The Marcus Corporation (MCS) Q2 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to The Marcus Corporation Second Quarter Earnings Conference Call. My name is Ian, and I’ll be your operator for today. At this time, all participants are in 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’d like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Thank you very much. Welcome everybody to our fiscal 2015 second quarter conference call. As usual, you know I need to begin by stating that we plan on making a number of forward-looking statements on our call today. Forward-looking statements could include, but not be limited to statements about our future revenues and earnings expectations, our future RevPAR, occupancy rates and room rates expectations for our Hotels & Resorts division, our expectations about the quality, quantity and audience appeal of film products 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 a 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 statements. Factors, risks and uncertainties, which could impact our ability to achieve our expectations, are included in the Risk Factor Section of our 10-K and 10-Q filings, which can be obtained from the SEC of the company. We'll also post all Regulation G disclosures when applicable on our Web site at www.marcuscorp.com. So with that behind us, let’s talk about our fiscal 2015 second quarter and the first half results. As you would guess, we’re obviously very excited to share these outstanding results with you. It was a great quarter for us led by record operating results from our theater division. What makes it a special quarter for us is that we have produced these results during a 13-week period when the National Box Office numbers were essentially flat. So it wasn’t as if we had an unusually great films laid to work with. For the fourth straight quarter, our theater division significantly outperformed the industry and continued RevPAR improvement from our Hotels & Resorts division contributed to record revenues for the company this quarter. I’m going to take you through some of the detail behind the numbers both on a consolidated basis of each division and then turn the call over to Greg for his comments. Now I’m going to start by pointing out an accounting change and how we report certain revenues that some of my analyst friends in the call may have noticed right away when they saw our numbers. The American Hotel and Lodging Education institute published a uniformed system of accounts for the lodging industry, they published this, and they recently came out with their 11th edition. An item that has received particular attention that has been handled differently by various hotel operators was the issue of mandatory service charges primarily related to banquets and events. Our past accounting treatment for this item was to net these charges against the related expenses incurred in providing service at these events, a treatment that’s not uncommon in the industry and certainly it’s acceptable for GAAP. The latest guidelines suggest these charges be grossed up in revenues and expenses in the future with the goal of getting all hotel reporting on the same page. So with the recommended implementation data of 1/1/15 for the latest edition of the hotel accounting guidelines, we did choose to change the presentation of these charges prospectively beginning in this fiscal year. So as such, our second quarter food and beverage revenues and food and beverage costs were increased by approximately $3.9 million to reflect fiscal 2015 service charges to-date. On an annualized basis, these charges represent approximately $6.5 million on historical basis. Now I must emphasize, this had no impact on operating income. It just increased revenues and expenses by the same amount. Now it does by definition have a slight negative effect on our operating margin percentage for that division. So before I dig into each division, a brief look at the line items below operating income would show that our interest expense continues to run slightly below last year due to a lower average interest rate. In addition, losses on disposition of property and equipment totaled $495,000 during the second quarter and related primarily to old seats and items disposed of in conjunction with our continued theater renovations. This amount was still less than last year’s loss on dispositions. And our first half effective income tax rate adjusted for losses from non-controlling interest was 39.2% compared to 39.9% last year, slightly lower, but generally right in our historical range of 39% to 40%. Shifting gears away from the earnings statement for a moment, our total capital expenditures during the first half of fiscal 2015 totaled approximately 27 million compared to approximately 21 million last year. Just under 16 million of this amount was incurred in our theater division related to the completion of projects that were part of last year’s $50 million investment in our existing theaters and spending on new projects that we have recently announced. We spent approximately 10 million in our hotel division with the majority related to prior renovations at the Pfister and the Cornhusker and the start-up construction at our Chicago hotel. At the halfway point of our fiscal year, I’m currently estimating that we’re still on pace to have total fiscal 2015 capital expenditures probably near the lower end of our original range, which would be around that $70 million range. 