Marcus Corporation (The)

Good morning, everyone, and welcome to the Marcus Corporation first quarter earnings conference call. My name is Celine, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards 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. Greg Marcus, President and Chief Executive Officer, and Doug Nice, Executive Vice President, Chief Financial Officer and Treasurer of the Marcus Corporation. At this time, I'd like to turn the program over to Mr. Nice for his opening remarks. Please go ahead, sir.

Thank you very much, and good morning, everybody, and welcome to our fiscal 2021 first quarter conference call. Thank you very much. J.D. J.D. J.D. And additional factors, risks, and uncertainties which could 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 2021 first quarter results. And in the risk factors section of our fiscal 2020 annual report on Form 10-K, 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. So with that behind us, let's begin. Our call will follow the usual format, which is where I will start with spending a few minutes briefly sharing a few numbers from our quarter with you, and I'll also discuss our balance sheet and liquidity. I'll then turn the call over to Greg, who will focus his prepared remarks on where our businesses are today and what we're seeing for the near term and longer future. We'll then open the call up for questions. So you've seen the numbers. This will be the last quarter that we're comparing our results to a quarter J.D. J.D. J.D. J.D. J.D. J.D. J.D. J.D. J.D. J.D. Shifting gears away from the earnings statement, just for a moment, our total cash capital expenditures during the first quarter of fiscal 2021 totaled approximately $1.5 million. Most of these dollars were spent on two projects, a theater renovation mentioned in our press release and a lobby renovation that we've initiated at our Grand Geneva Resort and Spa. We're still estimating that our fiscal 2021 capital expenditures may be in the $15 to $25 million range, with many of our projected expenditures back-loaded to the second half of the year. Let me now provide some brief financial comments on our operations for the quarter, beginning with theaters. Total attendance was down 81.4% compared to the prior year first quarter, reflecting the large number of theaters closed for all or portions of the quarter and the fact that our open theaters were only operating on Tuesdays and weekends. Now, according to data received from Comscore, J.D. J.D. J.D. contributed to our increased per capita revenues. Shifting to our hotels and resorts division, our total revenue per available room, or REVPAR, for our eight owned hotels decreased 46.4% during the first quarter compared to last year's same period. Once again, now comparing it through the industry, however, according to data received from Smith Travel Research and compiled by us in order to compare our results, Our hotels outperformed comparable upper upscale hotels throughout the United States during the first quarter by approximately eight percentage points. The data also indicates that our hotels outperformed competitive hotels in our market by approximately six points, six percentage points during the first quarter. Breaking out the numbers for all eight hotels more specifically, our fiscal 2021 first quarter overall rev par decrease was due to an overall occupancy rate decrease Now, finally, before I turn the call over to Greg, let me also briefly comment on our balance sheet liquidity position. J.D. And now that we have filed our fiscal 2020 income tax return, we anticipate an additional income tax refund of approximately $24 million later in the year, along with tax loss carry forwards that may be used in future years. J.D. J.D. With that, And I'll turn the call over to Greg.

