Marcus' (MCS) CEO Greg Marcus on Q2 2016 Results - Earnings Call Transcript

| About: Marcus Corporation (MCS)

The Marcus Corporation (NYSE:MCS)

Q2 2016 Results Earnings Conference Call

July 28, 2016 11:00 AM ET

Executives

Greg Marcus - President and CEO

Doug Neis - CFO

Analysts

Jim Goss - Barrington Research

Mike Hickey - The Benchmark Company

Eric Wold - B. Riley

David Loeb - Baird

Brian Rafn - Morgan Dempsey Capital Management

Operator

Good morning, everyone, and welcome to The Marcus Corporation Second Quarter Earnings Conference Call. My name is Liliana, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards 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 would 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 2016 second quarter conference call. As usual, I’ll 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; our expectations about the quality, quantity, and audience appeal of film product expected to be made available to us in the future; our expectations about the future trends in the business group and leisure travel industry and in our markets; our expectations and plans regarding growth in the number and type of our properties and facilities; our 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 statements. 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 from the SEC or the Company. We’ll also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com.

So, with that behind us, let’s talk about our fiscal 2016 second quarter and first half. Not unexpectedly, it was a more challenging quarter for our theatre division due to difficult comparisons, but once again we outperformed the industry. And thanks to another strong performance from our hotels and resorts division, we reported another quarter of increased earnings over the prior year.

Following our usual format for these calls, I am going to take you through some of the detail behind the numbers, both on a consolidated basis and for each division, and then turn the call over to Greg for his comments.

There were no significant changes in the line items below operating income or our effective income tax rate. So, other than noting that the losses on disposition that we reported, both this year and last year, were once again related primarily to write-offs of old theatre seats and equipment as we continue our theatre renovations, we’ll skip that portion of my usual comments this quarter.

Before I get into the division detail, I want to note two items that impacted last year’s results and the corresponding comparisons in this year. The first of course is the $2.6 million impairment charge that we took during the comparable second quarter last related to one specific hotel. Comparisons of last year in our hotel division were obviously favorably impacted due to this item. And the second item was in our corporate segment. You may recall that last year at this time, we recorded the reimbursement of approximately $1.4 million of costs, previously expense related to a mixed-use retail development known as The Corners of Brookfield. As a result, comparisons to last year in our corporate segment were unfavorably impacted.

In addition, before I begin the each division, I’ll briefly shift -- I am going to shift gears away from the earnings statement for a moment, tell you about our total capital expenditures during the first half of the year. They totaled approximately $42 million compared to approximately $45 million last year. Approximately $36 million of our total spend during the fiscal 2016 first half was in our theatre division, the majority of which related to the completion of multiple DreamLounger seating projects, UltraScreen DLX screens, and new food and beverage outlets, as well as the purchase of land for a new theatre in Minnesota now under construction and the purchase of a closed theatre now under construction in the south side of Chicago. I believe we’re still on pace for our total capital expenditures for fiscal 2016 to be in our originally estimated $75 million to $95 million range, recognizing that the timing of several of our planned expansions are still just estimates at this time and that it’s appearing more likely that we’ll end up in the lower to midpoint of that range at this point.

We’re still finalizing the scope and timing of many of the various requested projects prior to revisions, and we anticipate proceeding as many of these projects as the year unfolds. The actual timing of various projects currently underway or proposed will certainly impact our final capital expenditure number, as well any currently unidentified projects or acquisitions that could develop during our full year.

So, now, I’d like to provide some financial comments on our operations for the second quarter and half, beginning with theatres. Our box office and concession revenues each decreased 4.4% during the second quarter but have increased approximately 3% each during the first half of fiscal 2016. I want to remind you that while the periods we’re comparing in today’s release are both 13 and 26 weeks. Keep in mind that because 2015 was essentially a 53-week year for us, the weeks that we are comparing to do not match up on the calendar. More specifically, this week’s numbers -- this year’s numbers include a 13-week period from April 1st through June 30, 2016 for the second quarter, a straight calendar quarter. And the 26-week period concludes the January 1st through June 30th for the first half, again a straight calendar first half of the year. However, using our last Thursday, December fiscal year-end, the numbers that we’re comparing to, cover the period from March 27, 2015 through June 25, 2015 for the second quarter last year, and December 26, 2014 through June 25, 2015 for the first half last year.

So this is particularly significant when looking at the first half numbers, because as you all know, the weeks between Christmas and New Year is historically one of the busies, if not the busiest weeks of the for movie going. So, as a result, there are really two ways to compare our second quarter and first half results to the industry. And I’ll try to explain this as succinctly as I can because it can be confusing.

We’ve established that our weeks in both the second quarter and the first half this year are misaligned when comparing the last year. So, when we compare our results to the industry, our first option is to compare our change in box office revenues for our misaligned weeks to the change in the national box office for those same misaligned weeks. So, when we do that, based upon U.S. box office numbers complied by us using data from Rentrak, a national box office reporting services for t he theatre industry, we find that the national box office decreased by 7.5% during our second quarter and 1.5% during our first half, meaning that we outperformed the industry by 3.1 percentage-point during the second quarter and 4.4 percentage-point during the first half of the year.