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 the projects as the year unfolds. Some of these projects, of course, could carry over to the next fiscal year just like this past year. The actual timing of the various projects currently underway or proposed will certainly impact our final capital expenditure number as will any currently unidentified projects that could develop during the fiscal year. So now I’d like to provide some financial comments on our operations for the second quarter and first half beginning with theaters. As you can see in our reported numbers, our box office revenues increased 17.2% during the second quarter wiping out the summer box office declines and putting us 5.8% ahead of last year through the first half of the year. Our concessions and food and beverage revenues combined increased a substantial 29% during the second quarter and are now up 14.8% year-to-date. Now once again we significantly outperformed the national numbers. According to Rentrak, which is a national box office reporting service for the theater industry, the U.S. box office only increased 0.4% during the comparable 13 weeks of our fiscal 2015 second quarter, so we outperformed the nation by nearly 17 percentage points, our highest outperformance yet. The second quarter increases are attributable to an increase in attendance of an amazing 25.6%, despite what the national numbers will suggest was really a no better, no worse film slate. Year-to-date, our attendance is now up 16.2% despite a well documented weaker summer film slate. Once again, we believe the majority of this attendance increase and overall industry outperformance can be attributed to the new investments we’re making in theaters and the innovative market strategies and pricing strategies that we’ve initiated. Our average admission price for our comparable theaters decreased by 6.6% for the quarter and 8.9% for the first half of fiscal 2015 due entirely to our $5 Tuesday program for all movies. Of course, as you’d surmise that also contributed to our attendance gains. Our average concession in food and beverage revenues per person increased by 2.7% for the second quarter but remains down slightly, down 1.2% for the first half of the fiscal year due to promotions related to our $5 Tuesday program and the fact that the summer’s film slate was noticeably lacking in family films, a genre that typically produces higher concession per capitas compared to other genres. Of course, with higher attendance, these changes in our per capita numbers don’t tell the whole story, as evidenced by a significant increase in total concession in food and beverage revenues. Shifting to our Hotels & Resorts division, our overall reported hotel revenues were up 11% for the second quarter and 7.4% for the first half but if you eliminate the new policy of grossing up service fees that I described previously, our revenues were up 3.8% and 3.9%, respectively, during the two reported periods. Our total RevPAR for nine comparable properties was up 4.3% during the quarter and 5.5% year-to-date compared to the same period as last year. As we have noted in the past, our RevPAR performance did vary by market and type of property and all but three of our nine comparable company-owned properties reported increased RevPAR again this quarter. Now according to data received from Smith Travel Research complied by us in order to compare our fiscal year results, comparable upper upscale hotels throughout the United States experienced increase in RevPAR of 8.5% during the fiscal 2015 second quarter and 8.1% during the fiscal 2015 first half. Now I share that with you in order to be consistent with prior year disclosures but there continues to be an interesting dynamic playing out right now whereby the national numbers don’t necessarily reflect what’s happening in our more Midwestern centric markets. When you further dissect the Smith Travel numbers and just look at hotels in our specific markets in a competitive sense, you’ll find that we are outperforming our competition actually. Specifically, RevPAR for our competitive sense during the second quarter and first half of our fiscal year were only up 3.4% and 2.2%, respectively, both lower than our reported numbers. Now breaking out our numbers more specifically, our fiscal 2015 second quarter overall RevPAR increase was due entirely to an overall occupancy rate increase of 3.6 percentage points, as our average daily rate actually decreased by 0.5% during the quarter. Year-to-date, our occupancy rate has increased by 3.7 percentage points and our ADR has increased by 0.7%. Finally, I will point out that over half our reported decrease in operating income in our hotel division this quarter can be found if you look closely at the depreciation line in our segment data. We had a one-time depreciation adjustment of approximately $700,000 during the second quarter that negatively impacted our reported results. With that, I’ll now turn the call over to Greg.

