After selling Marcus from my personal portfolio for a gain of 23% last September, I decided to revisit the company when I noticed that a slate of movies such as Spider-Man 3, Transformers, Pirates Of The Caribbean: At World's End, Bourne Ultimatum, and the surprising hit Superbad have done very well recently, making this the first summer ever to pull in more than $4 billion at the box office (pdf). I must confess that I am guilty of watching Superbad and if you like movies like Harold & Kumar Go To White Castle, you might like Superbad.
Based on the performance of movies this summer and others such as Beowulf and Eastern Promises that are in the pipeline for later this year, box office receipts in 2007 are likely to surpass receipts in 2006, which in turn were 4.91% higher than 2005. According to Media By Numbers (pdf), as of September 3rd, 2007 receipts are already 7.42% higher when compared to the same time last year.
With the advent of inexpensive large wide screen TVs and home theatre systems, the decline of a movie going audience that is willing to pay almost $10 per seat (in some parts of the country) and as much as $3 for a bottle of water has been widely discussed over the last few years. In this environment Marcus is not only thriving (sales increased 37.2% and net earnings increased 81.5% in the fiscal fourth quarter ended May 31, 2007) but recently acquired another movie theatre operator and is experimenting with novel ideas such as its new Majestic theatre in Waukesha, Wisconsin. The Majestic is a theatre that enhances the movie going experience by offering 72-foot wide UltraScreens, a made-to-order pizza shop, a lounge, a coffee shop and ice cream parlor and get this, child care. Marcus figured that if customers had plans for dinner, a movie, drinks and dessert, why not give them everything they want in a single location.
Marcus has dropped more than $4 or 17% since I sold my position last September and the company is much cheaper now with a P/E of 18.45, a P/S of 1.83 and a dividend yield of 1.7%, which is in line with the average dividend yield of the S&P 500. Based on how Marcus defines its fiscal year, its first quarter extends from June through August and is likely to benefit from strong box office receipts this summer even though it does not include the Memorial Day weekend like it did last year. The company mentioned this when it said:
At this point in the summer, our theatre box office at comparable theatres is about even with last year, except that last year included the Memorial Day weekend, which we don't have this year. The newly acquired theatres continue to perform as expected. Early summer films such as Ocean's 13, Knocked Up, Fantastic Four: Rise of the Silver Surfer, Live Free or Die Hard, Ratatouille and Transformers opened well and Harry Potter and the Order of the Phoenix and The Simpsons Movie had blockbuster openings in July. We are hopeful that the remaining films of the summer, including The Bourne Ultimatum and Rush Hour 3, will result in a strong ending to our first quarter of fiscal 2008.
I expect Marcus to report a stellar numbers when it reports first quarter results in late October or early November and am going to start a position in Marcus despite my slightly negative outlook for the market. I will also start a position in my personal portfolio after this blog entry is published.
Disclosure: Long MCS