What probably interests you more is how do we compare to the more comparable 13 and 26 weeks last year as that more closely matches what you’re going to see reported from others in our industry. And there the story only gets better. Again using Rentrak, we calculated that the U.S. box office decreased 10.4% during the second quarter of calendar 2016. Meanwhile, adjusting our reported last year numbers by removing the last week in March and adding last week in June, thus fixing that misalignment, if you will, what we find that our box office revenues decreased 5.9% compared to the same weeks last year, which is 4.5 percentage points better than the U.S. average for the quarter. If you go through that same exercise for the first half of the year, we are now running 5.6 percentage points better than the U.S. average, year-to-date. This means we have now outperformed the industry during 10 of our last 11 reported interim periods, which is nearly three years now, something we are very proud of.

Now, going back to our reported comparisons -- now again back to the reported comparisons for the quarter, the second quarter decrease in our box office revenues is attributable to a decrease in attendance at our comparable theatres of 6.9%, partially offset by an increase in our average admission price of 2.4% for the second quarter. For the first half of the year, our 2.9% increase in box office receipts is attributable to 5.1% increase in our average ticket price, partially offset by a 2.4% decrease in attendance.

The fact that we’ve increased our number of premium large-format screens with a corresponding price premium, certainly contributed to our increased average ticket price during the fiscal 2016 period, as did a higher percentage of box office receipts attributable 3D films and a modest price increase taken in January. Conversely, I’ll tell you that our growth in our average ticket price was tempered this quarter by the fact that two of our three highest grossing films were animated or family-orient films, compared to none of our top three last year, meaning that we had a much higher percentage of our box office mix that came from the lower price children’s and matinee pricing.

Now, we also were very pleased to report an increase in our average concessions revenues per person of 2.3% for the second quarter and 5.1% during the first half, compared to the same period last year. Our investments in non-traditional food and beverage outlets continued to contribute to this outstanding performance, but once again they were tempered in our second quarter by that same change in film product mix, as animated and family pictures tend to not draw as many people to our non-traditional food and beverage outlets, compared to more adult oriented films.

Now, shifting to our hotels and resorts division, if you do the math, you will see that our overall hotel revenues were up 1.1% for the second and down 0.5% for the first half. But, if you eliminate the hotel that we sold in October, the Hotel Phillips from last year’s results and the SafeHouse restaurant that we purchased last June, and you take that out of both years, you will find that our revenues were actually up 4.7% during the second half -- or second quarter and 3.2% during the first half, compared to last year.

Now, as noted in our release, our total RevPAR for eight comparable properties increased 6.9% during the fiscal 2016 second quarter, compared to the comparable period last year, and 5.9% for the first half of fiscal 2016 compared to last year. As we noted in the past, our RevPAR performance did vary by market and type of property.

Breaking out the numbers more specifically, our fiscal 2016 second quarter overall RevPAR increase was due to an overall occupancy rate increase of 1.8 percentage points and 4.4% increase in our average daily rate. Year-to-date, our occupancy rate has increased 2 percentage points and our average daily rate has increased 2.9%.

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 3.4% during our second quarter and competitive hotels in our collective markets experienced an increase in RevPAR of 4.7% during our fiscal 2016 second quarter. Thus, you can see that we outperformed in this division as well this quarter.

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.

With last year’s second quarter being the highest on record for the exhibition industry, we all knew that the industry would have difficult comparisons during this year’s second quarter. And while the 10.4% decline in the national box office for comparable calendar weeks, during the quarter that Doug shared with you a few minutes ago, certainly reflects that reality, I would suggest that there were some surprises this quarter. With last year’s May and June film lineup including blockbusters such as Avengers: Age of Ultron, Furious VI, Pitch Perfect 2 and the fourth highest grossing film of all time Jurassic World, I think most people assume that the overall decline in box office would be even greater this quarter. I need to tell you that thanks to a deeper lineup of films this year, and the strong performance of films such as Captain America: Civil War, Finding Dory and Jungle Book, we actually performed pretty well during May and June, when all was said and done.

In fact, we actually have more weeks with increased box office than we did weeks of decreased box office during the quarter. So, it may come as a surprise to you here that our entire net decrease in box office during the quarter occurred during the first two weeks in April, and is directly related to the fact that Easter was early this year, falling in our first quarter. As you know, movie-going generally increases when the students are out of school, and Hollywood adjusts their film release schedule to reflect that. Thus, this year’s first quarter benefited from the early Easter, but last year Easter was in the second quarter, thus a difficult comparison in early April.