Thanks, Doug. I’ll begin my remarks today with our theater division. We’re obviously thrilled to be reporting a record quarter for this division, once again significantly outperforming the industry. Clearly, the investments we have made in our theaters and our new markets and pricing initiatives are driving customers to our theaters. And not only are we over-indexing the nation as a whole, the numbers we are getting from Rentrak suggest that we are once again the top performing theater circuit among the top 10 chains in the United States. In fact, we have now been the top performing theater circuit in the country for a full year over the last 12 months ending on November 27. The Rentrak numbers we have compiled indicate that the industry has experienced a 0.9% decline in box office revenues. Our theater division on the other hand has reported a box office increase of 10.8% over that same period. That is 11.7 percentage points better than the industry. And while there is no question that our DreamLounger Recliner seat locations have been key contributors to the stellar outperformance, I will tell you that during the second quarter, 46 of our 49 company-owned first-run theaters outperformed the national box office increase at 0.4%. As Doug indicated earlier, the national numbers would suggest that this film slate was not significantly different in terms of quantity and quality than last year’s comparable slate. This year, the stronger performing movies were in October compared to November last year. In addition, the film slate may have been a little deeper this year with the top 15 films this quarter accounting for approximately 67% of our total box office versus 72% during the same quarter last year. I would suggest, however, that our $5 Tuesday program may be contributing to a change in that particular dynamic as our numbers would suggest that we’ve clearly increased movie-going frequency among our customers. An increase in frequency might tend to benefit next year of movies after the blockbuster films that a customer may have passed on prior years. But with all this talk about the box office revenues, I must tell you the number I am most proud to share with you today is the 84% in operating income from our theater division. I think this quarter clearly demonstrates once again is a great deal of operating leverage in the theater business. In our last conference call following a challenging summer film slate, we needed to highlight increased depreciation expenses and loyalty program costs and their impact on our reported operating income during a down box office period. Well, those costs are still there this quarter but was just an average film slate this time. Our box office outperformance was converted into an operating margin percentage over six points higher than last year and in fact represented the highest second quarter operating margin we have reported in the last 10 years, despite the added fixed costs associated with our recent investments. Our entire operating team from our theater general managers and district directors to our home office staff deserves a great deal of credit for producing these outstanding operating results. There are a couple of other items I’d like to highlight during our remarks today on this division. Doug shared a decline in our average admission price again this quarter, but you may have noted that the decline was slightly less than previous quarters. Two reasons for that; the first is that we officially lapped the initial circuit wide introduction of our $5 Tuesday program during the second week in November. In future quarters, we’ll have a better apples-to-apples comparison when we talk about our average admission price. In addition, we did introduce our first selected admission price increase is in 18 months in mid-October. We had six weeks with the new prices in our second quarter and we’ll obviously see the full impact beginning next quarter. These were generally pretty modest price increases as we continue to be very sensitive to the favorable price value proposition we’ve established although we did increase some rates, some prices at our DreamLounger locations by anywhere from $0.50 to $0.75. You also might have noted that we’re back to reporting increases in our average concession revenues per person after several quarters of declines due to our $5 Tuesday free popcorn promotion. The fact that we have now lapped the $5 Tuesday introduction also put us back to a better comparison beginning next quarter. We also made some selected concession price increases in mid-October as well. Last and maybe most importantly, we are beginning to see the impact of our continued expansion of our newest food and beverage concepts, most specifically our Take Five Lounges and Zaffiro's Express. We’re very happy with their early results from our newest outlets and look forward to continued improvement as these locations mature. And I’d be remiss if I didn’t restate what you read in our press release. We now have over 820,000 members in our Magical Movie Rewards loyalty program. We’re already having early success targeting communications to this important frequent movie-goer customer segment and we think we have only scraped the surface of what this program will do for us in our future. Looking ahead, we’re excited to continue to reinvest in our existing theaters as we further expand the successful concepts and amenities that have contributed to our industry outperformance. Our recent press releases highlighted some of our newest investments underway, so I’ll save time and not repeat them now. I will point out that beginning next quarter, we will have lapped the first full year with our original four DreamLounger locations; one of them opened last summer and the other three in time for the holiday season last year. So while it’s our team’s goal to continue to outperform the industry each quarter regardless of the strength of the movie line, the degree of outperformance will certainly vary as the comparisons change each quarter. Finally, looking ahead we’ve listed some of the movies scheduled to be released during the remainder of the holiday season. The first few weeks of the quarter have started of slower than last year, but The Hobbit has opened well and there are plenty of pictures scheduled to open in the coming days. There doesn’t appear to be another Frozen in the lineup this year. That was our top film by far last year. So matching last year’s record fiscal third quarter results may be a challenge. Looking a little further out, the calendar 2015 film slate particularly starting in spring looks to me potentially very strong. And if the film performance even comes close to matching the hype, I believe we are poised to once again deliver strong operating results in the coming year. With that, let’s move on to our other division, Hotels & Resorts. You’ve seen the segment numbers and Doug gave you some additional detail. We reported solid increases in RevPAR and even without the change in how we report service fees, we would have reported record divisional revenues. From an operating income perspective, while we were not able to match last year’s record results, the second quarter and first half results were still easily our second best reported operating income since the 2008 recession. We had a couple of things within our comparisons this particular quarter. Doug already mentioned the $700,000 one-time depreciation adjustment accounting for over half our reported increase. This obviously had no impact on our cash flow. As expected, we also began to see the short-term negative impact on the results from our downtown Chicago hotel as we removed the four points flag from the property and began taking rooms out of service in conjunction with our previously announced conversion to one of the country’s first AC by Marriott hotels. One of the realities we deal with is that with only nine company-owned or majority-owned properties, variations in even one or two individual hotels can be noticeable in our reported results. The other dynamic worth mentioning that impacted our reported results this quarter was the complete lack of city-wide group business in Milwaukee during the period compared to a number of city-wide last year, including Harley-Davidson’s 110th anniversary celebration. Our team did an outstanding job of replacing the business as evidenced by yet another quarter of significantly increased occupancy, but with a lack of city-wide that typically drive compression in the marketplace and result in higher average daily rates, we had to be more aggressive with our rates this quarter. As evidenced by the Smith Travel numbers Doug shared with you earlier, in the end we were able to outperform our respective competitive markets as a result of our efforts but we were not able to match last year’s record results. Looking ahead, we’ll continue to have to deal with some negative impact from our Chicago hotel during the next few quarters but the outlook for our other properties continues to generally look good. Group booking pace for the remainder of fiscal 2015 is slightly ahead of last year. As many of you know, our fiscal third quarter is historically the most challenging quarter for our hotel division given our preponderance of Midwestern hotels in our own portfolio. But at this point, other than possibly Chicago, I don’t think it is unreasonable to expect us to continue to experience generally favorable trends in our revenues and operating income or loss as a case historically in our third quarter for this division. Finally, as noted in our release, we were pleased to add the hotels more to our managed portfolio during the second quarter and we continue to pursue a number of additional potential growth opportunities with a particular focus on management contracts, possibly with some sliver equity at times. As previously discussed by us, we will also consider selling all or a portion or more owned hotels with a goal of retaining management during our fiscal 2015 and beyond if we determine that such action is in the best interest in our shareholders. With that, at this time, Doug and I will be happy to open the call up for any questions you may have.

