Q4 2019 Earnings Call
The question answer session toward the end of this conference if at any time during the call you require assistance. Please press star zero and an operator, we'll be happy to assist you. As a reminder, this conference is being recorded joining us today or Greg Marcus President and Chief Executive Officer, and Doug Nice Executive Vice President Chief Financial Officer, and Treasurer, The Marcus Corporation.
At this time I'd like to turn the program over to Mr. nice for his opening remarks. Please go ahead Sir.
Thank you very much and welcome everybody to our fiscal 2019 fourth quarter and year end conference call Bear with me is once again I need to begin by stating that we plan on making the number are forward looking statements or a call today.
Looking statements conclude but not be limited the statements about our future revenues and earnings expectations.
Future Revpar occupancy rates in a room rate expectations for hotels and resorts division expectations, what the quality quantity in audience appeal film products expected to be made available to us in the future.
Expectations about the future trends in the business group and leisure travel industry and in our markets.
Expectations and plans regarding growth the numbers and type of our properties and facilities.
Expectations regarding various nine out of operating line items on our earnings statement and our expectations regarding future capital expenditures.
Of course, our actual results could differ materially from those projected or suggested by our forward looking statements.
Factors risks, uncertainties, which could impact your ability to achieve our expectations are included the risk factor section of our 10-K in 10-Q filings, which can be obtained from the FCC or the company.
We'll also post all regulation G. disclosures, what applicable on our website at www markets Corp. dotcom.
So with that that's the by this let's talk about our fiscal 2018 fourth quarter and are completed fiscal year.
Once again, we had multiple nonrecurring items in both the Sears in last year's or poor results. It complicates comparisons to the prior year. So we attempt to get those numbers on a more apples to apples basis in our press release and explain each of them as as this call proceeds, but when all said and done operating results were down versus last year for both the quarterly year for a variety of reasons I will discuss Eric.
Well today.
As our press release notes. However, thanks to the movie Tavern acquisition, and a solid quarter and year for hotels fiscal 2018 fourth quarter in fiscal year revenues were a record for both divisions as well as the company as a whole.
We also reported record adjusted EBITDA during both the fourth quarter and fiscal year as well.
As is our usual practice before we get to greg's comments in the quarter and you're going to take you through some of the detail behind the numbers both on a consolidated basis and for each division.
Not much to say about line items below operating income investment income increased compared to last year. During both the core in the year due primarily to increase isn't the value of marketable securities held by the company. Meanwhile, interest expense decreased during the quarter near due primarily to reduced borrowing levels. The changes in the other line items were relatively minimal.
Income taxes on the other hand did have some nonrecurring activity last year that the <unk> that definitely impacted our comparisons net earnings last year during the fourth quarter. We benefited from a 1.2 million dollar onetime reduction in deferred tax liabilities related to a change in tax accounting method made last year and for the full fiscal year that toll.
Benefit was over $1.9 million during fiscal 2018.
As a result, we had an unusually low fourth quarter and full year effective income tax rate last year.
Fiscal 2019 effective income tax rate was 22.7% compared to 19.7% last year. However, you. If you exclude that $1.9 million nonrecurring benefit last year, our effective income tax rate last year was 22.7% the same as this year.
Shifting gears away from the earning Stephen for a moment, our total capital cash.
Total cash capital expenditures during fiscal 2019 came in right in the middle of the range. We shared with you last quarter totaling approximately 64 million compared to approximately 59 million last year.
Now that 2019 number does not include the approximately $30 million cash component of our movie Tavern acquisition.
Approximately $32 million or half of our overspend during fiscal 2019 was incurred in a theater division related primarily to the new theaters that we opened and are continuing dreamlounger seating projects and premium large format conversions that we referenced in our press release.
The other half the other $32 million of capital expenditures and our toll hotels and resorts Division. During fiscal 19 were were primarily related to the two major renovation projects at the same Kate and the Hilton Madison plus various normal maintenance projects.
As we look towards capital expenditures for fiscal 2020.
We're currently estimating that our capital expenditures, maybe in the $65 million to $85 million range.
Currently estimating approximately 45 to 60 million for our fiscal 2020 capital spend in our theater division with another $20 million to $25 million earmarked for hotels <unk> resorts Division.
As is always the case at this point in the year. The actual fiscal 2020 capital expenditures certainly could vary from this preliminary estimate.
Greg will briefly discuss our spending plans in his prepared remarks.
I'll now provide sort of financial comments on our operations for the fourth quarter in fiscal year and I'll start with a theaters.
Reported admission revenues increased 18% in our concession revenues increased 37.9% during the fourth quarter compared to last year.
But when you exclude from the numbers the acquired movie Tavern theaters and the new movie Tavern Theater that we opened during the fourth quarter.
You'll find that arc comparable admission and concession revenues decreased 5.1% and 4.6% respectively.
For the full fiscal 2019 full year once again, excluding the movie tavern theaters are comparable admission and concession revenues decreased 5.5% and 2.4% respectively. Due due in large part to the industry's challenging first quarter.
According to data received from Comscore, and <unk> and compiled by us to evaluate our fiscal 2019 fourth quarter and fiscal year results United States box office receipts, excluding a handful of new builds for the top 10 surrogates decreased 5.5% during our fiscal 2018 fourth quarter and decrease.
6% for the comparable 52 week fiscal year.
