Marcus Corporation (The)

Good morning, everyone, and welcome to Marcus Corporation's first quarter earnings conference call. My name is Ellie, 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 and then zero, and an operator will be happy to assist you. As a reminder, this conference is being recorded. Joining us today are Greg Marcus, Chairman, President, and Chief Executive Officer, and Chad Parris, Chief Financial Officer and Treasurer of Marcus Corporation. At this time, I'd now like to turn the program over to Mr. Parris for his opening remarks. Please go ahead, sir.

Good morning, and welcome to our 2026 first quarter conference call. I need to begin by stating that we plan to make a number of forward looking statements on our call today, which may be identified by our use of words such as believe, anticipate, expect or other similar words. Our forward looking statements are subject to certain risks and uncertainties which may cause our actual results to differ materially from those expected or projected in our forward looking statements. These statements are only made as of the date of this conference call, and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. The 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 2026 first quarter results and in the risk factor section of our annual report on Form 10-K, which you can access on the SEC's website. Additionally, we refer you to the disclosures and reconciliations we provided in today's earnings press release regarding the use of adjusted EBITDA, a non-GAAP financial measure, in evaluating our performance and its limitations, a copy of which is available on the investor relations page of our website at investors.marcuscorp.com. All right, let's begin. This morning, I'll start by spending a few minutes sharing the results from our first quarter with you. and 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 are seeing ahead. We'll then open up the call for questions. I'll begin with an important reminder about our fiscal calendar that impacted our first quarter year-over-year comparisons. The first quarter of fiscal 2025 was the first quarter of transition to a calendar fiscal year and included five days at the beginning of the quarter during the week between the Christmas and New Year's holidays at the end of calendar 2024 that are significant days in our Cedar Division. In fiscal 2026 and going forward, the first quarter began on January 1st, and as a result, our first quarter results faced the headwind of having five fewer operating days when compared to the first quarter of fiscal 2025. Going forward, Our year-over-year quarterly comparisons will now be aligned, ending on traditional calendar quarters. On the call today, I'll provide the as-reported year-over-year changes in our results, as well as the growth on a comparable calendar quarter basis, excluding the impact of the extra days in the prior year, to provide an apples-to-apples comparison. As you would expect, our growth for the comparable calendar quarter is even stronger than our as-reported results. We are very pleased to report that we were able to overcome this headwind to deliver another quarter of solid execution and results with both divisions growing year-over-year revenue and an overall increase in adjusted EBITDA. In theaters, a significantly better first quarter film slate with improved product supply and better carryover of holiday films drove significant attendance and revenue growth, leading to our overall improved results. In our hotel division, We continued to see year-over-year improvement in REVPAR and occupancy as we benefited from our renovated hotel assets being fully operational. Shifting to the numbers, I'll start with a few highlights from our consolidated results for the first quarter of 2026. Consolidated revenues of $154.4 million increased $5.6 million, or 3.8% compared to the prior year quarter, with revenue growth in both divisions. The five fewer operating days negatively impacted consolidated revenue growth by 15.3 million. On a comparable calendar quarter basis, excluding this impact, consolidated revenues increased 20.9 million or 15.6%. Operating loss for the quarter was 19.3 million, an improvement of 1.2 million compared to the prior year first quarter. Consolidated adjusted EBITDA for the first quarter was 2.6 million, an increase of 2.9 million over the first quarter of fiscal 2025. The year-over-year improvements in both operating loss and adjusted EBITDA were negatively impacted by 5.3 million due to the fewer operating days. On a comparable calendar quarter basis, adjusted EBITDA grew 8.2 million. Turning to our segment results, I'll start with our theater division. First quarter 2026 total revenue of $92.9 million increased $5.6 million or 6.4% compared to the prior year first quarter. The five fewer operating days negatively impacted theaters revenue growth by $12.2 million. On a comparable calendar quarter basis, excluding this impact, theaters revenues increased $17.8 million or 23.6%. For our fiscal first quarter 2026, comparable theater admission revenue increased 9.8%, and comparable theater attendance increased 1.9%, compared with our fiscal first quarter 2025. On a calendar quarter basis, first quarter 2026, comparable theater admission revenue increased 29%, and comparable theater attendance increased 19.1% compared to the prior year first calendar quarter. When using our comparable fiscal days, according to data received