The Marcus Corporation: Q1 Fiscal 2019 Form 10-Q Summary
Business context and reporting period
The filing covers the 13 weeks ended March 28, 2019, compared with the 13 weeks ended March 29, 2018. The Company operates movie theatres and hotels/resorts. Fiscal 2019 began December 28, 2018 and ends December 26, 2019.
On February 1, 2019, the Company acquired Movie Tavern, consisting of 22 dine-in theatres and 208 screens in nine states, for approximately $138.9 million, funded with $30.0 million of cash and 2.45 million shares of Common Stock.
Financial performance and key metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenues | $170.0 million | $168.2 million | +1.1% |
| Operating income | $5.0 million | $17.0 million | -70.9% |
| Operating margin | 2.9% | 10.1% | Down 7.2 points |
| Net earnings attributable to Marcus | $1.9 million | $9.8 million | -81.1% |
| Diluted EPS | $0.06 | $0.35 | -$0.29 |
| Net cash from operating activities | $8.0 million | $12.0 million | -$4.0 million |
| Capital expenditures | $13.7 million | $16.0 million | -$2.3 million |
The effective income tax rate was 0.7%, compared with 25.8% in the prior-year quarter, primarily due to excess tax benefits from share-based compensation and quarter-specific adjustments. Interest expense declined to $3.1 million from $3.3 million.
At March 28, 2019, cash and cash equivalents were $8.4 million and restricted cash was $4.9 million. Total debt, excluding lease obligations, was approximately $273.6 million, comprising $10.1 million of current maturities and $263.6 million of long-term debt. Management reported approximately $106 million of unused credit lines and a debt-to-capitalization ratio, excluding lease obligations, of 0.31.
Operating lease right-of-use assets of $235.2 million and operating lease obligations of $237.4 million were recognized following adoption of ASC 842. Total lease liabilities, including finance leases, were approximately $265.2 million at quarter-end.
Material changes versus the prior comparable period
- Theatres revenue increased 1.7% to $114.9 million, primarily due to the Movie Tavern acquisition and higher concession revenue per customer.
- Theatre operating income fell 47.5% to $12.6 million, and theatre operating margin declined to 11.0% from 21.2%.
- Comparable theatre attendance declined 16.6%, while comparable admission revenue and concession revenue decreased 17.8% and 12.2%, respectively. Management attributed the declines primarily to a weaker film slate and winter weather.
- Concession revenue per person increased 5.4% at comparable theatres and 22.4% overall, aided by Movie Tavern and expanded food and beverage offerings.
- Hotels/resorts revenue was essentially flat at $55.1 million, but the segment operating loss increased to $3.2 million from $2.6 million. The former InterContinental Milwaukee closed for conversion to the Saint Kate hotel, and Hilton Madison was under renovation.
- Company-owned comparable hotel occupancy declined to 64.6% from 65.9%, and RevPAR declined 1.9% to $84.05. Excluding Hilton Madison, comparable RevPAR increased 2.6%.
- Operating results included approximately $1.8 million of Movie Tavern acquisition and preopening expenses, $1.2 million of Saint Kate preopening expenses, and approximately $250,000 of additional winter weather-related costs.
- Investing cash outflows increased to $46.1 million, primarily due to the $29.6 million cash portion of the Movie Tavern acquisition. Financing activities provided $29.4 million, including a net $35.0 million increase in revolving credit borrowings.
Guidance, outlook, risks and unusual items
- Management expects Movie Tavern to be accretive to earnings, EPS and cash flow during the first 12 months following closing; integration was reported to be progressing on schedule.
- Full-year fiscal 2019 capital expenditures, including the Movie Tavern cash consideration but excluding significant unidentified acquisitions, remain estimated at $105 million to $125 million.
- Management expects an effective tax rate of approximately 24% to 26% for the remaining fiscal 2019 quarters, subject to excess share-based compensation benefits and other changes.
- Additional Saint Kate preopening expenses of at least $1.2 million to $1.4 million were expected in the second quarter, with reopening targeted for approximately June 1, 2019.
- Management described the second-half 2019 film slate as expected to be strong, but theatre performance remains dependent on film appeal, studio marketing, release windows, weather, competition and consumer spending.
- Hotel performance is exposed to economic conditions, room supply, occupancy and room rates. Management noted limited expected industry RevPAR growth in 2019 and increased supply in certain markets.
- The Company entered into two interest-rate swaps covering $50.0 million of floating-rate debt. Management stated that the swaps were effective and were not expected to materially affect earnings over the next 12 months.
- The filing identifies no material changes to previously disclosed risk factors and no material changes in market-risk exposures since December 27, 2018.
Important facts for investors to verify
- Whether Movie Tavern achieves the expected earnings, cash flow and integration benefits after absorbing acquisition, lease and operating costs.
- The effect of the 2019 film slate, attendance trends, ticket-price increases and concession spending on theatre margins.
- The timing and total cost of the Saint Kate and Hilton Madison renovations, including the disclosed second-quarter preopening expenses.
- Revolving credit borrowings, available liquidity and compliance with debt terms as acquisition and capital spending continue.
- The final purchase price allocation for Movie Tavern, which remained preliminary at the filing date, including goodwill and lease-related valuations.
- The impact of ASC 842 on balance-sheet leverage, lease obligations and comparability with prior periods.
- Whether the $105 million to $125 million fiscal 2019 capital-spending estimate changes as projects are finalized.