Well, I hope it doesn’t come as a surprise to you as we once again outperformed the industry. The investments we’ve been making in our theatres and our innovative marketing and pricing initiatives along with our loyalty program that is now up 1.6 million numbers and counting, continues to make a difference. I think our performance this quarter even with the headwinds of the difference in the calendar and the weaker film slate reflects the benefits of the strategies we’ve been executing on for the past nearly three years now. And I’ll be honest with you. I believe our outperformance versus the industry during the quarter would have been even greater if not for a weather-related dynamic that we believe we face every spring in our Midwestern markets. We had several weeks in May where we underperformed the industry that directly corresponded to the first week of the spring when the weather finally turned nice around here.

I know that it may sound strange to some of you, but those of you who live in the Midwest know about this dynamic. After a long hard winter, people flock to the outdoors those first few weekends when the weather turns. It happens every year. Going inside a movie theatre on one of the first beautiful spring days is not something everyone wants to do, regardless of the movie. And as evidenced that I believe our outperformance would have otherwise been even stronger, I will tell you that during June, as our normal movie-going patterns return, a review of the numbers from Rentrak indicates that we outperformed that industry by over 8 percentage points, 4 points higher than where our outperformance ended up for the quarter as a whole.

Now, while hopefully Doug and I have given you a little more color on the ups and downs of the second quarter, you also know that what matters most to us is how we execute over the long haul. And by that measure, we are all pleased, having sustained our box office outperformance for nearly three years now.

Over the last nearly three years, we have invested over 150 million in our theatres circuit, and that result have made us an industry leader that boasts the highest percentage of recliner seating auditoriums, premium large format screens, and innovative food and beverage outlets of the any of the top chains in the country. Add to that our groundbreaking $5.00 Tuesday program and what we believe is one of the best loyalty programs around, and it is not surprising that we continue to meet our goal of outperforming the industry.

As we look ahead, we are excited to continue to invest in both new and existing theatres during the remainder of fiscal 2016, as we further expand the successful concepts and amenities that have contributed to our industry outperformance. By later this fall, when renovations are completed at our Orland Park Cinema and recently purchased Country Club Hills Cinema, both in the Chicago marketplace, our industry-leading percentage of auditoriums offering recliner seating will be nearly 48%. We opened one new Zaffiro’s Express and two new Reel Sizzle lobby dining outlets during the second quarter and expect to open two new Zaffiro’s Express and Take Five Lounge outlets during the third quarter of fiscal 2016.

We are also in the process of converting one UltraScreen to an UltraScreen DLX, and converting another screen to a SuperScreen DLX of existing theatres, as well as adding two new screens to our market Marcus Palace Cinema in Sun Prairie, Wisconsin. And besides adding DreamLounger recliner seating to the closed theatre we purchase in April, we are adding one UltraScreen DLX and one SuperScreen DLX auditorium as well, as a Take Five Lounge and Reel Sizzle outlet to this theatre.

We currently expect the newly remodeled theatre to open early in our fiscal 2016 fourth quarter. We also have begun construction on a new theatre in Shakopee, Minnesota, and we expect to begin construction in the fall on our first standalone all in-theatre dining location, which will be Greendale, Wisconsin. And I would be remiss if I didn’t note that we continue to be very interested in expanding our circuit of selective acquisitions if the right opportunities arise.

From a film perspective, our stated goal is to continue to outperform the national box office, regardless of how the films do o compared to the prior year. We are off to a very good start towards that goal in July, as some of the films listed in our release have performed very well, and we have performed even better. With films like Jason Bourne and Suicide Squad still ahead, we hope the summer ends strong, before we start competing against the Olympics and enter traditionally weaker late August and September period where movie going decreases as the kids go back to school.

With that, let’s move on to our other division, hotels and resorts. You have seen the segment numbers, and Doug gave you some additional detail, and it was a very good quarter for this division. Of course, it all starts with revenues. Our industry and market outperformance in RevPAR that Doug shared earlier, reflects a great job of revenue management by our team, with a particular focus on increasing our ADR this quarter. All eight of our Company-owned and operated hotels produced an increase in ADR during the second quarter, and the tremendous efforts of our sales teams were evident as well, as additional group and transient business contributed to our overall increased occupancy percentage during the quarter. But ultimately, you have to convert those increased revenues to profits. Once again, our hotel team was up to the task, as they did a great job of managing cost and increasing profitability while continuing to maintain our high levels of customer service.

As we noted in our press release, after adjusting for last year’s impairment charge and excluding the Hotel Phillips and a SafeHouse from both years in order to get an apples to apples comparison, our team was able to produce an operating margin of 12.7% this quarter, compared to 8.6% during last year’s second quarter, an improvement of over 4 full percentage points. In fact, after adjusting for these same items, for the second straight quarter, nearly 100% of our revenue increase this quarter flowed through to our operating income line, an outstanding achievement.

Certainly, a portion of our improvement can be directly attributed to our AC Hotel in Chicago, which is in the in the midst of a major renovation and was operating without a flag during a portion of the quarter last year. But, it is important to note that the story was not about just one of our hotels. All but one of our hotels reported improvement over the prior year, and that hotel was in the midst of a significant renovation during the quarter.