Ladies and gentlemen, your question-and-answer session will now begin. [Operator Instructions]. Your first question comes from the line of David Loeb from Baird. Please go ahead, David.

Good morning, gentlemen; very interesting numbers. I had a few questions about those. Doug, what was behind the depreciation adjustment? And is it truly one-time, so basically we go back to assuming a run rate that’s $70 [ph] less?

Absolutely, David, you can go back to more of an assumed run rate. This was really related to – what we decided to do ultimately was reclassify what you’ve typically seen down in other assets and our condo units at the Platinum that we’ve – right now the marketplace is such that those units are – we don’t anticipate selling those in the near future and so we’re going to go ahead and depreciate them, which we hadn’t been doing and that’s mainly what you’re looking at.

So that’s obviously a catch-up.

Basically.

Okay. So the depreciation impact of that ongoing note sounds like it’s not terribly…?

You would not notice for the most part an ongoing basis. It’s certainly not significant.

And Greg, just to keep going on hotels, I certainly hear you about the lack of city-wide, lapping of Harley, but how about the competitive landscape in both Milwaukee and in Chicago where there’s been a lot of new supply and more coming? Is that having an impact on our ability to raise prices or your ability to keep prices where they are?

I’ll take one market at a time. The Milwaukee market, I don’t remember if we talked about this last quarter, we’ve looked at it very carefully. And what I predicted is coming true for the market unfortunately. And what you’re seeing is sort of a have and have not situation in Milwaukee. What I said originally was, look, if we’re going to get this new competition then what’s going to happen is new sells and old smells and that’s what happens here. But we’re in the new class, because one of the things that we’ve been very good, we’ve always talked about this is we continue to reinvest in our assets and we have a very, what I would consider a solid market position here. And we’ve seen a bifurcation in this market where the new assets that have come online have performed fine. They’re showing decent increases in RevPAR as they should as they ramp up. We continue to show increases at our properties commensurate with the market and everybody else in the downtown market is flat in a world where the world is all up, right. You follow all these hotel stocks, you see everybody going up, everyone in this market except for the new stuff announced is flat. That’s not a good thing really in our market for them. I mean, we’ve maintained our competitive position and I’m comfortable with where we are but it talks to a more global problem we have here in Milwaukee with the strategy for growing the hotel base. And unless they start to grow the demand, which is a whole different equation, I think what’s it proving and what we’re seeing is that building hotels doesn’t drive people to come to Milwaukee no matter how much the people who build them like to tell you that they do, a little bit on the margins. But for the most part, we’re just dividing the pie up into smaller slices and they need to work on getting more people to come here to stay in all these hotels that they like seeing get built. And that’s what’s going on. So I’m comfortable with where we are but I don’t like the overall approach to the market that our community has taken.

