Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Greg Marcus – President and Chief Executive Officer

Doug Neis - Chief Financial Officer

Analysts

David Loeb – Robert W. Baird & Company

James Goss – Barrington Research Associates

Gregory Macosko – Lord Abbett & Co.

The Marcus Corporation (MCS) F2Q13 Earnings Conference Call December 20, 2012 11:00 AM ET

Operator

Good morning, everyone, and welcome to the Marcus Corporation second quarter earnings conference call. My name is Kim and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer, and Doug Neis, Chief Financial Officer of The Marcus Corporation.

At this time, I’d like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Doug Neis

Thank you very much and welcome, everybody, to our fiscal 2013 second quarter conference call. As usual, I need to begin by stating that we plan on making a number of forward-looking statements on our call today. Our forward-looking statements could include, but not be limited to statements about our future revenue and earnings expectations, our future RevPAR occupancy rates and room rate expectations for our hotels and resorts division, expectations about the quality, quantity and audience appeal of 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 in the number and type of our properties and facilities, expectations regarding various non-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 statement. Factors, risks and uncertainties, which could impact our ability to achieve our expectations, are included in the risk factors section of our 10-K and 10-Q filings which can be obtained in the SEC or the company. We'll also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com.

With that behind us, let's talk about our fiscal 2013 second quarter results. Once again, film product ruled the day as we followed up a challenging quarter for our theatre division during the summer with record second quarter results for that division.

I’m going to take you through some of the detail behind the numbers for both divisions and then turn the call over to Greg for his comments. First, as you can see, there were significant variations in the other income expense line items. There were no significant variations in the other income expense plan I guess below operating income.

Interest expense was down approximately $250,000 during our fiscal 2013 first half compared to the prior year. We expect that the change in the remaining quarters in the fiscal year. Our debt level rose slightly in the second quarter due to the addition of the Cornhusker Hotel and will obviously increase later this month when we pay the recently announced special dividend.

Even with these changes, our overall debt to capitalization ratio at the end of the quarter was still a very low 40.6%, up slightly from 37% at our recent May year-end and will still be in the low to mid 40s after our special dividends.

One non-operating item that did impact our reported second quarter results was a decrease in our effective income tax rate for the quarter, due primarily to a favorable resolution to our recent state tax audit. Our year to date effective rate of 40.1% is right where I expected to be currently we expect our rate to remain in that percentage for the remainder of the fiscal year.

I’ll also point out that now that we have two hotel joint ventures that are consolidated in our financial statements, the 60% owned Skirvin Hilton and the 73% owned Cornhusker Marriot, we’ve adopted new guidance regarding the presentation of non-controlling interest in our financial statements and you’ll see more of that in our upcoming 10-Q filing.

Shifting gears, our total capital expenditures during the first half of fiscal 2013 totaled approximately $10.5 million, compared to $17.4 million last year. Approximately $6 million of this amount was incurred in our theatre division, of which the completion of our newest Zaffiro's Pizzeria & Bar, our New Berlin, Wisconsin theatre, renovation of our Crosswoods theatre in Columbus, Ohio, completion of our newest ultra screen in Duluth, Minnesota and the installation of a handful of additional digital cinema systems represented the largest components.

The largest expenditure in our hotel division during the first half of the year was the renovation at our Hilton Milwaukee property. Now, I should point out that the Cornhusker acquisition was primarily a non-cash transaction and thus is not included in the capital expenditure totals that I just shared with you because at this point all we have done is assume the $25.7 million mortgage, existing mortgage and recognizing approximately $4 million non-controlling interest from our partner. We will begin our extensive renovation of these property soon at which point we’ll put the majority of our equity into this consolidated joint venture.

Toward the half break point of our fiscal year, I’m now estimating that our total cash capital expenditures for fiscal 2013 will be in the $35 million to $50 million range, again excluding the approximate $30 million non-cash Cornhusker transaction. We’re still finalizing the scope and timing of many of the various requested projects by our two divisions and we anticipate proceeding with many of these projects as the year unfolds, some of which may carry over into the next fiscal year. The actual timing of the various currently underway or proposed will certainly impact our final capital expenditure number as will any currently unidentified products that could develop during our fiscal year.

