Marcus Corporation (The)

Good morning, everyone, and welcome to the Marcus Corporation second quarter earnings conference call. My name is Crystal, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. If at any time during the call you require assistance, please press star zero, and an operator will be happy to assist you. As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer, And Justin Nice, Executive Vice President, Chief Financial Officer, and Treasurer of the Markets Corporation. At this time, I'd like to turn the program over to Mr. Nice for his opening remarks. Please go ahead, sir.

Well, thank you, Crystal, and good morning, everybody. Welcome to our fiscal 2020 second quarter conference call. As usual, I do need to begin by stating we plan on making a number of forward-looking statements in our call today. All of which we intend to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act. Our forward-looking statements may generally be identified by our use of words such as we believe, anticipate, expect, or words of similar import. Our forward-looking statements are subject to certain risks and uncertainties which may cause our actual results to differ materially from those expected, including but not limited J.D. J.D. J.D. which are based only upon currently available information including assumptions about our ability to manage difficulties associated with or related to the COVID-19 pandemic, the assumption that our theater closures, hotel closures, and restaurant closures are not expected to be permanent or to reoccur, the continued availability of our workforce following the temporary layoffs we've implemented as a result of the COVID-19 pandemic, and the temporary and long-term effects of the COVID-19 pandemic on our businesses. Listeners are cautioned not to place undue reliance on our forward-looking statements. Additional factors, risks, and uncertainties which can impact our ability to achieve our expectations identified in our forward-looking statements are included under the heading forward-looking statements in the press release we issued this morning announcing our fiscal 2020 second quarter results. And in the risk factors section of our fiscal 2019 annual report on Form 10-K and the subsequent quarterly reports on Form 10-Q, including the Form 10-Q that we're filing today, all of which you can access on the SEC's website. We'll also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com. With that behind us, let's begin. This will obviously not be a normal quarter for us, and our prepared remarks today will once again reflect that as we spend less time looking back at this past quarter and spend most of our time looking ahead. I will still begin by spending a few minutes briefly sharing a few numbers with you, but then I'll pivot to more current topics such as our balance sheet liquidity. Once I do that, I'll turn the call over to Greg, who will focus his prepared remarks on where our businesses are today as we've begun reopening some of our properties, along with our plans for reopening the rest of our properties in the future. When we open the call up for questions, we'd certainly be happy to revisit the quarter and answer any follow-up questions if needed. So you've seen the numbers. Essentially, you're looking at operating results with all of our businesses closed for the entire quarter. On the theater side, our only revenues were from six theaters that opened on a very limited basis in June 2020, primarily to test new operating protocols, as well as five parking lot cinemas, which is our version of a drive-in, J.D. J.D. J.D. followed by the Grand Geneva, the Hilton Madison, and the Skirvin Hilton in subsequent weeks in June. As the press release notes, we did once again have several non-recurring items this quarter directly related to the impact of the COVID-19 pandemic. We incurred approximately $3 million of additional property closure and subsequent reopening expenses with the majority of the expenses in our hotels and resorts division. A portion of these expenses represented payroll continuation and severance payments, J.D. J.D. In that reconciliation, you also see a significant favorable adjustment for income taxes that needs to be addressed. You will note that we reported a larger than might be expected income tax benefit this quarter. In fact, our effective income tax rate was 52.5% during the second quarter and 44% from the first half of the year. Our fiscal 2020 income tax benefit was favorably impacted by an adjustment of approximately $17.6 million resulting from several accounting method changes and the March 27, 2020 signing of the CARES Act. One of the provisions of the CARES Act allows our 2019 and 2020 taxable losses to be carried back to prior fiscal years, including years during which the federal income tax rate was 35% compared to the current statutory federal income tax rate of 21%. Excluding this favorable adjustment to income tax benefit, J.D. J.D. J.D. J.D. J.D. J.D. J.D. J.D. J.D. J.D. J.D. J.D. J.D. J.D. J.D. As you know, on April 29, 2020, we amended our existing credit agreement and issued a new $90.8 million, 364-day senior term loan aid to further support our already strong balance sheet. As of June 25, 2020, we had a cash balance of approximately $80 million and approximately $90 million of availability under our $225 million revolving credit facility. So you can do the math. J.D. J.D. Thanks, Doug.