As I just indicated, additional group and transient business contributed to our higher than market RevPAR during the quarter. Our owned hotels also had a solid group booking period during the second quarter, as we experienced an increase in group room revenue bookings for future periods compared to advanced room group bookings during the second quarter last year, something continually referred to in the hotels and resorts industry as group pace. Looking ahead, it certainly is our goal to keep reporting RevPAR increases in line or above what is happening nationally and in our markets. The AC Hotel Chicago is beginning its second year of operations, and we look for that property to continue to ramp up.

We continue to closely watch hotel supply in our markets and we continue to watch the macroeconomic factors that impact our industry. In the near-term, we are looking for continued improvement from this division. In the meantime, we also continue to make selected investments in our assets as evidenced by the recent renovation of the SafeHouse bar and restaurant in Milwaukie and renovation nearing completion at the Skirvin Hotel in Oklahoma City.

And from a growth perspective, we talked about how we are stepping up our efforts to increase our visibility as the national hotel management company, and we hope to add to our portfolio of managed hotels in the coming year. Conversely, we continue to actively review opportunities to sell one or more owned hotels, hopefully while retaining management when so desired.

Before we open up the call for questions, I want to conclude my remarks by first making sure that I thank you to all of our associates who work so hard every day, led by Rolando Rodriguez in the theatre division and Joe Khairallah in the hotel division. This is especially true during this time of year when both our businesses are extremely busy.

Now, I want to expand on the summary section of today’s press release. Our balance sheet continues to be positioned in a way that provides us with a great deal of flexibility to respond to opportunities to grow our businesses while still returning capital to shareholders. Let’s just think about our last 13 months for a moment. During our seven-month transition period ended in December and the first half of fiscal 2016 combined, we invested over $86 million in our two businesses, sold a hotel and reinvested the proceeds in tax efficient 1031 transaction by purchasing a theatre and two parcels of land for future growth, increased our quarterly dividend by 7.1%, and opportunistically repurchased over 0.25 million shares of our common stock at a price of just over $18. And 13 months later, our debt to capitalization ratio actually decreased from 42% at the end of May 2015 to 39% at the end of June 2016. And during June, we replaced our then existing credit agreement consisting of $37 million term loan and $175 million revolving credit facility with a new five-year $225 million credit agreement with our existing bank.

Needless to say, I believe we are in great position to capitalize on opportunities as they arise in the future. With that, at this time, Doug and I will be happy to open the call up for any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions] We’ll go first to Jim Goss with Barrington Research. Your line is now open.

Jim Goss

I was wondering if you might start by looking at Q3 and Q4 in terms of the Rentrak comps you think you will face relative to the industry that might give us a starting point for at least refining models.

Greg Marcus

Jim, I would leave that up to you. I mean, look, we are not going to tell you that -- we are not going to give you some number and say that we think we’re going to outperform by some percentage. We are telling you…

Jim Goss

No, I am not asking you that. But, you’ve talked about like in this quarter you had a 4% decline for the industry measure, but the industry was in their weeks were more like a minus 7% or minus 8%. And I am just wondering, is there are any variances we should be looking out for just in terms of the way your comps will match up with the industry comps to the extent you’ve worked out that.

Greg Marcus

So, you are talking about that misalignment that I was referring to, and whether that’s going to create…

Jim Goss

Exactly.

Greg Marcus

Okay, I was wondering you wanted our crystal ball.

Jim Goss

Well, I was hoping yours would be better than mine.

Greg Marcus

So, it’s an interesting question, Jim. I mean, let me just -- I mean, I am going to go little bit top of mind here and that’s because I haven’t -- not like I haven’t run those numbers, but I’ll save this. So now that next quarter ends at the end of the September and so the fact that we all know September is the slowest month of the year, so trading the last week in September out for the last week in August -- last week in June, I mean, I don’t know that -- the biggest change was clearly when occurred in that first quarter with the Christmas week. The reality is that this time around, the reason why there was a change of that 10.4% versus the 7.5% that I mentioned is because we are trading the last week in March or the last week in June, right? And so, that’s kind of the math that you are needed to do Jim, as you need take a look at a difference of what we are trading off. In this case here, we are going to be trading the last -- we are going to have the last week in September in this year’s results; and last year’s second quarter -- or third quarter will instead have the benefit of that last week in June, right, because I ended on 25th. So that’s not a favorable trade-off. So that’s kind of a math that you could do…

Jim Goss

So, you might have tougher comps in the third quarter and possibly even worse in the fourth quarter if last year you had an extra week of Star Wars.

Greg Marcus

Right, then you got the whole fourth quarter, you got the whole issue of that we are going to be comparing 13 weeks to 14 weeks; so absolutely. And now we help with that by providing in our disclosures, if you look at our 10-K and things like that, we provided what we felt the impact of that 14th week was.

Jim Goss

Okay. And AMC has been talking about modifying their reseating types to look at different types of markets and different types of screens. You might have more consistency across your platform than they do. But I’m wondering if you are going to look at any variances where you might have certain theatres where you, say, remove half of the seats rather than all the seats effectively in that process or rather than, say, two-thirds of the seats, or if you think you are going to be consistent in the pattern you’ve been doing at this point?