And now what I’d like to do is provide some additional financial comments on our operations for the second quarter and first half, beginning with theatres. As you can see in our reported numbers, our box office revenues increased 21% during the second quarter, with concession and food and beverage revenues from theatre division up 24.9%. Year to date box office revenues are now down only 0.5% compared to last year and our concession food and beverage revenues are now up 3.9%. These second quarter increases are attributable to an increase in attendance at our comparable theatres of 16.9% for the second quarter.

Year to date, our comparable theatre attendance is still down 2.6% due to the challenging first quarter and the previously described lack of a Memorial Day weekend during this year's first quarter results compared to last year.

Now conversely, helping our fiscal 2013 second quarter results was the fact that this year’s results included the week after Thanksgiving, including a very busy Black Friday. Last year’s comparable week was included in our fiscal 2012 third quarter.

Our average admissions price for these theatres increased by 2.5% for the quarter and has increased by 1.1% year to date and our average concession in food and beverage revenues per person increased by 5.5% compared to the same quarter last year and has increased by 5.3% for the first half of the year compared to the prior year.

Our new Zaffiro's in New Berlin opened in early August so it did have an impact on our reported results for our fiscal 2013 second quarter.

Lastly, I’ll note that our second quarter results would have been even better if not for an approximately $400,000 impairment charge recognized as a result of closing an eight-screen theatre in Milwaukee.

Shifting to our hotel and resort division, as we noted in our release, our overall hotel revenues were up 3.4%, due in part to the addition of the Cornhusker and our total RevPAR for comparable hotels was up 0.8% during the quarter compared to the same period last year. Year to date our comparable hotel RevPAR is now running 2.3% higher than it was last year at this time. As we’ve noted in the past, our RevPAR performance did vary by market and type of property and year to date, one of our eight comparable company-owned properties has reported increased RevPAR compared to the same period last year.

Our fiscal 2013 second quarter comparable hotel RevPAR increase was the result of an overall occupancy rate decrease of 0.3 percentage points and an average daily rate increase of 1.2%. for the first half of fiscal 2013, our occupancy rate is now running approximately 0.2 percentage points ahead of last year and our average daily rates has increased 2.1%.

With that, I’ll now turn the call over to Greg.

Greg Marcus

Thanks Doug. I’ll begin my remarks today with our theatre division. Well, the roller coaster ride continues and once again highlights why this is not a good business to look at quarter to quarter. You know the story. We finished fiscal 2012 with a record fourth quarter, only to follow that up with a challenging fiscal 2013 first quarter that put us in a hole early, compared to the prior year. Now today, we’re reporting another record quarter for our theatre division, with an 88% increase in operating income this quarter. We are now slightly ahead of where we were last year at this time in this division.

It is obviously no secret that the most important factor impacting attendance has been and always will be the quality and quantity of the films released during the period and there is no question that we were the beneficiary of some quality movies during this year’s second quarter. If history tells us anything, we know that there will be other quarters in our future where the films will not perform as well. But our state of the art theatres, strong market position and outstanding associates puts in a position to perform very well when the films connect with the audience the way this quarter’s films did. And when you add to that our expertise at the concession business and the added revenues from our innovative new food and beverage concepts, you can get an outstanding quarter like this.

Our press release highlighted the top five pictures for the quarter and while the Bond film and the final installment of the Twilight series deserve a lot of credit for our strong quarter, the fact is that those movies were only open for three weeks and two weeks respectfully during our fiscal quarter.

This fall’s film slate included nine films that produced at least $1 million of box office revenues for us, compared to only seven films last year and included films for all ages, including several Golden Globe nominated films such as Flight, Argo, Lincoln and Life of Pi as well as two 3D animated family films.

As has been demonstrated time and again, while we love the blockbusters, the second tier of films can make the difference between the record revenues we reported this year during the second quarter and a disappointing quarter. It certainly is too early to tell what our fiscal 2013 third quarter will be like. We had a very good third quarter last year with a pretty deep slate of movies and as Doug noted, the continuing change in the calendar due to last year’s 53 week year added a very good week to the fiscal 2013 second quarter and took it away from the third quarter.