As Doug noted earlier, I'm going to focus my remarks on where we are today, what we've done to date, and are continuing to do to manage through this crisis, and what some of our plans are for the future. As you can imagine, there are a lot of unknowns yet about what the future months will look like. So our plans will continue to evolve as the situation unfolds. In this rapidly changing, truly unprecedented environment, there is one thing that has not changed and will not change. Our priority, as it has been throughout our history, J.D. J.D. As we've now shifted to reopening properties, we're bringing people back and asking them to work under very different conditions. And not surprisingly, our people continue to step up and meet the challenges before us. Words alone don't do justice to how proud I am of all our associates. And I cannot emphasize at this point enough, from our executive team to our people in the field, they talk about the importance of gratitude. I have huge gratitude for everyone because we have less people. They're working harder. And as the words were just spoken, they're unprecedented. And so I'm thankful for everyone around me. You cannot do this alone. So now, as I've said, the focus is on reopening all our hotels and theaters. And I'd like to spend a few minutes talking about where we are and where we're headed in each of our divisions. So let's start with our hotels, since the reopening process has been the furthest along so far. When we closed our hotels, it was not because of any governmental requirements to do so. J.D. J.D. J.D. As air travel remains significantly reduced and the number of transient and group business customers will likely remain limited in the near term, the majority of the hotels we manage for other owners have also recently opened. We are monitoring market demand and we currently hope to reopen our remaining company-owned hotels during the third quarter of fiscal 2020. In fact, you may have seen the notice that we opened up the public spaces of St. Kate, the arts hotel, this past weekend. We're not booking rooms yet. But we wanted to activate the first few floors of the community, including our lobby bar, our pizza restaurant, and maybe most importantly, our art exhibit space. That first floor is essentially an art museum, and we felt it was important to get that space reopened as one more step towards recovery in downtown Milwaukee. And while the upcoming Democratic National Convention will not provide nearly the impact we all had originally expected, we currently expect to reopen the Hilton Milwaukee Hotel in time for that upcoming event. As we reopen our hotels, we are reopening with new operating protocols. In addition to following all new brand standards for our branded hotels, we have also introduced our own Clean Care Pledge that incorporates the best industry practices and protocols for operating our hotels, resorts, spas, golf courses and restaurants with an enhanced focus on cleanliness, sanitization and safety. Key elements and examples of the Clean Care Pledge include Introducing new processes and easy-to-use technology to create a low-to-no contact experience, incorporating social distancing into processes in various spaces, outfitting associates with masks and gloves, and making masks available for guests who are required to wear them in all of our public spaces, and enhanced cleaning and sanitization protocols that go beyond leading hospitality industry standards and CDC guidelines. Looking to future periods, overall occupants in the U.S. has slowly increased since the initial onset of the COVID-19 pandemic in March. Similar to our limited experience during the second quarter, most current demand continues to come from the drive-to leisure segment. Most organizations had implemented travel bans and are only now starting to allow some essential travel, which will likely limit business travel in the near term. And while early performances vary by hotel, I will tell you that occupancy rates, while still significantly lower than they would normally be this time of year, have generally exceeded our expectations as we have reopened hotels. Retail pricing has also thus far held relatively strong despite the current lower occupancy environment. Our company-owned hotels have experienced a significant decrease in group bookings for the remainder of fiscal 2020 compared to the same period last year. As of the date of this report, however, our group room revenue bookings for fiscal 2021, commonly referred to in the hotel and resorts industry as group PACE, J.D. J.D. Another positive development is the fact that the majority of our canceled group bookings due to COVID-19 are rebooking for future dates, excluding one-time events that couldn't rebook for future dates, such as those connected to the DNC. Another major event that will benefit our Milwaukee hotels, the Ryder Cup, was originally scheduled for September 2020, but it was recently rescheduled to September 2021. While disappointing to lose this event in 2020, it is contributing to our 2021 group pace. J.D. J.D. J.D. J.D. J.D. Regardless of how this unfolds, I am confident that our new hotel division president, Michael Evans, and his outstanding team will effectively manage our operations, and we look forward to reopening our remaining hotels. Our associates are working tirelessly so that every guest can rest easy knowing that they are receiving the highest standards of service and cleanliness while still enjoying the best our award-winning hotels and resorts have to offer. So let's shift to our theater division. On June 19th, we began to implement our phased reopening plan with the opening of six of our theaters in multiple markets with a primary goal of testing new operating protocols in accordance with local health and safety guidelines and designed to prioritize the safety and well-being of our associates and guests. During this initial phase, we've been showing older library film product, including a combination of films that have been released in theaters during the months prior to closing, as well as classic older films, such as films from the Harry Potter series. We waited for new films to be released. As we speak to you this morning, it appears we may finally have a clearer idea of what the film studio release plans will be. After several stops and starts, it appears increasingly likely that the first new film scheduled to be released is unhinged, together with the pre-release of Inception on August 21st. Disney's New Mutants is currently scheduled on August 28th, and the much-anticipated film Tenet is now scheduled for release in the U.S. on September 3rd, 2020. Warner Brothers' announcement of this new release date for Tenet was particularly important, as they acknowledged that this release will not follow the more common global day-and-date release patterns we've seen in recent years, but rather will mark a return to the days when films used to be released in different markets at different times in the industry.