Greg Marcus

I don’t know of any current plans to change what we’re doing. And those become very tricky because you end up having a deal with customer expectations, and we’re thoughtful about it when we’ve been -- teams have been around long enough. We do it just like when you didn’t have stadium seating in every auditorium. So, it becomes challenging. We do do somewhere we just put the recliners, our recliners are DreamLoungers, when we put our DreamLoungers and we’ll do them in UltraScreens or SuperScreens DLX, but we don’t have any current plans to change them all. But that being said, we don’t have the market cornered on good ideas. And somebody does something that makes sense, we’re going to keep our eye on.

Doug Neis

What I would only add Jim is that we’re up to -- we shared in our prepared remarks, by this fall when the two Chicago theatres are completed, we’ll get the 48% penetration with our DreamLoungers recliner seats in the auditoriums following the model that we are following. So, that I suggest that here you’re talking about some of these other guys talking about playing different models and they’re even close to that level of penetration that we’re in.

Jim Goss

One more and then, maybe I’ll get back in the queue. But, I’m wondering about M&A in the theatrical space. Assuming the AMC-Carmike deal closes, does that open the door for you to be more aggressive, because perhaps one of the companies that’s been most in your relative space would be off the table?

Greg Marcus

We hope so. We do; if that -- hope that does create an opportunity for us and we’re out there looking.

Operator

And our next question comes from the line of Mike Hickey with Benchmark Company. Your line is now open.

Mike Hickey

Hey, guys. Great quarter, and congratulations. Two questions, two big questions I guess. This sort of dovetails to Jim’s question perhaps. And I’m just sort of curious what you are seeing from the rest of domestic market, I guess maybe in response to AMC and Carmike? And of course, sort of thinking about the 20,000 or so screens that are held by the privates, are you seeing any sort of change in deal pricing or activity or RFPs, as I guess the privates sort of ponder the reality of maybe two of the bigger buyers leading the market. And perhaps and also the consideration that at least one of the buyers that is still there theoretically would be looking for international growth, which is somewhat of a change. So, any thoughts there would be helpful. And I have a quick follow-up.

Greg Marcus

It doesn’t bum me out that a decent player is off the table. I like your thesis, but I don’t think -- we don’t have any. I think the market, I don’t see much evidence of anything just yet as the market continues. I think the market has sort of been above where it’s been. The activity level I don’t think has changed. And we continue to mine the market and continue to be out there. And we want people to know that we’re interested. And anybody who wants just can call me and I’m happy to talk about [multiple speakers] Doesn’t Warren Buffett do that? Like on his conference call, I know one he has -- he puts out like I think you call me or email me if you want to sell your company.

Doug Neis

Mike, what I would maybe add is that I think the more compelling thesis still remains the fact that the industry is in the midst of a major reinvestment period. And, so, the fact of the matter is that I still think capital needs and -- capital needs and the expertise to be able to execute on this new reinvestment is probably a more compelling case for some of these guys to be thinking about because the standstill is as we would argue is not an options. And so, we believe that stuff that we are doing is what makes you competitive and keeps you state of the art in the industry. And so, I think that’s the more compelling reason why some of those other 20,000 screens might want to consider someone like us.

Mike Hickey

Fair enough, guys. That’s good; it’s certainly an interesting time in the industry right now. Last question from me along the same lines I guess is if you think AMC is successful with Carmike, and then sort of curious on potential divestitures required by the DoJ, if you sort of think that that will go through the auction process? And if so, do you think you would still find an opportunistic price if it’s an auction versus just sort of finding it in the market or them finding you? And then, the divestitures that you would anticipate, would those be in markets that are perhaps more competitive, assuming that it’s because of the overlap with Carmike and AMC, and how forward AMC has been with recliner and amenity refreshes?

Greg Marcus

Well, I have to say that trying to figure out what they are going to do best as about as likely us trying to figure out what the box office is going to be for next quarter. It’s how we just don’t know trying to guess what the government is going to have them do. We’ve taken some looks at it, but frankly we don’t want to spend too much time until we know what it is, and what the process is going to be. And then, we will be there and we will look at and hopefully we will be competitive, we are going to -- but once again, we will be disciplined as we always are about what the acquisitions are and will depend on what they are divesting.

Operator

And our next question comes from the line of Eric Wold with B. Riley. Your line is now open.

Eric Wold

As a follow-up question on Mike’s question around acquisitions, I know in the past you’ve talked about using a tax strategy of if you were to sell a hotel property, identifying an asset I think within 45 days and then closing within six months, correct me if I’m wrong, to kind of get that tax advantage. Can that be done in the reverse? If you see something to buy that comes upon quick and you buy some theatre chains or theatre properties and then sell a hotel afterwards, can you retroactively apply the tax benefit or does it have to be done in the correct order?