Well, that makes total sense and certainly I think a lot of people would welcome the increased demand. As you look at the AC rebranding, I guess I want to talk about the InterContinental; that franchise agreement comes up sometime in the near future. What are your thoughts about how you could position that to be newer and exciting in a market that’s got more competition and more branded competition?

We think about that regularly, David. Doug, do you have any – it’s just more to come, how about that.

Okay.

Trust me, we’re thinking about it. Again, you know the asset, David, it’s a solid asset. We’ve made a really solid investment when we bought it and it’s positioned to be the kind of hotel that it is, which is a – I have always described the way we approach the Milwaukee market as one of segmentation, like a Mercedes, right, so if you’ve got the – if the Pfister is the S-Class, right, the InterCon, that building is built to be more of the E-Class, a little more geared at a younger price point and more millennial-oriented that kind of thing. And Hilton’s got its own segmentation. So we’ve been careful to segment the market that way and we’ll just continue to pursue that however we brand it or whatever we do with it.

That makes complete sense as well. On theaters, it’s very interesting to hear about your price increases. I get that you’re beginning to lap the discounts but you’re also hitting tougher comparisons. You’ve had four quarters in a row of outstanding well above market performance in theaters. How do you think that shakes out for the next four quarters? Are you likely to have tougher comparisons relative to the industry or do you think your continuing capital spending and price increases will help you actually continue to beat the industry?

I don’t know where the business is going to be. We have a goal and our goal – our management team’s goal in the theater business is to continually beat the industry no matter what the industry does. As you know, as we all know, quarter-to-quarter sometimes year-to-year, we don’t know where the business is going to be because it is so product dependent. But our goal is to continue to beat the industry and that’s what we said and that’s what we continue to do, and we’ll keep working at it.

David, I appreciate your – you made the distinction of relative to the industry because you’re right. We’re going to ride the rollercoaster a little bit regardless – we’ve talked about this coming third quarter and the comparisons with Frozen, et cetera, but having said that, we’re just now lapping those next three locations. It’s early weeks and what have I got to look at it, I’ve only got a couple of weeks to look at, but it’s early weeks. We’re still meeting that goal, we’re still outperforming but we’re not – we’ve never put a number – we never said we were going to outperform this one by '17 and I would be foolish to try to say that that’s going to mean that we can maintain that forever. But they do expect – the goal is to do that and they’re going to do everything they can to try to continue to outperform. I just don’t – we won’t see every quarter as 17%. You know that.

Yes, great. And on the Corners, there has been some stuff in the press about your progress. It sounds like you’re closer to a JV partner. Can you confirm that you’re going to make the decision you kind of thought you might make all along to push this to a fall '16 opening rather than fall '15?

That’s actually – that particular has been confirmed for a little bit now, David, in terms of fall that fall '15 had been off the table for a little while now. So '16 has been the date that’s out there. What I can confirm for you – you’re right, there’s been some stuff in the local press and it’s not our practice to be specific about things until things are signed, sealed and delivered but we have never hid the fact that we’ve had a goal of bringing on a majority equity party. We’re clearly in the final stages of that and as soon as we’ve got something to announce and I’m hoping that’s going to be very, very soon, you’ll hear more about us in that regard. There’s been a lot of optimism as you’ve seen more recently and there’s a reason for that. I feel good about where it’s headed and I hope we have more to say about that soon.

Great. Okay last topic, I promise. Just kind of capital allocation broadly as you look at the CapEx, the ongoing CapEx in the existing businesses including things like slivers for St. Pete. As you look at acquisitions within the existing business like new theatres in construction or theatre circuits, how do you weigh that against real estate division investments like in the Corners? It sounds like you’re almost done investing there versus hotel fund investments versus increasing the dividend or being more active in the buyback?