Of course, it all evens up over the course of the year. Peter Jackson’s much anticipated first installment of the Hobbit opened this past weekend to very good numbers and we hope that it proves to have good legs through the upcoming holiday weeks.

With a number of other big budget studio films scheduled to open in the next week, all noted in our press release, we are hoping for good weather, particularly during the busiest movie going week of the year, the week between Christmas and New Year’s and it’s important to note that we will benefit from the fact that Christmas and New Year’s fall on Tuesdays rather than last year when they fell on Sundays. Historically when the holidays fall midweek they effectively extend the weekend.

Our quarter also benefited from several of the strategies we have highlighted in past conference calls. We opened our 14th UltraScreen and a new Take Five Lounge in Duluth, Minnesota, as well as our third Zaffiro's Pizzeria & Bar during our first quarter and they all contributed to our second quarter results. We will continue to evaluate additional opportunities to expand these successful concepts.

With that, let’s move on to our other division, hotels and resorts. You’ve seen the segment numbers and Doug gave you some additional detail. Not a great quarter, but not a bad one either. We were going up against some pretty strong numbers, particularly at our Milwaukee hotels and for this division, the shift in the calendar actually hurt our comparisons due to the timing of Thanksgiving. Overall, we were pleased to report a small increase in revenues in RevPAR and as our press release noted, we would have reported another increase in operating income in this division if not for an approximately $750,000 settlement reached on a number of our remaining Las Vegas lawsuits. We still have several open claims that we are vigorously defending, but we believe the settlement reached on a significant number of claims was a positive event in the long run.

From an operations perspective, while the increase was not particularly large this quarter, we continue to be encouraged by the fact that we reported an overall increase in our average daily rate for our eighth straight quarter.

And our occupancy rates continue to be at record levels. While we will see this number go down in the next two quarters as we head into our slower season for our hotels, year to date, our comparable hotels are running a combined occupancy of nearly 81%.

Looking ahead, our outlook for the future hasn’t really changed since we last talked. Uncertainty about the election has been replaced with uncertainty regarding the fiscal cliff and that no doubt will continue to cause companies to watch their travel budgets carefully in the short term. We indicated in our last call that any near-term RevPAR increases were not likely to be as great as they have been the past two years and that certainly was the case this past quarter.

Locally, one of the new hotels built in Milwaukee opened during our second quarter and we remain concerned about additional increase in room supply in our important Milwaukee market in the coming year. Having said all this, business has picked up in recent weeks. So we remain hopeful that we will continue to see improvements in this division in the months ahead.

Of course the big news of the quarter for our hotel division was the addition of two new hotels under management. We talked extensively about the Cornhusker hotel and Office Plaza on our last call and the most recent news about this property was the reissuance of the Marriott flag last week.

We’re also preparing for an extensive renovation of this hotel during 2013. We also became minority owner and manager of the Western Atlanta Perimeter Hotel in suburban Atlanta during the second quarter, joining forces with two prominent hotel investment groups in the country, Carey Watermark and the Arden Group. Both of these new hotels were sourced by MCS Capital, our hotel investment business led by Bill Reynolds. Additional opportunities that we are currently pursuing include pure management contracts and management contracts with a minority investment in joint ventures.

Regardless of the form of the transaction, we are looking forward to increasing the number of rooms under management by Marcus Hotels and Resorts. And while a lot of our focus is on growth, it is just as important that we take care of our existing hotels as well.

So we have plans for several new programs and amenities during the upcoming year. Doug referenced our new beautiful Monarch lounge at the Hilton Milwaukee that opened late in the first quarter and we also have plans to add new concierge and club lounges to our Pfizer hotel and Grand Geneva Resort and Spa during 2013.