Greg Marcus

No, the short answer is yes, it can be done either way, the same timeline applies. So, if we were to find something to buy that had real estate, you can do that in 45 days, you have to identify some potential things that you may consider selling. There is a limit to how much you can, because it can’t be a shotgun approach where you have named 20 things, but you can over-identify. And then you have 180 days to close. So, it’s goes in both directions, Eric.

Doug Neis

It’s kind of reverse 1031.

Eric Wold

Would eight hotel properties be considered shotgun?

Greg Marcus

That might [indiscernible].

Eric Wold

And then, the question is you made or you are looking to get kind of more of a national hotel management strategy and kind of get the word out and do that. I know looking for properties to take over a management contract is one thing. Would you do it in a larger fashion where you consider acquiring an entire hotel 100% interest and then sell off a majority stake afterwards to maintain a minority stake in the management contract or is that too big of a purchase risk you want to go after?

Greg Marcus

We’ve done it. We have done it in the past. It would depend on the transaction if we really -- because I have my feeling as we prepare to own it, some didn’t work out. So, all of a sudden, times weird things happen, market shift and all of a sudden, you can’t move the asset off the balance sheet. It’s not a strategy we’re looking to actively employ but I wouldn’t rule it, it would just depend on the asset.

Eric Wold

And then, just last question on just underlying trends on the hotel resort side, very strong ADR of 4.5% in the quarter; what are your general thoughts on the trends you are seeing in your regions? And how is that -- I guess it’s tough to tell each competing chain or location, but how would that 4.5%, 4.4% compared to what you are seeing other competitors do; and do you feel you have more room to take that number up meaningfully higher without impacting occupancy trends?

Doug Neis

Well, we’ve been saying that ADR was likely to be the largest component of our RevPAR growth in 2016. And certainly there has been a conscious effort in our part to make that happen. As we look at the -- I shared with you some broad RevPAR numbers for that upper-upscale segment and then also then the comp sets, if you will. I will tell you that in -- and we outperformed both of those, as I shared with you. When I take a look at that mix of ADR and occupancy for those competitive sets and for the upper-upscale segment, I look at the upper-upscale segment and I shared that for the quarter it was up 3.4%. Looking at the numbers that we got from Smith Travel, about two thirds of that was rate and one third of it was occupancy. So, that pretty much tracks what we saw as well, only we saw it to a greater degree. So, we were up 6.9% and 4 points and our ADR was up 4.4%. So, I think the relationship in general the same but we were more successful overall in driving the strategy.

Operator

And our next question comes from the line of David Loeb with Baird. Your line is now open.

David Loeb

Doug, can I just follow up on that RevPAR question? It was sort of around one of mine. Was there anything going on in those individual markets, any particular sorts of demand or anything you were doing in particular that led you to gain share in your markets?

Doug Neis

So, following up on what we just talked about, and I was talking about the upper-upscale. And I also shared in our prepared remarks the comp sets, where we take the same data from Smith Travel and we look at each individual hotel and the hotels that have deemed to be competitive, as you well know. And, so, in our markets, our markets did outperform the national numbers. The number I shared with you was that the markets were up 4.7% collectively and the national number was up 3.4%. Now, you try to bifurcate that, David, and start talking about in each of these eight markets, was there anything usual -- nothing that rises the level, when I look at the write-up from our division for each individual hotel, it was nothing that would result to me calling it out, if you understand. It was so unusual. We had some -- as we indicated overall, we had a good group period; we had a good non-group kind of transient business period. And it was -- it varies from hotel. I mean when I look at the increase that we had, I can look at one hotel and it was up entirely because of group business; and then, if you look at another hotel and it was up entirely because of non-group transient. So, it was not any particular transient, I guess maybe a little longer winded answer than you wanted, but that’s what we saw.

David Loeb

That’s actually a good answer. And if you strip out Chicago, just given the renovation disruption a year ago, what would that RevPAR growth number look like in terms of direction, order of magnitude?

Doug Neis

Well, I’ll tell that for the second quarter without Chicago, I did the math, we were -- I shared with you that we were up 6.9% overall; we are still up 5.7% without Chicago. So, we still outperformed.

David Loeb

So, it’s really just preference execution, group booking, things like that, revenue management. It’s really just kind of the day-to-day business that you guys are clearly succeeding in, in those markets?

Doug Neis

I agree.

David Loeb

On the theatre side, you’ve spent a lot of capital at your theatres; they are in great shape. It’s clearly been a significant positive in your results. How much more of that is there to do?

Doug Neis

That’s the question we get every quarter, David. And so far, we have been able to keep that going. And as we have indicated we have got for the rest of 2016 a number of food and beverage outlets still open up, we have got some new screens that are going to open up, the 16 new screens in Chicago plus the two new screens in Madison. We have two more DreamLounger locations opening up in 2016 yet. And the guys as we speak, team as speak is working on there -- they are starting to do the strategic planning and working on the 2017 model. So, it kind of goes back to that very first question that Jim asked in terms of 48% penetration DreamLoungers for example, how much farther can we take that? And that’s the challenge that we are taking a look at right now. We do believe that we still have some more opportunities. And then, the wildcard is in the second set of questions that we got which is can we start the cycle over again with some additional acquisitions.