Thanks, Doug. During our year-end earnings call in early March, I opened my remarks by recognizing that there still may be some bumpy weeks and or months ahead of us, but that we were very encouraged by a number of green shoots that were springing forth in both of our businesses. Well, now, two months later, I think we all agree that most of the news since then has been largely encouraging, and some of those green shoots are starting to budge. The rollout of vaccinations has gone better than expected with over 50% of the eligible adult population having now received at least one shot, both nationwide and most importantly in our markets. As you know from prior calls, I'm a huge proponent of the vaccines and their role on getting this country and our businesses back to normal. There's still work to be done to get more people vaccinated. The most eager have now been vaccinated and now the heavy lifting begins as we work to motivate others to get vaccinated. But you have to be encouraged by the progress thus far and the resulting improvements we are seeing in the COVID numbers across the country. As we said in our press release, we truly do see a recovery beginning to take hold. Having said that, this is no time to spike the ball on the five-yard line. We know the recovery will not be an overnight process, so our teams still have a lot of work ahead of us as we rebuild our businesses. Our priority will continue to be the safety and well-being of our associates and customers and communities. This has guided everything we've done so far and will guide us in the weeks So let's start with our hotel division. Doug shared some of the numbers with you, including the fact that the data indicates that we once again significantly outperform both the industry and our competitive sets this quarter. As you know, our hotels have consistently outperformed their markets in prior years as well, but the amount of outperformance in recent quarters has widened significantly. It's fair to assume that as demand increases and all hotels are fully operating, we might expect that our percentage of outperformance might decrease somewhat. But as I shared with you last quarter, I think our numbers speak to a flight to quality that should be beneficial in the future and our ability to consistently outperform in our markets. Stated simply, we have always had some of the best properties in our respective markets, and it doesn't surprise us that they've outperformed during this challenging time. But I will admit that some of the other numbers Doug shared with you about the first quarter did surprise us. Our first quarter is historically our weakest quarter of the year. So without meaningful business travel yet, we did not necessarily expect to report quarterly results that would end up better than last year, even after adjusting for some non-recurring costs last year. But thanks to stronger than expected drive-to leisure customer demand, that's exactly what we did. The majority of our customers have been transient leisure customers who are looking to get away and change their scenery after months of staying home. As a result, not surprisingly, weekend business was the strongest at all of our hotels and during spring break weeks in March. We even saw stronger than expected business midweek. Properties like the Grand Geneva Resort and Spa and Timber Ridge Lodge performed the best among our hotels, as they are well-suited for families looking to get away. But our downtown hotels also saw an uptick in leisure business as well. During our last call, I shared with you that we had a record ski season at Grand Geneva. We've been at or near sellouts on multiple Saturdays at this resort. It wasn't that we didn't have any transient business and group business. We continue to have weddings and some small group business, And we continue to have success booking major league baseball teams and NBA basketball teams. And as I shared with you in March, there are also some green shoots in individual business travel, and we believe the continued progress with the vaccine rollout will further spark growth in both of these business travel segments. I think one of the first steps leading towards the resumption of business travel will be the reopening of offices, and although it is slow, we're starting to see progress on that front. Our improved first quarter numbers are also a direct result of the continued hard work of Michael Evans, Our hotel division president and his entire team. They've done a fantastic job of streamlining our operations, reducing both variable costs and costs we might have previously deemed fixed in order to keep our hotels open and operating at reduced occupancy levels. They've done incredible work focusing our marketing efforts on reaching the drive to leisure market through aggressive campaigns, promoting creative packages for our guests, contributing to our outperformance. Looking to future periods, our group room revenue bookings for fiscal 2021, commonly referred to in the hotels and resorts industry as group pace, is running significantly behind where we would historically be at the same time in prior years. But we are beginning to experience increased booking activity for later in 2021 and particularly for 2022 and beyond. Banquet and catering revenue pace for fiscal 2021 is running behind where we would typically be at the same time in prior years. But not as much as group room revenues do impart two increases in wedding bookings. Many of our canceled group bookings due to COVID-19 are rebooking for future dates, excluding one-time events that could not rebook for future dates. The average lead time for a reservation in the leisure segment continues to be approximately three days, making it very difficult to forecast occupancy from this customer segment. Having said that, everything we've seen thus far supports a belief within the industry that leisure travel will continue to be quite strong, particularly during the upcoming summer months. It's our hope that as we get to the fall and midweek leisure travel subsides as kids