It’s the same answer we give you always, which is first of all we’re going to be making – our first goal is to make investments in our businesses where we operate where we predominately are but we’re not looking to make – we’re not opening up a shopping center development business that I know of. So we’re looking at making investments in our theater and our hotel business. Then the question is okay, where is the best investments and where can we best put the capital and then we’ll always compare it to buying our stock back which is investing in ourselves, right, and we just bought in that case combined with a return or return of capital to shareholders if none of those alternates play out. But it’s dynamic and we always look at it.

I think, David, and I got asked this question a lot as I did a bunch of investor trips over the last month or two and it’s kind of a nice position to be in, right. The hallmark of this company over the years has been that we’ve always been very – two words I’d think of would be disciplined and opportunistic and that’s how we approach when we’re faced with those types of decisions. As we’ve talked about, our strategies on the hotel side tends to be more capital light, more of these management contracts and sliver equity. On the theater side, we’ve been investing in our existing assets. We’ve openly talked about the fact that certainly if there were some acquisition opportunities, we’ll take a look at it and so that’s always a lever we could pull if the opportunity came up. But we’ve also done things with dividend policy and share repurchases, so boy we’ve got a bunch of levers we can pull that are pretty enviable position to be in from our perspective.

Was there some reason why you didn’t buy back stock this quarter particularly in the month from call it late September to late October when the stock was below 16? Were you blacked out for that?

So we were there for about the length of a cup of coffee and so it was not something that we would have had much of an opportunity. As you may know, our – unless there are blocks, we’re limited in terms of how much we can buy in any given day. It’s formula driven and our overall trading volumes has been relatively low. And so that mathematical number has been a pretty small number. So for the time period that we were there, you wouldn’t notice one way or the other for the most part because it just wasn’t there that long.

Okay, great. Thanks.

Thank you, David. We have another question for you. This one is from Eric Wold of B. Riley. Please go ahead, Eric.

Thank you. Good morning. Just a few questions. One, obviously great outperformance on the 17% and box office in the quarter. Can you parse out – obviously you know how well your Tuesdays were this quarter versus Tuesdays last quarter. Can you parse out kind of how much of that upside was driven by the Tuesday promotions versus the DreamLoungers, et cetera, and everything else?

Eric, we’ve refrained from getting specific with the numbers and so while you can bet that we’ve done lots of analyses internally here, I’m not going to give you specific numbers. I’ll share a couple of things with you. First of all, there’s no question when we look at individual locations that are now eight DreamLounger locations, we’re all in that upper quadrant and certainly some of them were our top locations in terms of the overall improvement. But I think the stat that Greg had mentioned in his prepared remarks was pretty important because 46 out of 49 first-run theaters also outperformed, maybe not by 17% but all also outperformed. And some of them have other amenities and things that we’ve added as well and beside the DreamLoungers, the $5 Tuesday certainly would have been then a key component of that as well. And so we’ve consistently have said that it’s not just one of these factors that’s driving it, it’s been both. Now we lapped the $5 Tuesdays on November 7 give or take something like that, so the last few couple of weeks, but I got to tell you that program has grown and grown. So that’s still providing some lift for us. We have started to lap locations with the DreamLoungers. That’s still providing some lift – and our very first location in Omaha is still doing very well and it continues to improve. And so it really is a combination of all the factors. I’m not giving a specific answer because we just think competitively it’s in our best interest not to give the specific numbers.

Have you seen – in your markets, have you seen any other theatres or theatre chains react comparably to price cuts on specific days or be more aggressive on certain price promotions?

We’re hearing some of it but there are some other – that some other people are starting to test it. Not so much in our markets. Frankly, for the most part, in most of our markets, we tend to operate the bulk of properties. But we’re hearing others doing it. We’ve obviously looked at it very carefully and one of the things that we are seeing is that, that this is – it’s bringing back a customer who hasn’t been to the movie theater. So does it cannibalize a little bit of business from the other days, yes a little bit but it’s far outweighed by the new people coming that had stopped coming to the movie theaters before. And so as an industry, it really does make sense to create that opportunity. It is this whole concept of the right customer, at the right time, at the right price. That’s why we’ve been able to take price increases at other days of the week because we’re delivering a great product and there’s a customer that – you pay for certain things like being able to shop on a Friday. But if you want to come on a Tuesday then you can do that. So we’re seeing other people – I mean obviously people are seeing what’s going on and so I think we’re starting to see it, so it’s a good thing.