Before I wrap up our prepared comments and open up the call for questions, I do have a couple of additional items I wanted to mention. The only update I have for you on the corners, our proposed mixed use project in the town of Brookfield is that the project continues to make progress on multiple fronts. We continue to have productive discussions with the town regarding our development agreement and we remain optimistic that an agreement will be reached shortly. We are also now in active discussions with potential equity partners for the project and leasing momentum is at an all-time high. We have many signed letters of intent that have now gone to lease negotiations and we have active discussions on a significant portion of the remaining available space. Ultimately, as we have said before, this project will proceed under its own natural pace and we won’t begin construction until all of the pieces are put together. We will continue to provide updates as milestones are reached.

Of course I would be remiss not to mention our decision to pay $1 special dividend and accelerate our remaining fiscal 2013 quarterly dividends prior to the end of the calendar year.

Like many other companies, we felt the potential changes in the tax law warranted this added return of capital to our shareholders and reflects our ongoing commitment to enhancing shareholder value for our shareholders. And in that vein, we also announced today that we’ve repurchased approximately 1.6 million shares of our common stock in the second quarter, bringing our total repurchases during fiscal 2013 to date to over 1.7 million shares. We repurchased the second quarter shares at an average price of just over $11 pre adjustment for our special dividend.

With our strong cash flow and balance sheet, we believe that when timing and market conditions are appropriate we are able to repurchase shares to enhance shareholder value while at the same time continuing to invest in our business to facilitate our growth.

With that, at this time, Doug and I would be happy to open the call up for any questions you may have.

Question-and-Answer Session

Operator

(Operator instructions). Your first question comes from the line of David Loeb with Baird. Please proceed.

David Loeb – Robert W. Baird & Company

Good morning gentlemen. I want to start with just a quick non-operating housekeeping item. The charge for the Platinum, was that in the hotel segment?

Doug Neis

I’m so sorry David. Say that again?

David Loeb – Robert W. Baird & Company

The charge for the Platinum settlement, was that classified under the hotel division?

Doug Neis

Yes, that’s correct.

David Loeb – Robert W. Baird & Company

Okay. Greg, just to follow up on the Corners, what is the opening of the Nordstrom announcement, rather the signing of Nordstrom at the nearby regional mall due to your view of that project? Does it change anything? Does it change any of your tenants’ views on things or potential tenants?

Greg Marcus

David, it’s too early to tell. You can look at it at a couple of different ways. It makes it clear. It makes the market more competitive, but on the other hand it validates Milwaukee as a very solid retail market and there’s an attractive retail market. I will say we’ve talked about now we’re there, committed to the project. They think that, they are not concerned about this. They think we have a great project and still there were absolute resolute. So as I said it could be one of those things where they’re just adding credibility to their market and will help attract even more tenants to our market which should be good for everybody.

David Loeb – Robert W. Baird & Company

Great. And on the Lincoln Nebraska, on the Cornhusker project, there’s an office building there. What are your thoughts about the future and core potential disposition of that office building?

Greg Marcus

I think that we’re going to – we’re not making decision about the future of the office building. Obviously we aren’t in the office building business, but I think the first thing we’re going to do is get focused on the hotel and getting the hotel in good shape. That should be good for the office building to be attached to the premier hotel in town should be a good thing for the office building and then we’ll go from there. Currently the way the financial structure is set up they’re not separated at this point relating to the base loan on the property.

David Loeb – Robert W. Baird & Company

I see. Okay and now in the theatre business, the concession income, clearly our 5.5 percentage per person very interesting. What’s driving that? Is it the continued opening of additional outlets of additional outlets or is it just the kind of movies that people were buying more popcorn and sodas?

Doug Neis

It’s really all of the above David. There’s no question that we’ve got the effect of two additional Zaffiro’s that are in there versus last year because we opened up the one in New Berlin in August. So there’s no question that that’s had some impact. It’s still just two theatres out of 53 that we have. But those are sizeable dollars. Obviously we’ve added a couple of Take Five Lounges as well in Duluth and that was the most recent one. But we’ve got additional liquor sale that’s going on and that’s in general until there was – these were pretty good popcorn movies that were playing as well. So it really was all of the above.

Greg Marcus

And you know our popcorn is delicious David.