from Comscore and compiled by us to evaluate our 2026 first quarter results, U.S. box office receipts increased 5% during our 2026 first quarter compared to box office receipts during our fiscal 2025 first quarter. indicating our theaters outperform the industry by approximately 4.8 percentage points. On a straight calendar quarter basis, we also outperform the U.S. box office by 7.6 percentage points. We believe our outperformance is primarily attributed to our strategic pricing actions, as well as a favorable film slate that featured several titles appealing to family audiences, our genre where our circuit typically performs very well. Average admission price increased 7.8% during the first quarter of 2026 compared to last year, benefiting from strategic ticket price optimization actions, an increased percentage of ticket sales from PLF screens, and a favorable day park ticket mix. Our average concession food and beverage revenues per person at our comparable theaters increased by 2.4% during the first quarter of 2026, compared to last year's first quarter, which was primarily due to increases in movie-themed merchandise sales and incidence rate, as well as inflationary price changes. Our top 10 films in the quarter represented approximately 62% of the box office in the first quarter of 2026, compared to approximately 66% for the top 10 films in the first quarter last year. with film costs as a percentage of admission revenues effectively flat for the first quarter compared to the prior year. Theater Division adjusted EBITDA during the first quarter of 2026 was $8 million, an increase of $4.3 million. The year-over-year increase in adjusted EBITDA was negatively impacted by $5 million due to the fewer operating days, and on a comparable calendar quarter basis, theater division adjusted EBITDA increased 9.3 million. Turning to our hotels and resorts division, revenues were 61.4 million for the first quarter of 2026, up 100,000 compared to the prior year. Total revenue before cost reimbursements at our seven owned hotels decreased 600,000 or 1.1% compared to the first quarter of fiscal 2025. The five fewer operating days negatively impacted hotels revenue growth by approximately 3.1 million. On a comparable calendar quarter basis, excluding this impact, hotels revenue before cost reimbursements increased 2.5 million or 5.1%. REVPAR for our comparable owned hotels grew 13.7% during the first quarter compared to the prior year. which resulted from an overall occupancy rate increase of 8.9 percentage points, partially offset by a 3.4% decrease in our average daily rate or ADR. Our average 2026 first quarter occupancy rate for our owned hotels was 59.2%. Our occupancy rate increase benefited from the Hilton Milwaukee being fully back in service. compared to the first quarter last year when the hotel was under renovation and guest rooms were out of service. We estimate that the impact of the renovation in the prior year favorably impacted our RevPAR growth by approximately four percentage points during the first quarter. According to data received from Smith Travel Research, comparable competitive hotels in our markets experienced a decrease in RevPAR of 2.9% during the fiscal first quarter of 2026, compared to the first quarter of fiscal 2025, indicating that our hotels outperformed their competitive set by 16.6 percentage points. After adjusting for the prior year impact of the Hilton Milwaukee renovation, we believe our hotels rev par growth outperformed the competitive sets by 11.5 percentage points, which we attribute to continued strength in group business, as well as generally strong performance from our renovated assets. When comparing our REVPAR results to comparable upper upscale hotels throughout the United States, the upper upscale segment experienced an increase in REVPAR of 3.9% during our first quarter compared to the first quarter of fiscal 2025, indicating that our hotels outperformed the industry by 9.8 percentage points and by 5.8 percentage points when adjusting for the estimated prior year impact of the renovation. Food and beverage revenues decreased 2.1% in the first quarter of 2026 compared to the prior year and were negatively impacted by the decrease in operating days. Hotels other revenues decreased by 1.4 million or 9.2% primarily due to a weaker ski season at Grand Geneva Resort and Spa and the impact of fees generated from an all hotel group buyout at one of our condo hotel properties in the first quarter of fiscal 2025, an event that doesn't happen every year and did not recur in the first quarter of 2026. Finally, hotels adjusted EBITDA decreased 1.3 million in the first quarter of 2026 compared to the prior year quarter, primarily due to a $400,000 impact from the five fewer operating days, lower other revenues resulting from the weaker ski season, and the non-repeating group buyout in the prior year, which included high margin rooms and banquet and catering business, and higher benefits costs. Shifting to cash flow in the balance sheet, our cash flow from operations was a use of cash of $15.2 million in the first quarter of 2026 compared to cash used by operations of $35.3 million in the prior year quarter, with the increase in cash used primarily due to favorable timing of payments and accounts payable higher EBITDA, and a one-time benefit of $3 million from the sale of historic tax credits related to the Hilt Milwaukee renovation. As a reminder, our cash flow from operations