The Marcus Corporation — Fiscal 2019 Form 10-K Summary
Business context and reporting period
The filing covers the 52-week fiscal year ended December 26, 2019, with comparative fiscal years ended December 27, 2018 and December 28, 2017. Marcus operates two reportable segments: movie theatres and hotels and resorts. At year-end, theatre operations comprised 91 locations and 1,106 screens across 17 states; hotels and resorts included approximately 5,400 owned or managed rooms.
Fiscal 2019 included 47 weeks of ownership of the acquired Movie Tavern circuit. Fiscal 2020 is a 53-week year, including the traditionally strong week between Christmas and New Year’s Day.
Financial performance and liquidity
| Metric | Fiscal 2019 | Fiscal 2018 | Change |
|---|---|---|---|
| Revenue | $820.9 million | $707.1 million | +16.1% |
| Operating income | $68.2 million | $83.2 million | -18.0% |
| Operating margin | 8.3% | 11.8% | Down 3.5 points |
| Net earnings attributable to Marcus | $42.0 million | $53.4 million | -21.3% |
| Diluted EPS, Common Stock | $1.35 | $1.86 | -27.4% |
| Net cash from operating activities | $141.5 million | $137.4 million | +3.0% |
| Capital expenditures and acquisitions | $94.2 million | $58.7 million | +60.4% |
| Long-term debt | $206.4 million | $228.9 million | -9.8% |
The company reported a consolidated operating margin of 8.3% and net margin of approximately 5.1%. Theatre revenue was $557.1 million, up 24.7%, while theatre operating income declined 13.4% to $76.9 million and margin declined to 13.8% from 19.9%. Hotels and resorts revenue increased 1.3% to $263.4 million, but operating income declined 19.5% to $10.1 million and margin declined to 3.8% from 4.8%.
Cash, cash equivalents and restricted cash totaled $25.6 million at year-end, including $20.9 million of cash and cash equivalents. Current assets were $79.3 million versus current liabilities of $175.0 million, resulting in a current ratio of 0.45. The company reported $139 million of unused credit availability at year-end and was in compliance with its debt covenants.
Total debt, before debt issuance costs, was approximately $216.3 million, including $81.0 million outstanding on the revolving credit facility. Debt-to-capitalization was 0.26 versus 0.33 in the prior year. Scheduled long-term debt principal payments are $9.9 million in fiscal 2020 and $11.0 million in fiscal 2021. The company entered into a new $225 million five-year revolving credit facility on January 9, 2020, maturing in January 2025.
Material changes versus the prior comparable period
- The February 1, 2019 Movie Tavern acquisition added 22 dine-in theatres and 208 screens. Consideration was approximately $139.3 million, consisting of $30.0 million in cash and 2.45 million shares of common stock. The acquired theatres contributed approximately $125.8 million of fiscal 2019 revenue but had no material impact on fiscal 2019 net earnings excluding acquisition costs.
- Total theatre attendance increased 8.8%, primarily due to Movie Tavern. Comparable-theatre attendance decreased 8.6% and comparable admission revenue decreased 5.5%, reflecting a weaker film slate.
- Theatre concession revenue increased 38.8%, while average concession sales per person increased 27.6%, supported by Movie Tavern and expanded food and beverage offerings.
- The company closed the InterContinental Milwaukee for most of the first half of fiscal 2019 and reopened it as Saint Kate—The Arts Hotel. Related preopening and initial start-up costs reduced fiscal 2019 results by approximately $6.8 million, or $0.16 per diluted share.
- Fiscal 2019 included a $1.9 million impairment charge related to a specific theatre location and approximately $2.5 million of Movie Tavern acquisition and preopening expenses.
- Adoption of the lease accounting standard ASC 842 created $243.9 million of operating lease right-of-use assets and $245.4 million of operating lease liabilities at year-end, without a material earnings impact.
- Shareholders’ equity attributable to Marcus increased to $621.4 million from $490.0 million, primarily reflecting the stock issued for the Movie Tavern acquisition.
Guidance, outlook, commentary and risks
- Management expects fiscal 2020 to benefit from the additional operating week, although it cautioned that the benefit may not equal the approximately $17.4 million of incremental revenue and $6.2 million of incremental operating income generated by the comparable extra week in the 2015 transition period.
- Fiscal 2020 cash capital expenditures are expected to be approximately $65 million to $85 million, excluding unidentified acquisitions. Planned spending includes approximately $45 million to $60 million for theatres and $20 million to $25 million for hotels and resorts.
- Management expects comparable theatre admission revenue and concession sales per person to improve in early fiscal 2020, supported by a stronger film slate, but noted potential adverse comparisons from the strong performance of Captain Marvel in March 2019.
- The fiscal 2020 film slate is expected to include more releases, but management cautioned that a broader slate may not match the Disney-led blockbuster performance of fiscal 2019. The top 15 films represented 48% of fiscal 2019 admission revenue, compared with 42% in fiscal 2018.
- Management expects the Saint Kate to improve as it operates for a full year and gains market awareness, and expects the completed Hilton Madison renovation to support comparisons. Milwaukee events, including the Democratic National Convention and The Ryder Cup, are expected to support 2020 lodging demand.
- Hotel group-room and banquet bookings for future fiscal 2020 periods were ahead of the comparable prior-year pace, but increased room supply in Milwaukee, Chicago and Oklahoma City may limit rate growth.
- Key risks include dependence on the quantity and appeal of films; shorter theatrical release windows and streaming competition; weather and seasonality; economic and travel conditions; hotel oversupply and online travel intermediaries; intense competition; integration and performance of Movie Tavern; capital intensity, impairment and renovation costs; financing and covenant requirements; labor costs and collective bargaining; cybersecurity; litigation; and changes in tax or regulatory requirements.
- The company recorded no material legal proceedings, and management and the independent auditor concluded that internal control over financial reporting was effective as of December 26, 2019. Deloitte issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Assess comparable-theatre attendance and margins separately from the reported growth generated by Movie Tavern.
- Evaluate whether Saint Kate achieves the expected revenue, occupancy and profitability ramp following its conversion and renovation.
- Reconcile cash generation with planned capital expenditures, lease obligations, debt maturities and dividend payments.
- Review the terms and covenant headroom under the January 2020 refinancing and the company’s exposure to variable interest rates.
- Monitor film release volume, theatrical exclusivity windows, streaming competition and the concentration of admission revenue in blockbuster titles.
- Verify the projected benefit from the 53rd fiscal week and the contribution of the 2020 Milwaukee events.
- Consider the effect of the ASC 842 lease liabilities and the company’s substantial contractual lease obligations when assessing leverage and liquidity.