- obviously, we're looking at some films like Jumanji and Star Wars and just a whole host of other films that are coming out in the fourth quarter. So it's not an exact science, Jim, but I think most of the younger audience pictures now have played other than Frozen 2.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [19]

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And with the planned reseating initiatives you have and some additional PLF screens, we should have a bit of an upward bias going on.

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Douglas A. Neis, The Marcus Corporation - Executive VP, CFO & Treasurer [20]

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Yes, a bit of an upward bias there, particularly on our Movie Tavern theaters, that's where the PLFs have been primarily been added in the second and now third quarters. The -- there's a little bit of DreamLounger work being done as well. And that can provide a little bit of a price impetus as well, but not to the same extent to what we were seeing previously, as you know, Jim. So there's -- just in general, there's still somewhat of an upward bias to it, no question about it.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [21]

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Okay. Maybe lastly, you were talking about exposure to new markets with Movie Tavern. Are there any -- are there 1 or 2 or 3 markets that you've become exposed to that you're starting to think more of in terms of maybe incremental M&A, as you look at opportunities around the country? Is that giving you some like on-ground experience that's creating more of an interest on your part?

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [22]

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Well, I'm not sure I'd say we have more of an interest because we've had an interest in a number of these markets beforehand, just because we like the idea of being in growth markets. I mean if you think about what's going on in Texas, heavy growth markets. That kind of -- that area, Atlanta is a growth market. Any of those markets where we can -- where we're seeing growth has got our attention. It's -- but it's helpful to be there and it certainly makes -- as we look at things, it makes it easier to analyze and easier to rationalize.

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Operator [23]

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(Operator Instructions) And our next question comes from the line of Ryan Hamilton with Morgan Dempsey.

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Ryan F. Hamilton, Morgan Dempsey Capital Management, LLC - Portfolio Manager [24]

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Could you kind of talk a little bit maybe about the -- kind of the transition from online sales to sales at kiosks and sales that are going on inside the theater, and kind of how that's changing the dynamic? And maybe give us a feel for what percentage of sales are being sold online versus in the theater?

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [25]

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Oh, are you -- so you mean how many people are buying online compared to buying at the box office?

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Ryan F. Hamilton, Morgan Dempsey Capital Management, LLC - Portfolio Manager [26]

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Yes. I'm just kind of curious how many of these are last-minute purchases versus planning ahead? It just kind of gives me a feel for what's going on inside of the business there.

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [27]

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Well, first of all, I think if you want take a very macro, let's call it top-down approach, you would say that yes, there's been a -- you are seeing a move to move to online, and we don't release those percentages, I don't have them handy. But I know that we have seen a significant, increased amount of people who are buying ahead of time and online. The primary impetus for that had been -- there had been the move to reserve seating. And with that, the customer and because we would shrink the seat count -- look at, the busier you are, the more you have to think ahead of time, which leads to my next point, which is when you take now a more a bottom-up approach. And then have you say, look at -- look, it depends on the movie. If it's going to be like Lion King, we are seeing significant early online sales. Tuesdays, we see significant -- busy, especially busy Tuesdays, people thinking ahead and grabbing their seats early. But if it's not something like that, then there's probably less -- not probably, there is less preplanned purchasing and it's more really right before show times.

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Ryan F. Hamilton, Morgan Dempsey Capital Management, LLC - Portfolio Manager [28]

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Okay. Right. I had heard something on like Endgame that they had sold more online tickets in the first 24 hours something of them going on sale than any movie in history or something along those lines. So I was curious as to the dynamics there.

My next question, could you maybe just touch on the Movie Tavern, if they had any kind of promotional events similar to what you had. I know that you said you implemented the $5 Tuesday. Did they have something like that before you acquired them?

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Douglas A. Neis, The Marcus Corporation - Executive VP, CFO & Treasurer [29]

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Not really. Not really. I mean they -- not to -- we make it an event, as you know, Ryan, I mean $5 Tuesdays is, we scream it from the mountaintop, and we have a great ground game where we get the word out to the surrounding community about the program. And so no. I think they had some -- a little bit of discount but it was just not something that had the same gravitas that our program has.

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [30]

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And we include free popcorn, so that's going to...

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Douglas A. Neis, The Marcus Corporation - Executive VP, CFO & Treasurer [31]

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Yes, nobody has that.

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [32]

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That is a significant boost to that program.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [33]

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And you're seeing a lot of traction with your movie rewards with their theaters now, with the Movie Tavern?

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Douglas A. Neis, The Marcus Corporation - Executive VP, CFO & Treasurer [34]

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Yes, I mean it's -- as we mentioned, we really rolled it out during the month of May. And so it's early, but I think our team is pleased with the sign-ups that we've gotten so far, and you get the free popcorn by now being a member of the program and that certainly, on Tuesdays, helps drive sign-ups. We're not -- at this point, we're not disclosing the numbers yet, but I will tell you that our total membership now is up to 3.5 million members.

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [35]

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A little under 3 million.

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Douglas A. Neis, The Marcus Corporation - Executive VP, CFO & Treasurer [36]

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And so we're -- that's a lot of people, that's a lot of guests that now have signed up for this program in total for all of our concepts.

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Ryan F. Hamilton, Morgan Dempsey Capital Management, LLC - Portfolio Manager [37]

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Wow. That's great. I guess my last question is with the Movie Tavern business, is that going to be similar as far as what you're using in your existing chain, where you've got some of your Retro Series? Will you be implementing any of that at the Movie Tavern? Or is that going to be mostly for current-run movies?

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Gregory S. Marcus, The Marcus Corporation - President, CEO & Director [38]

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No. All the programs that we've got -- that we run -- we are going to run through the Movie Tavern. Again, our approach, which I think is the right approach, has been to really imbue a real theatre operator orientation to Movie Tavern. And that is what leads to us trying to drive attendance. And the more people we bring in, the more we can sell them. So that's why we are on the path we are.

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Operator [39]

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

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Douglas A. Neis, The Marcus Corporation - Executive VP, CFO & Treasurer [40]

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Well, thank you, and we want to thank everybody for joining us today. We look forward to talking to you again in October when we release our fiscal 2019 third quarter result. Until then, thanks and have a great day.

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Operator [41]

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That concludes today's call. You may all disconnect your lines at this time.