in the first quarter is historically impacted by seasonal changes in working capital resulting from the slowdown in our business following the peak holiday season and by the timing of various year-end accounts payable and compensation payments. Total capital expenditures during the first quarter of 2026 were $6.6 million, a $16.4 million decrease compared to the first quarter of fiscal 2025. Our capital expenditures during the first quarter were primarily invested in maintenance and ROI projects in both businesses. Our capital investments and projects have progressed as planned, and we continue to expect capital expenditures for 2026 of 50 to 55 million. and we will update our capital expenditure estimates throughout the year. As we discussed last quarter, we continue to expect this decrease in capital expenditures to result in a significant increase in free cash flow in 2026. And this played out as expected in the first quarter with a $36.5 million improvement in free cash flow compared to the prior year. Our balance sheet remains strong and we ended the first quarter with over 11 million in cash and over 194 million in total liquidity with a debt to capitalization ratio of 28% and net leverage of 1.7 times. Our strong balance sheet and confidence in our businesses gives us the ability to continue investing in our businesses and pursuing growth while returning capital to shareholders through our quarterly dividend and opportunistic share repurchases. During the first quarter, we purchased approximately 87,000 shares of our common stock for $1.3 million in cash. We will continue to allocate capital with a balanced approach that supports our strategic priorities while pursuing investments that provide the most attractive long-term returns to shareholders. With that, I will now turn the call over to Greg.

Thanks, Chad. Good morning, everyone. We entered the year with a plan for projected growth in both of our businesses. In theaters, we expected a stronger film slate in 2026, coupled with improvements in per capita sales to drive growth in the theater division. In hotels, we expected our recently renovated properties to drive outperformance within our competitive sets after several years of significant investment in an overall stable macroeconomic environment. We're happy to report that the first quarter generally played out a little better than we expected, with strong outperformance in both divisions. Feeders led the growth and improvement in our results on a better-than-expected box office, and hotels continued to grow rev power and revenue without performance being driven by our renovated hotels. As Chad discussed, we were able to overcome the headwind from having fewer operating days in the quarter, which was no small feat considering the week of the year that those days fell in the first quarter last year. With the normal seasonal headwinds in our hotel business, the first quarter is always challenging, so it's incredibly helpful when we're able to get off to a good start as we did this quarter. The first quarter that we are reporting today continues to make year-over-year progress, and we're pleased to be sharing these results with you. I'll start with our theater division. Our theater division got off to a much stronger start than last year, and what a difference a year makes. A stronger film slate drove significantly higher attendance, for the comparable quarter with a combination of solid carryover performances from several holiday films, successful original family films in Hoppers and Goat, and a major tentpole in Project Hail Mary that delivered blockbuster results, all contributing to deliver the best first quarter in the US box office since the pandemic. This quarter was a great reminder of what is possible with better product supply when there are several things working at once. It also demonstrates that audiences will come out whenever there are good movies, not just during the peak summer and holiday periods, and the industry needs to continue to fill in the slate across the calendar. The first quarter national box office was up over 21%, and there is still a lot more opportunity for further growth with additional product in the future. As Chad discussed, we continued to realize strong per capita growth during the quarter, with average ticket prices benefiting from our ongoing price optimization efforts. and continued growth in merchandise sales, which are included in our concession revenues. Last quarter, I shared several initiatives we are executing this year to drive per capita sales growth. As an update, we have now completed our rollout of tap-to-pay terminals to all ticketing and food and beverage points of sale, both in-store and our mobile wallets for our digital purchasing channels. This week, we will complete the rollout of NCQR code mobile food and beverage ordering to all 20 of our dine-in theaters, which we believe makes food ordering faster and easier for customers. Looking ahead, we continue to work redesigning a best-in-class food and beverage digital purchase experience in our mobile web and app for all theater locations that we expect to roll out in time for the holidays later this year. A couple of weeks ago, we were with our theater team at CinemaCon, and once again, our studio partners, film directors, and talent all continue to reaffirm the importance of theatrical exhibition and our critical role to the overall movie and media ecosystem. After years of experimentation