The Marcus Corporation — Q1 Fiscal 2024 Summary
Business context and reporting period
The unaudited Form 10-Q covers the 13 weeks ended March 28, 2024, compared with the 13 weeks ended March 30, 2023. The company operates through Theatres and Hotels/Resorts segments. The first quarter is seasonally weak because of reduced winter travel and typically fewer blockbuster film releases.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $138.5 million | $152.3 million |
| Operating loss | $16.7 million | $9.0 million |
| Net loss | $11.9 million | $9.5 million |
| Diluted loss per Common share | $0.38 | $0.31 |
| Adjusted EBITDA | $2.3 million | $9.5 million |
| Operating margin | (12.0%) | (5.9%) |
| Net margin | (8.6%) | (6.2%) |
| Net cash used in operating activities | $15.1 million | $7.7 million |
| Capital expenditures | $15.4 million | $8.9 million |
Theatre revenue declined 15.7% to $81.3 million, producing a $5.7 million operating loss versus $1.5 million of operating income in the prior-year quarter. Hotels/Resorts revenue increased 2.5% to $57.2 million, while the segment operating loss increased modestly to $5.2 million. Consolidated interest expense decreased to $2.5 million from $3.0 million, and investment income increased to $0.7 million from $0.3 million.
At March 28, 2024, cash and cash equivalents were $17.3 million, restricted cash was $3.3 million, and total assets were $1.02 billion. Total debt, net of issuance costs, was $169.8 million, including $10.3 million of current maturities. The company had no revolver borrowings and reported $220.2 million of availability under its $225 million revolving credit facility. Net leverage was 1.65x, compared with 1.19x at December 28, 2023. Shareholders’ equity was $459.3 million.
Material changes versus the prior comparable period
- Total revenue decreased 9.0%, while operating loss widened by $7.7 million and net loss increased by $2.4 million.
- Theatre attendance at comparable theatres fell 17.5%; admission revenue decreased 14.8% and concession revenue decreased 18.1%. The average ticket price increased 4.9%, and average concession revenue per person increased 0.8%, partially offsetting lower attendance.
- Management attributed theatre weakness to a less favorable film slate, including the effects of 2023 WGA and SAG-AFTRA strikes, and noted that the company underperformed the U.S. box office decline during the quarter.
- Hotels/Resorts comparable occupancy increased to 53.7% from 50.8%, and RevPAR increased 2.1% to $80.57. ADR declined 3.4% to $150.11 as the company emphasized occupancy and group business.
- Adjusted EBITDA declined 75.8% to $2.3 million, primarily because theatre Adjusted EBITDA fell 55.4% to $6.2 million.
- Cash used in operations increased by $7.4 million, while investing cash use increased by $11.2 million due to higher capital spending and the Lofton Hotel joint venture investment.
Outlook, commentary, risks and unusual items
- Management expects the number of wide-release films in fiscal 2024 to decrease from fiscal 2023 because of the production disruption, but anticipates more films and alternate content in fiscal 2025.
- Group room revenue bookings for the remainder of fiscal 2024 were approximately 11% ahead of the prior-year position, excluding the July 2024 Republican National Convention. Fiscal 2025 group bookings were more than 60% ahead of the comparable prior-year position.
- Management expects a fiscal 2024 effective tax rate of approximately 36% to 38%, excluding changes in tax rates, valuation allowances and one-time tax benefits.
- In March 2024, the company invested $5.6 million for an initial 33.3% interest in the Lofton Hotel joint venture and subsequently sold an 8.6% interest for $1.5 million, reducing its ownership to 24.7%. The company provided certain guarantees with a maximum stated exposure of $6.2 million, subject to cross-indemnification arrangements.
- The $100.1 million principal amount of 5.00% convertible senior notes matures in September 2025. The notes remained eligible for conversion, but management stated that no notes had been converted and none were expected to be converted within the next 12 months.
- Key risks include film availability and release timing, labor and supply costs, economic conditions, occupancy and room-rate volatility, weather, competition, capital-intensive renovations, financing access, leverage covenant compliance, and potential shareholder securities claims.
- The credit agreement requires a consolidated net leverage ratio generally no higher than 3.50:1.00 and an interest coverage ratio of at least 3.00:1.00. Management stated that liquidity was sufficient for obligations and covenant compliance for at least the next 12 months.
Important facts for investors to verify
- Whether film availability and attendance recover as the delayed production pipeline improves, particularly in fiscal 2025.
- The timing and funding of the September 2025 convertible note maturity or potential conversion.
- Actual hotel group bookings, occupancy, ADR and RevPAR performance relative to the company’s outlook.
- Capital spending requirements for theatre and hotel renovations and their effect on operating cash flow.
- Compliance with the revolving credit facility’s leverage and interest coverage covenants.
- The financial performance, debt structure and guarantee exposure associated with the Lofton Hotel joint venture.
- The sustainability of the quarterly dividend while the company is generating seasonal operating and free-cash-flow deficits.