The Marcus Corporation 10-Q Summary
Business context and reporting period
The Marcus Corporation operates movie theatres and hotels and resorts. The filing covers the 13 weeks ended September 28, 2023, representing the third quarter of fiscal 2023, and the 39 weeks ended September 28, 2023. Comparable periods ended September 29, 2022. Fiscal 2023 results were not materially affected by COVID-19.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | First 39 weeks 2023 | First 39 weeks 2022 |
|---|---|---|---|---|
| Total revenue | $208.8 million | $183.7 million | $568.0 million | $514.4 million |
| Operating income | $20.9 million | $8.9 million | $32.8 million | $11.0 million |
| Operating margin | 10.0% | 4.9% | 5.8% | 2.1% |
| Net earnings | $12.2 million | $3.3 million | $16.2 million | $(2.7) million |
| Diluted EPS | $0.32 | $0.10 | $0.46 | $(0.09) |
| Adjusted EBITDA | $42.3 million | $27.9 million | $90.5 million | $68.5 million |
| Operating cash flow | Not separately provided | Not separately provided | $68.6 million | $60.4 million |
Theatre revenue increased 25.0% to $126.6 million in the quarter and 16.0% to $359.8 million for the first 39 weeks. Theatre operating income improved to $11.4 million from a $0.7 million loss in the prior-year quarter. Comparable theatre attendance increased 15.6% in the quarter and 7.3% year to date; average ticket price increased 12.8% and 12.2%, respectively.
Hotels and resorts revenue was approximately flat at $82.1 million in the quarter and increased 2.0% to $208.0 million year to date. Excluding the sold Skirvin Hilton, comparable revenue before cost reimbursements increased 4.1% in the quarter and 7.0% year to date. Comparable third-quarter occupancy was 76.5%, ADR was $213.05, and RevPAR was $163.00.
Net cash provided by operating activities was $68.6 million. Capital expenditures were $25.8 million, including approximately $10.4 million for theatres and $15.1 million for hotels and resorts. Net cash used in investing activities was $26.9 million, and net cash used in financing activities was $26.2 million. Cash, cash equivalents and restricted cash totaled $40.1 million at September 28, 2023, including $36.0 million of cash and cash equivalents.
Total debt, net of debt issuance costs, was $170.1 million, consisting principally of $70.0 million of senior notes and $100.1 million of convertible senior notes. No borrowings were outstanding under the revolving credit facility, and availability was $220.6 million after letters of credit. The debt-to-capitalization ratio was 0.26, compared with 0.28 at December 29, 2022.
Material changes versus the prior comparable period
- Revenue increased 13.7% in the third quarter and 10.4% for the first 39 weeks.
- Operating income increased 133.9% in the quarter and 196.6% year to date.
- The company reported net earnings for the first 39 weeks versus a prior-year loss, benefiting from higher operating results, lower interest expense and investment income.
- Interest expense declined to $2.9 million from $3.7 million in the quarter and to $9.0 million from $11.8 million year to date.
- The effective income tax rate was 32.4% in the quarter and 30.5% year to date. Management expects a fiscal 2023 effective tax rate of approximately 28% to 32%, excluding changes in tax rates, valuation allowances and other one-time benefits.
- The company closed six theatres during fiscal 2023 and ended the quarter with 993 company-owned screens in 79 theatres, compared with 1,064 screens in 85 theatres a year earlier.
- A $0.7 million impairment charge was recorded for one theatre asset group.
Guidance, outlook, risks and unusual items
Management cited strong film performance, higher attendance, pricing actions and improved labour productivity as drivers of theatre results. It noted that film production strikes by the Writers Guild of America and SAG-AFTRA could affect film release schedules, particularly in 2024 and 2025. Future theatre results remain dependent on film availability, audience appeal, release windows, weather and competition.
Management expects leisure travel demand to normalize, with gradual improvement in business travel. Group room revenue bookings were approximately 11% ahead of the prior-year pace for the remainder of fiscal 2023 and approximately 14% ahead for fiscal 2024. Management said it was encouraged by group and banquet booking trends.
On October 16, 2023, after quarter-end, the company entered into a new five-year, $225 million revolving credit facility maturing October 16, 2028. The amended agreement replaced prior debt-to-capitalization and fixed-charge coverage covenants with a maximum consolidated net leverage ratio of 3.50:1.00, subject to a limited 4.00:1.00 acquisition step-up, and a minimum interest coverage ratio of 3.00:1.00. The company also amended its senior note agreements to align covenants and collateral provisions.
Other stated risks include economic conditions, labor and supply costs, interest rates, hotel occupancy and room rates, property renovations and impairment, future pandemics, access to financing, competitive conditions, weather, consumer spending and potential civil securities claims. Management reported no material changes in market risk exposures and no material changes affecting internal control over financial reporting.
Important facts for investors to verify
- Whether the improved theatre performance is sustained as film production disruptions affect the 2024 and 2025 release slate.
- The company’s ability to refinance or repay the $100.1 million convertible senior notes due September 2025 and other scheduled debt maturities.
- Compliance with the new net leverage and interest coverage covenants under the October 2023 credit agreement.
- The effect of theatre closures, property renovations, labor costs and potential future impairment charges on operating cash flow.
- Whether hotel group bookings convert into realized occupancy, ADR, RevPAR and profitability.
- The assumptions underlying the projected 28% to 32% fiscal 2023 effective tax rate.