As a result, we believe our admission revenues for comparable theaters during the fourth quarter fiscal 2019 outperformed the industry average by 0.4 percentage points.
With our fiscal 2019 full year results ending up 0.5 percentage points ahead of the industry.
Now we did not include the performance of our movie Tavern theaters in the comparison to the industry because we did not own movie tavern during all during fiscal 2018.
Based upon data available to us however from the previous owner, we believe that our movie tavern theaters outperformed the industry by approximately seven percentage points. During the 11 months that we own them during fiscal 2019.
Greg will address the outperformance of both about both our legacy theaters and our movies haven't theaters during his prepared remarks.
Attendance at our comparable theaters was down 9.9% and 8.6% respectively. During the fourth quarter in fiscal 2019 full year compared to the same periods last year due to a weaker film slate.
The decreases in attendance were partially offset by increased per capita revenues.
Our average admission price at our comparable theaters increased 5.4% during the fourth quarter and 3.4% during 2019 compare to the prior periods.
We're also pleased to report increase in our average concession in food and beverage revenues per person at our comparable theaters of 5.9% for the fourth quarter and 6.9% for all of fiscal 2019.
Our investments in non traditional food and beverage outlets continue to contribute to higher per capita spending.
And if you want to add movie tavern to the numbers I'll tell you that our average concession in food beverage revenues per person increased by nearly 28% this year.
[noise] I fear division operating income and operating margin declined during the fourth quarter in fiscal 2018 compared to the same period last year due to the negative leverage that occurs when attendance declines.
Through significant investments, we and others in this business have made in our inner feeders over the last five years, we have higher fixed costs, such as rent depreciation and amortization.
A certain percentage of our labor expenses due in part to our increased number of new food and beverage outlet center theaters.
As a result, it's more difficult to remove cost what attendance declines like it did in the fourth quarter and full year fiscal 2019, and operating margins are more likely to decline when that happens.
In addition, as we discussed all year, our operating margin also declined as expected due to the inclusion of the movie Tavern operating results are movie Tavern theaters have a lower operating margin than our legacy theaters through the fact that all 22 acquired theaters are leased rather known and because a larger portion of movie Teva rent movies haven't revenues are derived from the sale of in theater food and beverage.
As food and beverage labor costs are generally higher for those items compared to traditional concession items.
Of course, as you've heard US say many times before we think dollars the bank not percentages.
And lastly, our press release and attached tables reconciling net earnings to adjusted net earnings highlighted for you several nonrecurring items that impacted our fourth quarter in fiscal 2018 theater results.
During our fiscal 2019 fourth quarter, we recorded a $1.9 million impairment charge related to one specific theater location, and we incurred approximately $400000 or preopening expenses related to the new movie Tavern theater that we opened during the quarter.
Those items, plus nearly $2.1 million of nonrecurring acquisition and Preopening expenses related to the movie Tavern acquisition reported in earlier quarters resulted in total nonrecurring items that are theater division during fiscal 2018 of nearly $4.4 million or 10 cents per share.
During our fourth quarter last year, we also had some nonrecurring acquisition and preopening expenses totaling approximately $1.7 million.
Shifting to our hotels and resorts Division I reported results for fiscal 2019 were obviously impacted by the fact that we close the Intercontinental Milwaukee after the first week in January and in order to begin a major renovation that transform this hotel in the same keep the Arts hotel.
We reopened no new hotel in June and as expected. We also incurred initial startup losses at this hotel during the third and fourth quarters as we compare to newly opened independent hotel. So the results of a stabilized branded hotel the year before.
As previously reported we also were undergoing a major renovation or Hilton Madison Hotel during the first half of fiscal 2019, so that further negatively impacted our reported results for the full year fiscal 2019 from this division.
As you saw the press release, we're reporting slightly increased hotel revenues and a decreased operating loss during fiscal 2019 fourth quarter.
And we're reporting increased revenues and a decrease and decreased operating income during fiscal 2019 compared to this last year's same periods.
Now when you exclude the closed former Intercontinental now the same Kate hotel and cost reimbursements, which have nothing to do with our own hotels whatsoever from our results you'll find that comparable hotel revenues actually increased 2.6% during both the fourth quarter and fiscal 2018.
Our operating income was obviously impacted in both years by the syndicate conversion. This years numbers were impacted by the aforementioned closing of the old hotel and the subsequent preopening expenses and initial startup losses of the new hotel.
Last year's report results in the fourth quarter were negatively impacted by approximately $500000 or preopening expenses and approximately $3.7 million of accelerated depreciation.
So if you just look at our hotel results will tell resorts. The results. Excluding this hotel altogether, we find that our fiscal 2019 full year operating income for our remaining hotels actually increased by approximately $1.2 million or 7.6% during fiscal 2019 compared to fiscal 2018.
And these numbers are despite some negative impact at our hill Madison as well through the aforementioned renovation in the first half of the year.
As the table in the press release highlights nonrecurring Preopening expenses and initial startup losses at the same Kate negatively impacted our reported results by approximately $1.3 million or three cents per share during our fourth quarter and $6.8 million or approximately 16 cents per share during fiscal 2018.
I mean.
Now to clear on that when they use these terms refer to preopening expenses and primarily talking about directs expenditures incurred in conjunction with the six month closing and subsequent reopening the hotel.
When I refer to initial startup losses I'm addressing the kind of the delta that has occurred as expected between the operating performance of the brand New independent hotel compared to a stabilized branded hotel last year and Greg will expand on this in his comments.
