The Marcus Corporation — Form 10-Q Summary
Business context and reporting period
The filing covers the 13 and 26 weeks ended November 28, 2013, representing the second quarter and first half of fiscal 2014. The company operates through Theatres and Hotels/Resorts segments. Results are seasonal, with the second quarter typically the slowest for theatres and the second strongest for hotels and resorts.
Key financial metrics
| Metric | 13 weeks ended Nov. 28, 2013 | 13 weeks ended Nov. 29, 2012 | 26 weeks ended Nov. 28, 2013 | 26 weeks ended Nov. 29, 2012 |
|---|---|---|---|---|
| Revenue | $100.6 million | $100.6 million | $229.6 million | $218.6 million |
| Operating income | $8.8 million | $9.7 million | $33.2 million | $30.2 million |
| Operating margin | 8.8% | 9.7% | 14.4% | 13.8% |
| Net earnings attributable to Marcus | $3.2 million | $4.7 million | $16.7 million | $15.4 million |
| Diluted EPS, Common Stock | $0.12 | $0.17 | $0.62 | $0.54 |
| Operating cash flow | Not separately provided | Not separately provided | $37.8 million | $36.4 million |
First-half theatre revenue was $115.9 million, up 3.1%, while theatre operating income was $22.2 million, up 1.0%; the theatre operating margin was 19.2% versus 19.6%. First-half Hotels/Resorts revenue was $113.5 million, up 7.2%, and operating income was $17.9 million, up 19.2%; the segment margin increased to 15.8% from 14.2%.
At November 28, 2013, cash and cash equivalents were $12.5 million, restricted cash was $7.5 million, and total current assets were $39.8 million. Current liabilities were $116.0 million. Long-term debt was $201.7 million, current maturities of long-term debt were $32.9 million, and capital lease obligations totaled $30.6 million. The debt-to-capitalization ratio was 0.42, compared with 0.44 at fiscal 2013 year-end. Management reported approximately $175 million of unused credit lines.
First-half capital expenditures were $21.0 million, compared with $10.5 million in the prior-year period. Net cash used in investing activities was $21.2 million, while net cash used in financing activities was $14.2 million. Cash increased by $2.4 million during the first half to $12.5 million.
Material changes versus the prior comparable period
- Second-quarter revenue was essentially unchanged, but operating income declined 9.3% and Marcus-attributable net earnings declined 31.3%.
- First-half revenue increased 5.1%, operating income increased 9.9%, and Marcus-attributable net earnings increased 8.3%.
- Theatre second-quarter revenue fell 6.5% and operating income fell 39.1%, primarily because comparable attendance declined 7.1%, the film slate was weaker, auditoriums were closed for renovations, and advertising costs increased for the new $5 Tuesday promotion.
- Theatre first-half attendance increased 1.3%, and average concession revenue per person increased 4.8%, partially offsetting weaker second-quarter attendance.
- Hotels/Resorts benefited from higher average daily room rates. Second-quarter ADR increased 3.8% to $148.21 and RevPAR increased 3.8% to $113.73; first-half RevPAR increased 4.2% to $123.71.
- Interest expense increased to $2.6 million in the quarter and $5.0 million in the first half, versus $2.3 million and $4.4 million, respectively, primarily because of higher borrowings and the issuance of new senior notes.
- The company recorded a $789,000 second-quarter loss on asset dispositions, including approximately $750,000 related to the sale of its 15% interest in the Columbus Westin hotel joint venture.
- Prior-year results included a $417,000 theatre impairment charge and significant Platinum Hotel & Spa litigation and settlement costs; these items did not recur in the current periods.
- Share repurchases declined substantially to approximately 97,000 shares costing $1.2 million in the first half, versus approximately 1.7 million shares costing $19.4 million in the prior-year period.
Guidance, outlook, commentary, risks and unusual items
- Management expected fiscal 2014 capital expenditures of approximately $60 million to $70 million, absent significant growth opportunities, with as much as $50 million directed to theatres.
- Management stated that business booked for the fiscal third and fourth quarters was solid and expected continued improvement in Hotels/Resorts results. The company expected fiscal 2014 effective tax rates near its historical 40% average.
- The company expected to refinance a $21.0 million mortgage on its downtown Chicago hotel, maturing in June 2014, during the second half of fiscal 2014.
- Management expected early fiscal third-quarter theatre results to exceed the prior-year comparable period, aided by the Thanksgiving weekend and a favorable movie slate.
- The company issued $50.0 million of 4.02% senior notes due August 2025. Beginning in August 2021, mandatory annual prepayments of $10.0 million are required through August 2024.
- The company had 642 screens using digital projection systems under a 10-year licensing arrangement. Although management did not expect booking shortfall payments, the maximum potential annual shortfall payment was approximately $6.2 million until the obligation is satisfied.
- Major renovations were underway at The Cornhusker, the Westin Atlanta Perimeter North, and portions of The Pfister. Renovations may create temporary operating disruption and increase capital requirements.
- Management continued pursuing The Corners of Brookfield mixed-use development, targeting construction in spring 2014 and a possible fall 2015 opening, subject to leasing, financing, equity-partner arrangements, and other milestones.
- Key stated risks include film availability and audience appeal, competition and release-window changes, weather, economic conditions affecting travel and leisure spending, hotel supply and pricing pressure, renovation and development costs, financing availability, and potential terrorism or other events affecting consumer activity.
Investor verification points
- Verify the refinancing and subsequent treatment of the $21.0 million Chicago hotel mortgage.
- Track theatre attendance, the financial effect of the $5 Tuesday promotion, renovation closures, and the upcoming film slate.
- Assess whether hotel ADR and RevPAR improvements continue and whether The Cornhusker renovation reaches completion without further losses.
- Review leverage, debt maturities, interest expense, mandatory senior-note prepayments, and available revolver capacity.
- Confirm actual fiscal 2014 capital expenditures against the $60 million to $70 million estimate and monitor The Corners of Brookfield financing and leasing milestones.
- Evaluate exposure under the digital cinema capital lease and the assumption that no booking shortfall payments will be required.