David Loeb – Robert W. Baird & Company

I have that on good authority. And then just more broadly in the theatre division, margins were very strong. Is some of that the film pricing and does it relate to that second tier of movies? Or I guess more broadly, can you talk about the changes you’re making in film buying and what effect you think that may have on margin going forward?

Doug Neis

I’ll let Greg answer the second half of that. The first half of that is just, there’s just a lot of leverage in this business and when we have a 17% increase in attendance, the fact is is that that does pretty good things for the margin. You add the 5.5% concession per person to that mix and then you can only get so many people behind the concession stands and the box office stands as far as employees are concerned. So there’s a fair amount of leverage when you get that bigger growth increase in the tenants, David. As it relates to the film cost, Greg I’ll let you do that one.

Greg Marcus

Thanks, Doug. I would say that the film pricing hasn’t changed and in fact you only get these bigger films that the margin tends to go up. So I would say there’s no meaningful change in film pricing. I could point to again once again because what would have a call be without discussion of windows just so you know. So something I saw just recently that does get my attention is that Fox is releasing – what are they releasing? There’s a movie that just came out. I just saw this yesterday.

Doug Neis

Taken 2?

Greg Marcus

Yeah, Taken 2. Thank you, Doug. Taken 2 is coming out 72 days on high def digital video download. 72 days for $100 million plus film, that’s a little early and it’s gotten our attention. They did that with Prometheus as well. They seem to be the only one doing this. I don’t see this everywhere. I have seen people – because again it comes down to the studios they have to make the decision do they – the closer they close that window they stop losing multiple purchases. Someone doesn’t go to the movie and rent it or download it and the one nice thing is they’re starting to see the digital download markets for rental or for purchase are growing. That is starting to become a growing piece of the pie by significant portions. You’re working off the low base of the percentages can increase quickly. But you’re starting to see adoption of that method of viewing movies. So they have to move carefully. But it’s got our attention and so – since you brought up the relationship with the studios, I thought I’d address that right there

David Loeb – Robert W. Baird & Company

But you also had a higher in an L.A office and you also acquired a business that buys films for more theatres. Do you think in the long run those are things that will have a material effect on margins or is it more of around the edges?

Greg Marcus

What do you define as material? Obviously we’re doing things – we want our margins to get better. Film cost is a lot higher than it used to be and we’ll talk very macro without getting too specific. Film costs are a lot higher and I believe that we have the ability to monetize accessible assets a little better inside, keep monetizing those eyeballs. We’ve got close to 20 million eyeballs that come inside the door every year and how do we monetize those, whether it’s taking advantage of the fact they’re going to eat and putting in broader F&B or finding ways to advertise to them yet not be too over the top so that we don’t push them away. It’s all those things and the studios can participate in that because they’ve got other things they want to market. They’re marketing into their ancillary markets as well and our customers are natural customers for that. So there are lots of opportunities and reasons why we’ve done what we’ve done. Also it just helps to be closer and have relationships with the people in Hollywood.

David Loeb – Robert W. Baird & Company

That makes a lot of sense. Okay, I promise the last one. You alluded to the supply increase in the recent opening of the Hilton Garden Inn. Can you talk a little more in depth about the impact that’s had and particularly for the longer period from its opening to now as opposed to just the last part of the quarter?

Greg Marcus

There is just too much noise. It just opened. Literally it’s been a few weeks. So it’s too hard to tell when they are ripe, where this is going just yet. But we’re concerned.

David Loeb – Robert W. Baird & Company

And what’s the timing of the Marriott opening?

Greg Marcus

Supposedly next summer. You know I drive past it a little too regularly. t's probably not too far off.

David Loeb – Robert W. Baird & Company

Okay, great. Thank you for that.

Operator

(Operator instructions). Your next question comes from the line of Jim Goss with Barrington Research. Please proceed.

James Goss – Barrington Research Associates

Thanks. I have a few questions, but before the ones I was thinking of, according to the prior discussion with digital downloads and some of the other means that people are accessing movies or simply buying Blue Ray discs, I’m wondering if you have determined a way where you can partner with the studios to pre-sell some of those and get a piece of it or develop some sort of relationship that might advance both of your interests and make you partners more than the rivals that you sometimes can be.