The biggest contributor to our same store increase in revenues were increased food and beverage revenues during our fourth quarter and full year fiscal 2018.
Our total revenue per available room or Revpar for our seven comparable owned hotels, excluding the same Kate increased 1.3% during the fourth quarter and 1% during the fiscal 2019 compared to last year same periods.
But even those numbers are a little deceptive because as I mentioned, we also had one hotel the Hilton Madison significantly impacted during the first half a year due to that major renovation.
When you strip that hotel out our true comparable hotels for the full year actually reported an increase in revpar of 2.4% for fiscal 2019 compared to fiscal 2018.
As we've noted the past our rep for harvested vary by market and type property.
Now according to data received from Smith travel research and compiled by US in order to compare our fiscal quarter results.
Comparable upper upscale hotels throughout the United States experienced an increase in revpar of 1.4% during the fiscal 2019 fourth quarter and 1% for fiscal 2019.
Meanwhile, competitive hotels in our collective markets experienced a decrease in revpar of 0.6% during our fourth quarter.
The increase in Revpar of 2.7% during fiscal 2018 again compared to the prior periods.
As a result, we outperformed a competitive sets during the fourth quarter and excluding the Hilton Madison, we outperformed the nation, while performing in line with competitors during the full year fiscal 2019.
And finally, breaking out the numbers for all seven of our comparable hotels more specifically.
Our fiscal 2019 fourth quarter Revpar increase was due to a 1.7% increase in our average daily rates or 80 are.
Partially offset by slight decrease of 0.3 percentage points in our overall occupancy rate.
For the full fiscal 2019, our overall Revpar increase was due entirely to a 1.6% increase in our HDR.
Partially offset by an overall occupancy rate decrease of 0.4 percentage points.
Finally.
Looking forward a little bit here I do want to remind you that fiscal 2020 will be a 53 week year for us ending on December 30, Onest 2020.
And that extra week in December is no ordinary week, but rather it includes the traditionally strong movie going week between Christmas New year's day.
And since the first week of our new fiscal year began on December 27th 2019 that means we will have essentially two of these traditional strong movie going weeks during our upcoming fiscal year.
The last time, we had an additional week of operations was during our 31 week transition period that ended on December 30, Onest 2015.
That additional 31st week of operations that year benefited both of our operative operating divisions, but particularly our theater division due to a new Star Wars film that played.
And contributed approximately $17.4 million, an additional revenues and $6.2 million in additional operating income to our final five week period, and our transition period results.
After interest expense in income taxes, we estimate that the extra week of operations that year contributed approximately $3.6 million to our transition period net earnings or approximately 13 cents per diluted share.
While the can be no assurance that will realize similar benefits in fiscal 2020. It is important to note that our theater operations. In 2015 did not include our two most recent acquisitions and we had a higher effective income tax rate that year.
With that I'll now turn the call over to Greg.
Thanks, Doug [noise].
I'll begin my remarks today with our theater Division.
The word you're going to hear most often for me today is balanced we've been in the movie theater business for nearly 85 years.
As you know this business can be a real rollercoaster.
We joke internally that it seems like some days, where geniuses and other days well not so much.
And for as long as we've been in this business there has been concerned for future and yet we're still here entertaining millions.
So when you operate in a business like this we believe it is imperative that you take a balanced approach.
Approach sure we care about each and every quarter, but as you know we have a long term perspective on everything we do a balanced approach recognizes the grass doesn't go to the sky, but also acknowledges that the sky is not falling either.
So as I make my comments about our theater divisions fourth quarter in fiscal year, you're going to hear what I Hope you will agree with will be balanced perspective, so let's start with our fourth quarter fiscal 2019 as anyone who follows this industry knows it was a challenge.
We all know that our industry was playing catch up all year long after starting the year with a very difficult with very difficult comparisons during the first quarter.
We had high hopes for the fourth quarter as we knew we had several blockbusters lined up in late November and into December and sure enough. The frozen Jumanji Star Wars films ended up being three of our top four films for the quarter.
We didn't count down was October in early November film comparisons to last year being as difficult as they work last year, our top four films of the quarter. All release during that same early time period and this year's foam product just didn't match up.
So let's look at the ledger from a balanced perspective, the one hand attendance was down this year, nearly 9%, which in a high fixed cost business creates operating challenges that showed up in our numbers.
Mission.
The film slate was particularly top heavy this year with our top five a top 15 films accounting for approximately 26% and 48% respectively.
Our total admission revenues during fiscal 2019, compared to 23% and 42% for our top five and top 15 films laughter.
A direct result of that dynamic was an increase in our film costs as we generally pay more as a percentage of box office for the largest blockbuster films.
<unk>.
Central negative is that we won't happen to vendors are star Wars movie in 2020, which understandably has created some concern about how the 2020 film slate will perform compared to this past year.
Of course, all this is occurring at the same time, the so called streaming wars begin to ramp up in earnest.
So I get it if you're just going to look at those four items in isolation I can understand why sentiment seems to be negative at the moment.
But let's look at the other side of the ledger and balance things out let's start with 2019 box office. It was the second largest box office in history. In fact, you only problem was the largest box office in history was the year before when we're comparing it to.
When you dig into the numbers you find the single biggest difference between 2019 in 2018 was the holdover films from the prior year.