Greg Marcus

That’s going to be the driver really again, David. As you know that the base circuit has been that the team has done a great job of reinvesting and revitalizing base circuit. But, there is not -- there aren’t too many more. We’re just seeing as a more lumpy stuff, we’ve got the Country Club Hills in Chicago, we checked these. So, we’re now dealing with more stuff where we’re building or taking over a different theatre. But there is again -- and yet sporadic, we’re in Orlan Park putting in DreamLoungers there. But it is less so on the base circuit.

David Loeb

I certainly noticed the shift in CapEx to more new build kinds of efforts, including Chicago acquisition. And it also is pretty clear you’ve gotten a lot more questions about acquisitions. So, it sounds like you are ready for those. And I’d ask you if you thought the sellers were more interested, but I don’t -- let me just ask, if you think the sellers are more interested today? Do you think the revised offer for Carmike helps in that process or does it make sellers unrealistic in their expectations?

Greg Marcus

I think it cuts both ways. But I think because again, there is fewer players in the table and with what’s going on, so that can dampen some enthusiasm. But, the multiples are -- there have been some -- but thinking about multiple also become unique circumstances too. So, you have to be more careful about extrapolating a multiple from one transaction. And that’s part of what we do. If we look over time, there is more sense in the multiple expenditures from the last transaction.

Doug Neis

And so much goes into the capital needs as well, David. So, you have your going in multiple and then you have your multiple that you have to consider when you evaluate what kind of capital has to go into those properties, because again the thesis here is potentially that we’re looking at some things that some properties were maybe they’ve been a little where they need capital. And so, we’ve got to really evaluate and show discipline as it relates to both multiples.

Operator

And our next question comes from the line of Ryan Hamilton with Morgan Dempsey Capital Management. Your line is now open.

Brian Rafn

This is actually Brian Rafn. Let me ask you now that you guys have had the Marcus Rewards going, I’m wondering if you guys have seen any ability to drive traffic or attendance behavior by different film genre in your advertising, your interaction over the internet with your customers?

Greg Marcus

Absolutely, that so far has been the first -- call the first step on that, the first steps in the journey of our loyalty program. And it’s a long journey still yet to be played out. The first step is just using that now as to attract our user -- to use our user base and let them know what’s playing. And we absolutely see growth in our business by leveraging that knowledge. The next steps are then taking it and finding out what else we can do to leverage that base of 1.6 million and growing. And there are lots of opportunities there.

Brian Rafn

You guys -- one kind of double question. The concession sales for your Tuesday night value guy, and also how popular has been, if you still have it, the Thursday night -- I think you had $5 student night traffic there. And then that kind of student, what’s his kind of concession per ticket?

Greg Marcus

The student night is growing. I’d say it’s been very nice. It’s been very nice; it’s not growing at the level I thought obviously $5.00 Tuesday, but it is a growing program. And we look at it, we do compare to the circuits to make sure that it’s effective. And it is clearly effective and will continue to grow. It is a smaller -- again, the per cap is little bit less, but it is a -- but we believe it’s a good program.

Brian Rafn

Greg, you mentioned buying two parcels of land, how viable is that the kind of one-off where you actually buy the real estate and do a Greenfield; are there a lot of locations to do that or is that kind of a niche market?

Greg Marcus

Well, I don’t think there is ton of new greenfield developments in theatre business, with all the screens in our country, I don’t think we need a ton more. But if the opportunity presents itself, we do take advantage of it.

Brian Rafn

Okay. The 20,000, and you guys kind of the concentration, urban suburban, if you look at that kind of 20,000 plus mom and pop rural one ball [ph] market, what is your ability to go in and like your legacy Ripon campus, where you might find a rural location that you might add screens to or make it a little bigger; or is that rural concept where you are kind of way out in the sticks and you have to draw from a huge geographic area? I would look at Ripon where you’re pulling in from Berlin and Green Lake, and I don’t think Fond du Lac, but how viable is that rural, if you start going out to some of those mom and pops for you guys?

Greg Marcus

That is not a market we’ve been playing in. We have Ripon, but we call it the Shrine.

Brian Rafn

Of those 20,000 then, are they driven by retirements; are there still old analogs that don’t have the ability to convert to digital? What is that market from your standpoint; is it smaller chains; what do you see?

Greg Marcus

As I said, Brian, we don’t even play that market, so I can’t even -- I couldn’t really give you a much commentary on that.

Doug Neis

Brian, it’s so fragmented. I mean the fact of the matter is that in that 20,000 which include us, right, because the top four guys have got 20,000 screens and the next [Multiple Speakers] So, then the next 800 guys have got the other 20,0000 screens, we’re the biggest of that. But, if you look at the ranking, it falls off pretty quickly. I mean there are circuits that have total screens in the hundreds. And it’s just kind of keeps on falling off from there. And so, look, in our history, let’s use history as a guide, we’ve brought individual theatres; we’ve bought small circuits, we’ve bought $40 million circuit, we’ve bought a $75 million circuit. We will continue to look at all kind of shapes and sizes. But, it’s very fragmented.