Greg Marcus

It’s an interesting relationship, isn’t it Jim?

James Goss – Barrington Research Associates

It is.

Greg Marcus

We’re partners. There’s no doubt about that, but we’re partners that sit on the same table and have to share food.

James Goss – Barrington Research Associates

That’s a good description.

Greg Marcus

There’s constant discussion about how to do that and that’s what this is about, how to divide – the question I always look at it the same way and think let’s – if we’re just going to fight over how much pie we get, that’s a zero sub game. We’ve got to figure out how to make that pie larger so that what percentage of the pie is not the issue. It’s can we just get more pie in our stomachs. So we always are looking at ideas for how to do that and how to get those ancillary markets and how to get people to download. We haven’t had much success just yet, but we’ll continue to be looking at it because the idea is you have to come to the movies, do you get a discount at a download. There are some obvious things and nobody has been able to crack that code yet. But that is one we’re thinking about and trying.

James Goss – Barrington Research Associates

Does this loss have a direct impact on the windows discussion? Because if you figure out a way to slide it to the correct time where you do expand the pie, as you say, that could be material M&A in the theatrical business. Would you be a buyer or a seller and maybe discuss the advantages of each scenario.

Greg Marcus

I don’t think I can get into whether any kind of – whether I’m a buyer or a seller, that kind of level of specificity. I think I can talk about dynamics and we’re always looking for opportunities to grow. We have a unique status ourselves with our theatre business because we have the real estate. Most of the guys we look at don’t have the real estate. So it changes the profile of the company as we look at potential acquisitions and whether they have real estate or not. We’ve made acquisitions over the last few years as you know. We continue to look for them. We look for whether the – we could go anywhere. It tends to be easier when they’re tighter to our markets, although as you’ve seen many of the operators you don’t have to be contiguous. So we don’t just refer to ourselves looking continuing markets.

There will continue to be consolidation because just the small operators will consolidate up. I don’t think there’s the momentum there that people thought there would be on the digital, converting to digital because most of the bigger operators are. But and it’s mostly going to be talking acquisitions for these big guys and I think some of this was motivated by year-end stuff, people wanting to get out given the tax law, potential tax law changes. So I think that motivated some of it to happen. Some of it is just the natural life of the private equity investors who’ve had things on their funds for the time they get them and they’re ready to make their moves. So I don’t think there’s any grand scheme to why people are making their acquisitions at this point other than some of the macro reasons.

James Goss – Barrington Research Associates

So do you think we’re early stage or fairly well through some of the M&A that will take place given what you just said in that most of the bigger cash flow exhibitors have made some announcements, but not necessarily earth shattering, totally change the situation type announcements. Is it because it takes a while for deals to develop and a number of others are in the works and whether you want to talk about yourself or general with implication for yourself.

Greg Marcus

I don’t know what others are doing. If one of the three majors is talking to one of the other ones, they didn’t call me to discuss that. So I have no idea if that’s going on or not.

James Goss – Barrington Research Associates

Okay. How about this? With plans – do you have plans to utilize your theatrical capacity? Are you a Screenvision partner?

Greg Marcus

Yes.

James Goss– Barrington Research Associates

Or in CMS Screenvision, I thought. Are there special digital events you think you might include as a greater way to use on your utilized capacity during the weeks? Or is that still such a minor part of it that it – let’s not worry about it?

Greg Marcus

Yes and yes. We continue to keep looking for new things to do. We keep looking at it. The challenge always is it’s hard to market for a onetime event, that simple.

James Goss – Barrington Research Associates

Okay. Now with the hotel acquisitions you have just announced, do those tilt the balance such that hotel and food operations will now be a bigger share if you factor those in then the theatrical side of the company?