In 2018, 2017 holiday whole holdovers as two years ago, there's going to get a little confusing because the names trumps. The same star Wars eight we just old showed star wars not in 2017, how the Holdovers Star Wars, eight and the first jumanji with the rock the greatest show and the greatest showman contributed significantly to Jan.
You were in February 2018 results.
The carryover in 2019, so that was a year ago in 2019, ACO man was really the only holiday holdover from the prior year. According to data from NATO National Association of Theater owners. This was more than a 300 million different $300 million difference in box office revenues this year.
Thats the vast majority of the difference between the two years and just as we're talking about history. If you want to think about how good we are predicting as an industry. We sat around at the end of 2017 and said well 2018 doesn't have the its biggest latest 2019 than we were sort of saying well, we can't wait to get to 2019 and yet as it turned out to.
He 18 was actually the better here and here, we sit again and we're saying we can't wait to get the 2020 2021.
And yet who knows.
But let's talk about that film slate looking ahead to the film slates for 2020 and 21, we see a strong mix of both established franchises along with a lot of original films as well.
On paper. It also looks like we will have likely we will likely show more not less wide release films and our theaters in 2020 and it appears we will have a wider range of options and genres as well.
Finally, we believe that is exactly what movie goers are looking for.
And that the film slate turns out to be more balanced in the year unless top heavy.
That may have a favorable impact on our film costs again time will tell.
We're off to a good start in fiscal 2020, thanks to stronger holiday Holdovers and several films mentioned is our press release, but we know we will have some difficult comparisons ahead.
I can't predict how all these films will perform but neither can anyone else. We're looking forward to seeing how the slate unfolds.
And don't underestimate that aforementioned 50 Threerd week in the benefit of will have a next year's fourth quarter results.
I know, it's easy to ignore that extra week since it only comes once every five to six years, but the impact is real and every year. We report in between we report in between has one less every year. We report in between has one less day than everyone else.
Thanks for reminding us of [laughter] and I think the same balanced approach would be appropriate as we consider the impact of streaming on the movie Theater business. NATO also recently published some very interesting numbers on this topic as well.
It may have come a surprise to some but films grossing under $100 million accounted for essentially the same revenue at the box office in 2019 as they did in 2018.
As the theory goes these are the exact type of movies that streaming is said to be harming. The study has shown that people who tend to stream movies also tend to be more frequent movie theatergoers as well my point is there's a lot to learn yet regarding the impact of streaming on all forms of entertainment not just movie theaters and keep in mind and yet where in the.
Business of out of home Entertainment and then what's the cliche, but my grandfather always remind us if theres a kitchen and every house, but people still go out the.
It's our job to offered experience and the value proposition keeps movie going at the top of our customers list of things to do when they get out of the house when viewed in that light we offer the cheapest form of out of home Entertainment and I would argue that is our competitive advantage.
So let me get off my soapbox for a moment and get more specific to markets theaters.
While our hours overall results Doug shared with you weren't we wanted to be and you've been hearing about all the challenges, let's balance things out once more with some of the wins, we experienced during the fourth quarter in fiscal year.
Let's start off with our continued outperformance.
We've now outperform the industry for six years in a row and 19 of the last 24 quarters that is no easy accomplishment and by definition is getting harder every year as we near the later innings of our recent capital investment cycle, yet with the help of a favorable film mix and the continued efforts of our tremendously your team we once again outperformed.
Our fourth quarter and fiscal year, and that's not counting movie Tavern, which also which also outperformed during the 11 months, we owned them during 2019.
Moving to average is another example of needs to take a balanced perspective. These leaders performed better in 2019 than they did in 2018 under previous ownership, but the weaker film slate was a challenge.
And as you well know labor market continues to be our other challenge and given the movie Tavern business model. The labor challenges are accentuated. These theaters, we've been very focused on developing tools to help our managers manage their labor cost efficiently while at the same time introducing technology like the order your food from your App or kiosk innovation.
We introduced at our new movie tempered by market leader in Brookfield, Wisconsin, and our testing and select theaters and our circuit.
Overall, the integration of the movie Tabron theaters into our circuit continues we still have a lot of work to do to get these theaters, where we want them from an attendance margin and service level perspective, but our capital improvements combined with our innovative pricing marketing and loyalty programs are having a noticeable impact and attendance at these theaters another too.
I was in 19 win.
Finally, I'd be remiss, if I didn't recognize a success our team is executing strategies that resulted another year meaningful increases in our average ticket price and average concession food and beverage revenues per person.
And as you know while a portion of the ticket price increase was due to a change to tax on top we've been accomplishing the majority of our per capita increases not by raising prices, but rather by making investments in amenities are customers a benefit from and are willing to pay for such as premium large format screens and expanded food and beverage outlets.
A true win win.
Looking ahead duck shared with you that we may spend as much as $45 million to $60 million in this division during fiscal 2020.
And we would do that a number of ways. We're under construction with a new theater in Tacoma, Washington that is expected to open during our fourth quarter.
In addition, as I mentioned that we are nearing the end of our amenities investment cycle, we still have opportunities to add dreamlounger recliner seats, and our signature food and beverage outlets to several additional theaters during fiscal 2020.
We also have identified several potential opportunities to convert existing screens to superscreen DLX auditoriums during fiscal 2020 and of course will always spend the necessary maintenance money to keep our theaters looking great for our valued customers.