Brian Rafn

I think you guys have answered that real well and I appreciate that. Let me just ask another one relative to the DreamLounger, absolutely a fabulous experience. Have you guys seen, now as you’ve gotten into it, any more mechanics and maintenance to that? I always think of John Candy in planes, trains, and automobiles where he breaks the car seat from multiple adjustments. Has that been an issue at all or have they been very, very durable?

Greg Marcus

So far so good, but we are early in the game.

Operator

And we have a follow-up question from the line of Jim Goss with Barrington Research. Your line is open.

Jim Goss

I was wondering in terms of your hotel approach, are there specific brands you are targeting or -- because you have quite an assortment of different hotel brands in your group, or is it just whatever becomes available makes sense to you?

Greg Marcus

Yes. It’s always market specific, depending -- it’s just what’s available, what does the location dictate, is it more leisure, is it group, what -- is it business, what is your -- those factors go into helping us decide, if we’re going to brand something, what the brand is going to be in that, okay, what brands are available that fit that. So there is no -- we’re not targeting any one brand.

Jim Goss

And then, you tend to own properties rather than lease to a much greater extent than a lot of your peers. In an M&A environment, do you think that would change at all?

Greg Marcus

Look, I think we’ve always said, our preference is to own the real estate. It’s allowed us to be very nimble throughout the years. But realistically, I mean, we have to be realistic about if we’re going to grow and we want to grow that we’re going to have to -- that we’ll uptake on leases for certain change. And that will then reflect. The pricing will have to be attractive and the assets will have to be attractive. And then, our feeling is just remember that leasing, it’s just a form of finance. And with that in mind that’s one of the things that’s always going to be paramount to us is maintaining a strong balance sheet. That’s been one of our Company’s hallmarks and it’s a lot of weather, a lot of storms. And I am not about to go get that strategy.

Operator

And we have another follow-up question from the line of Ryan Hamilton with Morgan Dempsey Capital Management. Your line is now open.

Brian Rafn

This is Brian again. You guys, I think Greg, you mentioned adding two screens to -- was it Sun Prairie? If you look at the fact that you guys own the bulk of the real estate under your theatres, is it a viable strategy to expand the legacy building, or do you really get locked into the footprint that you already have on the site unless you demolish it?

Greg Marcus

They’re built; the expansion is one warrant that is certainly acceptable. Although I would tell you that for the most part, the history of building -- we’re probably not expanding too many theatres.

Brian Rafn

And then from the standpoint of geography, is there any ability or interest in theatres in Canada or are you guys strictly domestic U.S.?

Greg Marcus

Canada has excellent operator out there in Cineplex, and I don’t think we’re going to go anywhere…

Doug Neis

They have like an 80% market and so yes, probably not there.

Brian Rafn

I got you, and then just finally, Doug, maybe kind of the depth of the movie slate, films 1 through 10, 1 through 15, so second quarter 2016 versus 2015, any comments?

Doug Neis

So, we alluded to that in the prepared remarks, so we didn’t throw any numbers out there, so here are some numbers. So, for example, our top five pictures during the quarter accounted for 49% of our overall box office during the quarter. Last year, during the same second quarter, our top five pictures were 55%. So that’s probably one of the best measures I can show in terms of -- if I take it even deeper, I look at it go over the top 15 pictures, top 15 pictures in the second quarter were 77% of our box office, last year our top 15 pictures were 85%. So, you see that same kind of dynamic that would kind of go to that, when we say a deeper, we are saying more pictures are contributing to our results. And that clearly was the case in the second quarter.

Brian Rafn

And then, one more, Doug. How viable has your retro series been when you bring back, whether it’s godfathers or football or girls’ night out, how have those been for you guys?

Greg Marcus

Well, talk about the first step on a journey, that’s a great way to tie things up to talk about. The benefits of having a royalty program, so that we can -- the challenge is how do you market something that those are -- where there are really more one-offs, series allow you also to market more than one movie at a time, but still not a national marketing campaigns. So, we are going to be able to leverage our -- the goal is ultimately to leverage our royalty club membership to know who want to see movies like that, to be able to use films like that and to utilize our screens when we have availability to build a knowledge out. I mean that is with going digital, that’s one of thing -- the journey of digital has allowed us to take and we are on the first step of that. And I know the team is focused on that. And it’s trying to figure how to make sure we can monetize those kinds of opportunities, and I think there is much more to come.

Brian Rafn

Awesome. Thanks, guys. I appreciate all the comments. Good luck.

Greg Marcus

Thank you.

Operator

At this time, it appears that there are no other questions. I would like to turn the call back to Mr. Neis for any additional or closing comments.

Doug Neis

Thank you everybody once again for joining us today. We look forward to talking to you again in October when we release our fiscal 2016 third quarter results. Till then, thank you and have a great day.

Operator

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

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