Doug Neis

No, Jim. The two hotels that we just took on, one of them is consolidated on our books. That’s the 73% Cornhusker Marriot. So and then it will be a food and beverage component of that. We’ve announced that we’re going in a Miller Time Pub, but by no means is that one property going to tilt the current balance. And the other property that we took isn’t even consolidated on our balance sheet and that’s probably more likely – deals like that are the more likely of the scenario you can see where we have an equity interest in management contract and so no, those types of deals would not tilt the balance at all.

James Goss – Barrington Research Associates

Okay. So management contracts are the primary focus for growth in the hotel side of the business then?

Doug Neis

Well, as we’ve shared before. We’re looking at management contracts. We’re looking at deals where maybe it’s just a minority interest required. We’ll be opportunistic. We didn’t shy away from the Cornhusker deal and that one was 73%. But as we’ve shared with you a unique deal where we are able to step in and assume existing mortgage and take down a minority partner and really all the cash out the door is going to be the renovation. So even that one is a little different. It’s less likely to just see us tomorrow just going sales on our balance sheet go and buy a $40 million hotel. On the other hand we’ve even mentioned the possibility of creating a fund and things along those lines as well. So we’re looking at multiple different ways of potentially trying to grow that business.

James Goss – Barrington Research Associates

All right. Thanks very much.

Operator

Your next question comes from the line of Gregory Macosko with Lord Abbett. Please proceed.

Gregory Macosko – Lord Abbett & Co.

Thank you. Just with regard to discussions regarding the joint venture etc with the hotels, my sense is then you have a three-pronged approach to go about the hotel business, either through a majority/minority interest of management of the hotel and I assume that’s to enhance your long term goal of increasing the number of rooms under management?

Doug Neis

Yes

Greg Marcus

Yes. The short answer would be yes. That’s really as we go.

Gregory Macosko – Lord Abbett & Co.

Okay. And how is the – you’ve been talking about a few quarters about a fund. Is that developing? Is that continuing in a positive direction?

Greg Marcus

It is still – we’re just getting lined up for it. We had these two acquisitions back to back. So that’s where we got the majority of our focus. And so we said okay, let’s take a breath now, let’s start to get working on trying to get something together there.

Gregory Macosko – Lord Abbett & Co.

Okay. Then just to understand the – with regard to the settlement in Las Vegas, how much of the rooms have been settled and how much are still in discussion or in problematic state just to understand?

Doug Neis

Greg, we haven’t actually purposely disclosed exactly how many they are or anything else, but I will tell you that this was – this did represent well over 50% effective, quite north of that in terms of the number of individual claims. So this was a big step that occurred. Now we still have outstanding claims and we’re still defending them, as we use the word vigorously because we feel very strongly in that case. But this was a significant number of claims that came off the table.

Gregory Macosko – Lord Abbett & Co.

And I assume, in other words the settlement that you made of 750, etc, that came directly through the P&L? There’s no reserves or anything to cover any of that?

Doug Neis

That particular model was directly to the P&L and it’s impacting our hotel results.

Gregory Macosko – Lord Abbett & Co.

Okay, fine. That’s understandable. All right and then with regard to the corners, remind me again. The decision on breaking ground on anything would have to be made this spring and then if it doesn’t happen this spring then it waits till next spring. Is that the idea?

Doug Neis

We’ve always aimed for that type of a target and there is some leeway with that. A lot goes into the timing of Von Maur and their preferred opening time period which typically is in the fall of any given year. But ultimately as Greg indicated, this will – he used the terms natural course. So however this plays out we will adapt the schedule as necessary, whether that means – that doesn’t necessarily mean that then if we don’t make a spring construction in 2013, that we don’t get going until spring of 2014, by any means. In fact it still could very much still get going in 2013 and we would just adjust the overall schedule accordingly.

Gregory Macosko – Lord Abbett & Co.

Okay, but net it does sound like you’re somewhat more optimistic or positive on the outlook than you were in the last call?

Doug Neis

I don’t think I would say that. Every element has progress and every element is required in order for us to move forward. So absolutely since the last call I think that we did say the leasing momentum is at an all-time high and we’re very happy with where that’s going. You still have to convert those ultimately into signed leases and that’s going to follow its natural course. As we indicated we’re actually in the market as we speak with seeking the financing on both the equity and the debt financing and we’ve had conversations with the local community as well and progress on all three, but of these elements but in the end all three of them have to get to the finish line and it’s not in anyone’s interest to artificially set a date or to begin the project until they’re all taken of.