So now I'll in my comments in the Theater Division, where I began as we move ahead, we'll continue to evaluate our business opportunities and challenges with a balance perspective.
Our team will continue to manage the short term environment, while still focusing on our long term strategies that has served us well for the past nearly 85 years.
There will be ups and downs, but I'm confident that Rolanda Rodriguez at his team are up to the challenge.
With that let's move on to our other division hotels and resorts.
You see the segment numbers and I'll give you some additional details.
Obviously, our reported results in both years were impacted by the same Kate and Doug one over the various nonrecurring items with you. We felt it was very important to provide investors with the information necessary to understand not only how this particular hotel impacted our results.
But also a clean look at what our core operating performance was for the rest of our hotels and resorts business.
Well for the quarter and a year.
What we did with this hotel closing it down for half the year, then reopening it as an unbranded arts themed hotels extremely rare.
And when you only have eight hotels and your own portfolio something like this understandably has a very noticeable impact on your reported results.
As a result, I think the most meaningful numbers, Doug shared with you.
Were the fiscal 2019 results of this division when you exclude saying Kate from both years.
As a reminder, excluding that hotel our fiscal 2019 hotel operating income would have increased by 1.2 million or 7.6% during fiscal 2019 compared to fiscal 2018 as our press release indicates that year over year improvement in our comparable hotels and management company are due to increased revenues.
And the continued focused on cost controls and operating efficiency.
The increase in revenues was directly related to another increase in group business at several of our hotels during the fiscal 2019 fourth quarter.
And full year compared to the prior year periods contributing to our increased revpar performance for our comparable company owned hotels.
This increase in group business also contributed to an increase in our banquet and catering revenues as well.
Look into future periods our group.
Room revenue bookings for future periods in fiscal 2020, commonly referred to in the hotels and resorts industry. As group pace is running ahead of our group room revenue bookings for future periods last year at this time.
Banquet and catering revenue pace for fiscal 2020 is also currently ahead of where we were last year at the same time.
Not surprisingly the fact that Milwaukee will host the Democratic National Convention in 2020 is certainly contributing to our increased group pace for next year.
And hosted cloud hosting a convention with this level of international prominence is already lead to increased lead activity for future years at our convention business Bureau.
When you consider that northwestern mutual the annual convention is moving to August to accommodate the Nancy and the Ryder Cup will be held about an hour north of Milwaukee in September 2020 fiscal year looks like it may be an event driven year at least here in Milwaukee.
Nationally the pace of Revpar growth has been declining over the past several years and many published reports by those are closely follow the hotel industry suggest United States lodging industry will experienced very limited overall revpar growth limited.
Try that again.
The lot the United States lodging industry will experience very limited overall growth in Revpar in calendar 2020, with some markets, possibly experiencing small declines.
Wasn't the relatively positive trends in lodging industry over the last several years, we'll continue depends in large part on the economic environment as hotel revenues have historically track very closely with traditional macroeconomic statistics, such as the gross domestic product.
Also I'd be remiss, if I didnt double back to the same state for a minute in fiscal 2020. It is our job to begin delivering on the investment we made in this new hotel.
As an independent hotel, we don't have a brand to rely on to create name recognition. So that creates unique challenges we are working to overcome.
We are spending an extra effort, marking the same Kate in order to increase awareness of this very special New hotel in Milwaukee and is the press release knows we're particularly pleased to recently named one of the country's best new hotels by USA today 10, Best Readers' choice travel awards. Additionally, the reviews, we are getting from both the media.
And our customers, there's nothing short of outstanding.
With over 200 rooms group business will play an important role in the hotels future success. As you know there was a lead time for booking group business and while our sales team is pleased with the traction we are gaining as they set was hotels. If your future groups. We still have a lot of work ahead of us to get this hotel we want it to be our entire team is focused on making that happen.
And of course, improving operational efficiencies is also the top of our list at this hotel as well.
Speaking of our team during our fiscal 2021st quarter, Michael Evans joined US as the new President of marks hotels and resorts.
Michael is a proven lodges in lodging industry executive with more than 20 years of experience and the hospitality industry with companies such as Marriott International and MGM resorts International we believe that Michaels proven development operating and leadership experience with strong roots of the hospitality industry make im extremely qualified to build on.
Our hotels and resorts divisions long history of success supported by a strong and experienced senior leadership team.
And while we believe Michaels background and development should help our growth efforts in the years ahead. He and his team will also be charters with taking care of they assets we already have.
With that mine our fiscal 2020 capital budget includes dollars later in the year from major renovations that we will begin at two of our largest hotels, the pfister and the Grand Geneva. These projects will carry over into 2021. They are vital to maintaining these two hotels as the premier properties in each of their markets.
With that we shared a lot of information with you we want to get to your questions. So let me end by noting that once again, our board expressed confidence in our future yesterday by raising our quarterly dividend rate by another 6.3% our six dividend increase in the last five years.
With an extremely strong balance sheet. We believe we are well positioned to not only whether any storms that may lie ahead, but to also invest in the future.
With that at this time doesn't I'd be happy to open the call up for any questions you may have.
Thank you.
As a reminder to ask a question you'll need to press star one on your telephone to his prior question press the pound Keith Please stand by we've compiled acuity roster.
We'll go first to Eric Wold with B. Riley.
You May proceed with your question.
Thanks.
Good morning, guys.
Eric.