go back to school, we'll also be experiencing continued improvement in the business segments. Overall, we generally expect our revenue trends to track or exceed the overall industry trends for our segment of the industry, particularly in our respective markets. Finally, let me end my remarks about hotels by once again noting that we would have an interest in growing this division in the future. We see opportunities to pursue less capital-intensive strategies such as strategic partnerships and The creation of a fund or straight management contracts. No one really knows yet what the hotel transactional market might look like and whether there may be opportunities to acquire hotels that might be experiencing some distress. Regardless, if opportunities arise, we want to be prepared on the other side of this. So let's shift to our theater division. Doug went over the numbers with you. We started the quarter off with only 52% of our theaters open due to temporary restrictions put back in place in several of our markets in the fourth quarter. As those restrictions were lifted, we began reopening theaters once again, and as a result, we ended the first quarter with approximately 74% of our theaters open. As we noted in our press release, beginning this coming weekend, we will have nearly 90% of our theaters open, many with expanded operating hours and days. Like our hotel division, the highlight of the quarter was our outperformance versus the industry. As Doug shared with you, based on industry data available to us, we believe we outperformed the industry by approximately nine percentage points this quarter. In fact, based upon the metric, We believe we were the top performing theater circuit during the first quarter of fiscal 2021 compared to the top 10 circuits in the U.S. Additional data received and compiled by us from Comscore indicates our admission revenues during the first quarter of fiscal 2021 represented approximately 4.8% of the total admission revenues in the U.S. during the period, commonly referred to as market share in our industry. This represents an approximately 55% increase over our reported market share of approximately 3.1% during the first quarter of fiscal 29 prior to the pandemic. We certainly recognize that closed theaters in other markets in the U.S. contributed to our outperformance of both of these metrics, so we expect our outperformance to lessen in future periods as more theaters open. But that still doesn't lessen the fact that our theaters outperform the rest of the industry, open or closed, a great job all around by Rolando Rodriguez and his entire team. During our year-end earnings call in early March, we talked about one of the primary contributors to this outperformance. Faced with a limited amount of new film product and a pandemic that was further limiting customer willingness to go to public places, J.D. J.D. J.D. J.D. J.D. During the last 11 weeks of fiscal 2021 first quarter, we averaged over 1,500 MPC events per week, accounting for approximately 21% of our admission revenues during those weeks. MPC worked particularly well with family films, so not surprisingly, our top three films during the quarter were Raya and The Last Dragon, Tom and Jerry, and The Croods A New Age. All three of these films were available to customers in other formats, so that says a lot about what we believe is a strong desire on the part of consumers to see movies the way they were meant to be seen. Industry optimism that consumers are anxious to return to movie theaters has been further supported by the early second quarter box office results of the first King Kong and most recently Mortal Kombat and Demon Slayer. Easily becoming the best performing film since the onset of the pandemic. Recent surveys by the National Association of Theater Owners have indicated that approximately 65% of those surveyed say they are very or somewhat comfortable going to the movies right now. J.D. J.D. Our press release lists several films that are slated for release during the rest of May and June, and once we hit July, there is a long list of films currently scheduled to be released each and every week. It also continues to be very encouraging that key markets in New York and California are reopening. San Francisco, Los Angeles, and New York City, to name a few, are very important markets to the film studios, and all current signs point towards these markets being much more open by the time we hit the meat of the summer film schedule. which bodes well for the studio's willingness to hold to their current summer release plans. Now, like my comments about the hotel division, please don't interpret my optimism about what lies ahead to suggest that we might not still face challenges in the near term. There certainly is the possibility that there may be further changes in the release schedule and the studios continue to experiment with the theatrical window. We have yet to learn how that might change consumer behavior in the future when the world is back to quote-unquote normal. We know there are uncertainties in the weeks ahead, But I believe we are prepared to navigate through any further challenges as we redefine, refocus, and rebuild our industry-leading theater business. In closing, while it will take some time for both of our businesses to return to pre-pandemic levels, the quality of our assets, the industry-leading out-of-home entertainment and hospitality experiences we provide, and our continued focus on service and safety have positioned both Marcus Theaters and Marcus Hotels and Resorts for the continued recovery. We are encouraged by the improvements we are seeing and remain optimistic for the future. And I can't end my prepared remarks without saying that I continue to be thankful for our experienced and dedicated associates throughout our organization. Never has my grandfather's oft-repeated statement rung more true than during this past year. Our associates are truly our most important asset. With that, at this time, Doug and I would be happy to open the call up for any questions you may have.