Gregory Macosko – Lord Abbett & Co.

Of course and I know. But Greg’s comment with regard to decision or something in the near term, I assume that’s with regard to the community or the…?

Doug Neis

Yeah. He was referring specifically to the development agreement with the community and we’ve had some very productive discussions and it’s – I know that everyone is anxious to hear the final conclusion of that and then we’re still confident that we’re going to get to the type of conclusion for both. But it’s a very complicated transaction. It’s a very complicated deal and the town has been very diligent as they should be in protecting their interest as we are and I’m confident that ultimately a solution, not a solution, a deal, a development agreement is in our near future.

Greg Marcus

I guess I would just add to that again. It’s obviously a very interesting project and it could be a very profitable project for us. But in the end everything has to make sense or we just won’t do it. I have no desire to build a big shopping center so that I can plant in my flag and said I did this so that I can – not a good reason. You’re stuck with it for a long time. So we’re going to make the most prudent decision based on everything coming together.

Gregory Macosko – Lord Abbett & Co.

Okay. And then with regard to the concessions, the concessions, foods etc, does the addition of the restaurants and the lounges, does that enhance the profitability of the concession revenue or is it the same, is it a little less? Give us a sense of the profit impact from the adding of the restaurants etc.

Doug Neis

Well, certainly right off the bat it’s certainly the margins not as good as popcorn and soda. We all know that. But what we’re looking to try to do is take more dollars to the bank. And so we absolutely go into these projects and we wouldn’t have build Zappiro’s number three or Take Five number – I’m not sure it was four, five, if we weren’t seeing indications that that was ultimately adding profit to the property. As you know, we’ve built the first one at our in-theatre dining, each of the concepts. We did the first one and then waited a little while because we have to get the profit where it needed to be before we moved on with additional projects. But in the long run, absolutely. That’s why we’re doing them.

Gregory Macosko – Lord Abbett & Co.

Okay. And just looking at where you put the restaurants and the theatres, I’m assuming that it helps the sort of attendance as just looking back in the analysis of it. It is a definable positive to the theatre attendance in those locations?

Greg Marcus

The issue for us is that where we’ve done it, actually the first we’ve ever done it and not done an extensive redo of the theatre with it is the one we just did at the Ridge down on the southwest side of town in Milwaukee because if you think about the other ones, they were all in conjunction with a major renovation of the theatre. So it’s hard to simply isolate that and say we added this and the amenity drove attendance to the theatre. It’s our feeling that, look at the overall, it does enhance the overall complex. I think you’re going the right direction, Greg, but what we’ve done in the last and we’ve done will give us that cleanest test of does it enhance the productivity of the theatre itself.

Gregory Macosko – Lord Abbett & Co.

How much is there an authorization in terms of the buyback? How much is left?

Doug Neis

I believe at the end of the quarter we were in the just over 1 million shares I believe.

Gregory Macosko – Lord Abbett & Co.

So 1 million is left still?

Doug Neis

It was in that neighborhood I believe. I don’t have that number in front of me, but it was – yeah, I think that was about – because we authorized another 2 million shares at the July meeting. So it’s around a million at the end of the quarter, end of November.

Gregory Macosko – Lord Abbett & Co.

Okay. Finally congratulate Bill Reynolds on those nice deals that came through. Thanks a lot.

Operator

At this time it appears there are no questions. I’d like to turn the call back over to Mr. Neis for additional and closing comments.

Doug Neis

Well, thank you very much and we want to thank all of you for joining us today. We look forward to talking to you once again in March when we release our third quarter fiscal 2013 results. Thanks and we wish you all a very merry Christmas, happy Hanukkah and happy New Year.

Operator

That concludes today's call. You may now disconnect your line at any time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: The Marcus Corporation's CEO Discusses F2Q13 Results - Earnings Call Transcript
This Transcript
All Transcripts