Couple of question I guess, one kind of a for each of the two divisions I guess.
Doug do you think about the 2020 Capex guidance.
The theaters.
45 to 60 million how much of that would you would you can say is getting pulled in a maintenance versus you ROI generating.
Activities and then.
You are obviously.
There.
What point would you say you're in this cycle I don't seem to be chevron's now the mix that shifts a little bit. So maybe you can I'm thinking about the legacy theaters legacy markets theaters.
Wehrenberg versus movie and where are you in that cycle in terms of where do you expect that that capex and the decline meaningfully in the theater side.
Sure.
Well look I would say of that we gave a range for theaters of 45 to 60.
And.
We'll tell you to get to that high end.
That that'll it'll take a bunch of projects to accelerate and move pretty quickly. So I don't know that we'll get to that high asked why would get what we provide the range.
I'd, I'd say, probably half and half in terms of the mix we've got.
Several legacy locations that were taking a look at in terms of ones that we still haven't.
Done dreamloungers or some other amenities related to that.
We're working on a.
We will be tavern locations right now as we speak Theres a.
There is another one or two that we've taken a look at this and.
And as Greg mentioned, we do have a new build in that mix as well so keep in mind that.
But there are some dollars and therefore a.
Building and Skomer, Washington that were and it includes landlord contributions as well, but we haven't obviously component that we have to contribute to so.
So you know I would say, it's probably you know it if we ended up on the on the low end of that range it'll probably be about 50 50 between what I'd call ROI and and and maintenance maybe skewed maybe 60 40, if we end up in the high end of the range. It will be because there is more ROI projects do.
Because the because the maintenance capex is pretty consistent in this division that can and ranging in that.
And the $20 million range, depending on how many projects we have to do.
Okay and then.
How much how it's about.
It is earmarked for Tacoma Newbuilds.
It's it's I, we're not going to give you the exact number but it's it's in the it's in the millions, but it's it's it's single millions. It's a lease it's a lease that so so that so there's a significant landlord contribution, but we still have to put some of the fit and some additional dollars as well so so.
[music].
It's in that range.
Okay.
And then secondly on the hotel side.
Yeah, obviously.
Milwaukee markets getting a nice boost this year from a number of things you laid out I guess.
Which hopefully rising tide lifts all boats or am I guess, I guess other than that and what do you see in kind of competitive environment in your key markets.
Competitors being rational as you know people kind of constitutes every towards the end of the cycle there.
And then lastly on unseat Kate now looking at six months past opening.
What are your thoughts on going to where you occupancy in HDR levels are versus what you would have thought given acknowledging this is a new brand you can added built from scratch.
The.
What are we seeing another look if I want to say Milwaukee remember, it's as we pointed out in the call I do believe it's not just a one year thing I mean, we should look at its a good year, there's no doubt about it but you know weve will be we will be increasing the size of our convention center here.
The state pass the moral obligation gave us the more obligation. So that's that's in the works.
We.
And again that we know that we've studied other markets that have had things like the unseasoned seen that long term halo effect and something like that has for a market like ours and is and where our as we're already seeing.
Increased activity at our conventional visitors Bureau, and that's that's long term business. So I just want to point out that where we have a significant investment we see a long term.
Long term benefit.
Yeah look at we are seeing like everybody else lots of buildings in the different markets.
Oh, we tend to be central city. So they are getting absorbed but you know it's not as robust as it was five or six years ago, even when we were seeing high single digit Revpar increases as you know as though as the market as the industry is seeing its is later it seems to be later in the cycle now are we at the point, where we're going to start to see or.
Acceleration of the cycle again. This is it really will just all depend on the economy.
If the economy is strong and then the hotel should all be okay.
But but we are seeing building in certain markets, but like Chicago had a very rough year last year and this year supposed to be a good year for their convention market, which should be good hotels, but they've had a lot of product.
So again, it just is market dependent as well.
And.
Eric if you could vary more specifically asked me or Sankay question.
Yeah, just another we're kind of.
Six months past the opening of that kind of we're going to.
Yes, it's been kind of demand occupancy HDR been relative to what you thought acknowledging you are building a new brand from scratch.
Yeah, I think what was low but we're seeing is you know that we're getting the rate we wanted.
For the most part we are.
We are occupancy is not where we wanted to be at the most promising thing we're seeing is that our food and beverage all that's not really we make our money.
You know, we make money on the heads and beds, but our food and beverage is far in a way ahead of our of our expectations not getting that's not really going to drive the bottom line so much but what it's showing is.
The.
We have a lot of people being with our presence in Milwaukee, we get great.
Yes, great coverage and when you do something like business markets, a locally everybody knows about it as it's almost a talk of the town. It's really very exciting you walk in there and there is a buzz in the place because and we sit in the theater district with all the theaters going the places happen.
And so we were very happy to see that the challenge you don't get is no no people outside Milwaukee, when they look to stay where they want to stay.
Now, it's it's a they don't know what it is yet and is it just getting things like being on that that 10 best list and getting in content asked that takes up to a year to start to populate those are the when somebody Googles best Hotel in Milwaukee, We show up and the algorithms and in the you know the sites the Expedias the travel the trip advisor the world we didn't.
Have a certain number of reviews and so doing that this is now really a marketing challenge for us and getting getting the word out there and look at this time of year and frankly, the fourth quarter sort of towards are not our strongest time so.