and discussion around the length of the exclusive theatrical window, I believe we have reached an inflection point and recognition by studios and distributors that a longer theatrical window enhances the overall performance of films across the ecosystem. And we applaud the significant announcements from major studios, including Universal, Sony, and Paramount, extending or committing to minimum exclusive theatrical windows. While the industry has more work to do on windows and improving product supply, we are heading in the right direction. Second, we got a closer look at the film slate for the rest of the year into 2027, and we remain very optimistic about the coming attractions. The momentum from the first quarter continued into April with the blockbuster success of Super Mario Galaxy movie and last weekend's record opening of Michael, getting the second quarter off to a solid start. We kick off the summer movie season this week with the opening of The Devil Wears Prada 2, which will be followed by a number of big titles including Mortal Kombat 2, Star Wars, The Mandalorian and Grogu, Supergirl, The Odyssey, and Spider-Man Brand New Day. I am particularly excited for the widely appealing family features such as Toy Story 5, Minions and Monsters, and Moana. The fall and holiday film slate is also exciting, with Avengers, Doomsday, Dune Part 3, and Jumanji Open World, just to name a few. There are many more great films coming, noted in today's earnings release. Looking even further ahead, the 2027 film slate also looks strong, with major franchises including Shrek 5, Star Wars Starfighter, Minecraft 2, Frozen 3, The Batman Part 2, Sonic the Hedgehog 4, Spider-Man Beyond the Spider-Verse, Man of Tomorrow, The Legend of Zelda, Avengers, Secret Wars, and many more. We are excited about the momentum that is building in theaters and the film slate ahead in the coming years, and we remain very positive and optimistic about the long-term future for the industry and our theater business. Excuse me. Moving to our hotel and resorts division. You've seen the segment numbers, and Chad shared some additional detail on the performance metrics, including our outperformance to our competitive sets and to upper upscale hotels nationally. We have made significant investments in several of our hotels over the last three years, and we continue to see customer demand for newly renovated room product and freshly redesigned meeting and event spaces. These amenities allow us to drive strong rates and outperform within our markets. and our sales teams have done a great job capitalizing on this opportunity. As we've discussed in past years, there is significant seasonality in our hotel business, given that most of our company-owned hotels are located in the Midwest. We often lose money in this division during the winter months, as was the case this year with adjusted EBITDA that was slightly negative. In addition to having fewer days in the quarter, there were headwinds from a few items in the first quarter of fiscal 2025, including Milwaukee hosting the men's NCAA basketball tournament, an all-school, I'm sorry, an all-hotel group buyout at one of our condo hotels last year, and favorable weather for ski season that did not recur this year in the first quarter. This is the nature of event-driven and group rooms business, and while we did not see these events repeat this year, these or similar events will likely return in the coming years. There were a few notable items in the quarter I would like to highlight. While average daily rates decreased around 3% in the first quarter, this was not unexpected and was primarily driven by two factors. First, all of the Hilton Milwaukee rooms were back in service, resulting in less rate pressure with more room supply. This contrasts with last year when we were able to create some rate compression in the Milwaukee market with the reduced available room count due to the renovation. And second, at Grand Geneva, the weaker ski season resulted in weekend transient demand that was softer and resulted in lower rates compared with last year. The decrease in rates was more than offset by the significant increase in occupancy from the Milwaukee rooms back in service, resulting in overall rev par growth at 13.7%. Group bookings remain stable with our group room revenue bookings for 2026 or group pace in the year for the year, running approximately 5% ahead of where we were at this time last year. Looking a bit further ahead to 2027, group room pace is running in line, with where we were at this time last year for the next year out. Although this far out, the timing of bookings can vary significantly. Banquet and catering space for the remainder of 2026 is running in line with where we were at this time last year. As our hotel division heads into the busier spring and summer travel months, we believe we are well positioned to win in our markets. While transient demand has remained healthy, it is important to acknowledge there continues to be an elevated level of economic uncertainty. with recent volatility in key travel costs, including gas prices and airfare. If market conditions change and we begin to see softness, we are prepared to react and adjust quickly. Before we open the call up 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, our most important asset, And they proved that once again this quarter. With that, at this time, Chad, I'd be happy to open the call up for any questions you may have.