Just just in this market.
It's we're much better in the summer. So we opened mid summer and and so were we just haven't gotten that traction that we need yet.
But it's much easier when people right now a lot of nice things about you.
Okay.
Thank you. Our next question comes from Jim Goss with Barrington Research you May proceed with your question.
Thanks, and that is regardless sent Kate since you're there now.
Did you say development of Sankay was a.
Hey, sort of a response to the challenge of the weakest of three properties and that market or was it an attempt to create a new.
Franchise that you could.
Recreate and.
Franchise that template in other markets.
Well I'd say, yes.
But I think there's even more than that Jim yes that was that was our obviously are one of that property needed. Neither do I need a new game plan.
But also it was even if it's just for that property. The idea of tapping into this idea of experience will travel and what the traveler of today is looking for certain sub certain set of the travelers they want to come to a market learn something about where they are experienced something different that.
As a big trend in our industry. So even if just for that property now if it should work now that would be great. Lets you know we would look to do look to do it again, but let's get the first one working.
Okay, and how long is the evaluation period, you think before you figure out I know, it's still early as you've just been talking about it.
There's a couple of year period before you figure out whether there's a market for it elsewhere.
I think you're exactly right you're exactly right. It could take up to that one I mean, it's something that happens in it really goes crazy. This this summer, which I have all the hope in the world that could happen well, maybe it'll be more accelerated but I think it could be up to two year. So we really figure out what we have.
Okay and generally in the theatrical space. It does seem we're moving to the end of the Capex cycle.
As you had been discussing now and I wonder what what direction in terms of capital allocation.
Theater operators are going to take one of the options as to.
By additional chains and you've already been at a leadership of doing that sort of thing.
As as you get do you think you have continuing opportunity to get another wehrenberg or another movie cavern.
And if you don't at some stage or are you likely to be prioritizing.
Share buybacks or additional dividend games, where where do you go in the capital allocation maybe this question.
Yeah, I mean, and you've seen Jim as it really good question and you know I'm not sure we quite no the answer yet of what does it because.
'cause there's a lot of different avenues. This could go you've seen the chart in our in our prepared materials and where we've been allocating our capital last six years and it certainly has been very theater focused and with a large chunk of it probably a quarter, probably 25% of our capital going towards those two big acquisitions that you alluded to.
Certainly that you know we will be selective about that we always have been we're not just a growth for growth say company. We're we're smart growth company and so if if there were further opportunities that's still on our radar.
Yeah, you're right that the the piece of that this the allocation over the last five six years that has gone towards those amenity ads, primarily but the you know the dreamloungers the large format screens in the food and beverage that pieces coming down as I just shared with you earlier, there's still are some opportunities for us to spend.
Some dollars in 2020.
But they're just less of those projects and so that use is starting to come down.
And as you know I mean, you saw in our numbers. This year, we generate so much cash in our businesses. That's a nice problem to have because you know our our our balance sheets and is incredible shape.
So my best answer is we have lots of options, if something and we and we love the where we love the using this company is Optionality, we love to have those different options. So we're opportunistic and if we see you cannot acquisition that we might like great. If we don't we see some opportunities.
The hotel business, where we could start to allocate some capital and growth.
Great. Maybe there is we've we've alluded to in the past about potential opportunities to you know.
Kind of related type businesses. So we'll keep our eye open for things, where we could potentially.
Further further invest in businesses that are on things that make sense because of.
He is some of our core expertise.
And then returns of capital and you specifically mentioned buybacks that certainly share repurchases as a tool weve used in the past. We've also use dividends in the past, we just raised our quarterly dividend, we view special dividends in the past.
You know I can't commit to any one of those but those are all options that are always on the table for us.
Build on that just a little bit and just simply say look at our strategy frankly.
Not that complicated it starts with haven't really strong balance sheet.
Then you know and then what we're able to do they have great people and take advantage of the opportunities that present themselves wherever they might be and this and as I think Doug sort of laid it out in that order, let's turn our goal is to invest capital and properly allocate capital one and at the same time provide a return to our shareholders and then.
We don't see the right opportunity for that capital will then we'll make a decision about the best way to to return capital.
But that's our game plan as I said I don't think is very complicated, but I don't you do either.
Okay, and maybe one final one for you, Greg and a year with.
Fewer apparent blockbusters do you do you typically see typically see some of the.
$100 million movies are becoming more than that.
Sort of filling that gap, they are outperforming expectations something that might mitigate.
The decline in the overall box office that.
It seems.
Like a.
Potentially challenge this year.
Oh apps, absolutely that can happen.
You know at the end today. It will just depend then how good the movies are.
And I will tell you I'd look at I've been hard I think so many good movies.
No. So you know this where there's been this concern about the quality of the would there be a degradation in the quality the product I mean, I've seen that I've seen 10 to 15 movies in the last couple of months all of which I thought were really good I went to see gentlemen, last night I really liked it I saw the Harlequin movie last week I thought it was great richer jewel was great.
Parasite was great 1917th cinematic masterpiece, I mean, I, just you know I seen so many good movies, which really cartons me in a long run for our business I cannot tell you what's going to happen tomorrow. If I, if I had that crystal ball I guess I'd, probably be on a very nice island somewhere well, it's about six degrees here, but.
It's up.
It is in the long run to see the quality the product hold up in the face of.
PV is gives me on our look at this business on a balanced long term way.
We feel good about it so.
Okay. Thank you very much.
Thank you and as a reminder to ask a question you'll need to press star one of your telephone. Our next question comes from Mike Hickey with benchmark you May proceed with your question.
Hey, Greg Doug Congrats on equipment guys. Thanks.
My questions appreciate it the.
I guess, maybe just a follow on Jim's question of that the slate less obvious this year doesn't mean, it's it's going to be down, but I think that's probably the direction most people think.
Do you think.
I guess in this sort of environment with a slate it's not as obvious do you think.
Could be the catalyst to.
Maybe facilitate a deal with some of the Oh Gee providers that are obviously, creating pretty compelling content.
Close.
Last year with the Irishman, maybe we weren't but I guess.
The right time, maybe to show enough blacks in terms of economics windows to get a deal done.
Well if industries.
I mean look I think I'll I'll say the same thing everybody in our industry has been saying we are open to deal with an LTT.
But we have to have a window, we have to have a window that is you know that is that is what maintained that is one of the things. In addition to our significant investment in making this experienced a great experience just generally that window is what is it is one thing is that maintains the value of of our product upstream.
If they shorten the window they degrade the value because the customer says well I can that we are in a battle against the couch.
Had a bunch of times and shorter the window the heart the more attractive that that couch becomes and then they didn't end up the.
Degrades the value of what we're trying to sell and then you know you can obviously one of the reasons that $5 Tuesday is so successful we've talked about this before is because it is it is and the reason the studios like it is because it in a way.
It brings customers back to the theater, who had sort of had decided they like the couch better, but if I Bucks is not the theater is the figure is better I will tell you an interesting statistic that we did I just saw in our numbers.
Yeah, I looked at our attendance at our I looked at our attendance at Tuesdays compare to the rest of the week.
You look at two that take to 2018, we had a big pop if you look at 2017 in 2019, our legacy theater. So you have a steady base of theaters are Tuesday attendance was identical and yet the attendance from 17 to 19 actually dropped in there on the rest the days and so yes look at that less and yet we still outperform the industry and it's all the.
Good things that we've been talking about but what you see is the resiliency of that customer in the what they see as the value add.
And so they have to be very that so we're very open to the idea, but and we think it'd be great people to play their product that we would welcome their product into our theaters. They make some great product, but we have to we have to understand the under what the underlying fundamentals of what the foundation of our business and make sure that stays in place.
Thanks, Rob Koehn appreciate it.
Both you made a pretty big statement about the extra week, how powerful could be fruit business. Doug you gave some some Matt obviously, a circuit with smaller but maybe the movies were better.
Net loss, but is that sort of.
Go ahead, well middle tail, one is that sort of the right number we should be thinking about 12 models for the 20, yes.
Well.
As everyone, who listen this remembers my a forward looking statements comment to begin this whole thing yeah. I mean, I think that that's why we provided that numbers for at least provide some perspective and I do appreciate that you're recognizing that in that particularly in the set of numbers. We had we had a star wars in that in this years.
The third week, we won't have a star wars.
But it's still a big week and sometimes they you know I think we can show Gregs home movies, and maybe do pretty well to during that week.
And.
So so we look at we you know it I think that that's a those are reasonable placeholders for at least say that you know you know similar week, we did that amount of business keeping in mind that the dynamic and the reason why it's so profitable is because.
It's it's basically revenues and variable costs all of a fixed costs are already accounted for on a monthly basis in our numbers and so there's no additional fixed costs that go against it. So so the the margin on these additional incremental revenues is fairly significant and that's why you.
See such and a significant impact and.
<unk>, we're not in the business of projecting specific numbers for what that we could be we obviously have some thoughts, but we thought by at least providing what it was you know in 2015 that would at least give you a nice benchmark to.
To put in place.
Okay. Thanks, Doug last question you guys.
See M&A is done.
A great instrument read you created some serious growth and value I'm guessing you look at so that the private.
Peter market theater owners.
Do you get any sense of greener willingness to want to sell when market conditions are tough or when market conditions are great.
Just sort of not no no real correlation I'm, just I'm gifts I'm just wondering how they behave in terms of.
You know, maybe looking to sell it difficult market versus a good market. Thanks.
You know I I think that it really is it's not it's it's not I don't know necessarily correlated I mean, you know the markets. We've had some bumpy quarters over the last number of years, but Fortunately the markets are pretty good. So it's hard to really say where everybody's heads are at right now.
But you have to remember this is the especially when you know generally the people were talking to at this point you know.
They it's not always about economics. These people have been maybe been in business for generations. It's a family business you know they love the business and so they may look at it at a little differently than others and they may and they also have longer term perspectives to and so there maybe more comfortable struggling theres over the some of the challenge because they say as we said they said as I started at the outset at my comments.
You know literally Mike that with my Dad tells me you know every you cant remember not big worried about the business.
With that for 85 years [laughter] add yet it is always a it seems to be something that we're able to to deliver on and provide a great product and something compelling customer likes.
Oh, thanks, guys.
Thanks, Mike.
Thank you at this time it appears there are no other questions I'd like turn the call back over to Mr. nice for any additional closing comments.
Thanks, once again, everybody for joining us today really appreciate it we look forward to talking to you again.
In a couple of months in late April when we release, our fiscal 2021st quarter results until then thank you and have a great day.
Thank you that concludes today's call you may disconnect your lines at any time.
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