That’s helpful. On CapEx, you mentioned Doug the CapEx plan for fiscal '15 is going to be towards the lower end of the range, the $70 million or so. Do you have any sense of what’s holding back that from going higher? We know that AMC accelerated some of their planed 2015 CapEx into this quarter and next quarter to get ready for 2015 and '16. Why not – what’s holding back from maybe accelerating some of the planned theatre CapEx or other areas to get ready ahead of there or is that not the factor?

I don’t think there’s anything holding it back. It’s just sort of the ability to put it out fast enough and again – the one thing that I will say, Eric, is that we are always – our process is about discipline. And it’s sometimes easy to get caught up in stuff and trust me, we don’t look at the numbers – we aren’t bummed when we see the numbers. We are excited, but that doesn’t mean we step away from our discipline and we continue to take a disciplined approach to everything. And as I think I talked about last time on the call, every decision – I mean we may not be the brightest people on the planet earth but we can find the low-hanging fruit pretty quickly. And so the decisions get a little tougher as you move along and yet we still find opportunities and we have the ability to put out capital but it’s going to be with the background of discipline.

Don’t sell yourself short. You may be one of the brightest people on the planet.

Yes, the planet Pluto maybe.

Last question, can you maybe give a ballpark range, maybe as wide as you want to make it, of what Zamora could contribute on an annual basis?

Eric, here’s what I’ll say. I’m not going to single out Zamora but from a management contract perspective and I will say – I mean Zamora has got 72 keys, I think, something like that, so it certainly is one of the smaller properties but with some nice upside and if we do some nice improvement, there would be a nice – some incentive fees. But a typical management contract has a base fee tends to be as a percentage of revenues plus an incentive fee that can be tied into some sort of operating performance and might be versus a budget or last year, something on those lines. Typical normal sized property might give us anywhere from $300,000 to $400,000, maybe as high as $500,000 a year in fees and that tends to be the range. There are some properties that can do more than that. There’s some properties that might be a little bit less than that but that tends to be the dollar amount terms. So that’s top line management fees and so then the question which is always harder to answer is, so what are the incremental costs? I mean when you add with one individual contract, maybe there aren’t a lot of, but then at some point in time you add another account and you add somebody else in marketing or whoever might be, and so over time you certainly don’t take all of that to the bottom line. I think most management companies would love it if they took half maybe. And so that’s kind of how it plays out over time.

Perfect. Thank you, guys.

Thank you, Eric. We have another question for you. This one is from Mike Hickey of The Benchmark Company. Please go ahead, Mike.

Hi, Greg and Doug. Congrats on an optimal quarter; good job. So obviously attendance here was pretty spectacular for the period and that included a price increase. I guess – I mean do you feel there’s more upside here? Obviously, you’re sensitive to maintaining the value proposition that you’ve created to your movie-goers but it feels like maybe there is some more upside eventually for price increases?

Yes. So first of all, the price increases we took – it was the first time we’ve taken something in 18 months and we’ve been very sensitive to that and I don’t want to overplay that. As I did indicate or Greg indicated that more of the increases – we did certainly take some increases at the DreamLounger locations particularly as they maybe lapped their first year. But overall the increase was fairly modest. Of course, what drives that average admission price that we talk about has so many different factors. It’s not just that any sort of price increases on any given particular – the Saturday night price versus the kids and senior price or whatever it might be. The mix of movies can make a big difference. We’re also – things we haven’t talked about so far today is our continued expansion of our UltraScreen and our UltraScreen DLX concept and we’ve got three more DLXs on the horizon here and those have an up-charge that certainly can impact an average admission price as well. So there certainly is upside in that regard. And I think – again starting with the next quarter, we’ll have that lapping of the $5 Tuesdays kind of out so you’ll be able to kind of see the impact of all these different elements a little more evident as we start going forward.

Okay. Thank you. That’s good. And then I guess obviously you mentioned and it’s been asked, you’re targeting sort of the lower end of your original sort of CapEx guidance. Looking at '15 as far as the visibility you’ve given us in terms of your continued theatre amenity refresh effort here, do you feel like that will sort of be optimized across your network at the end of '15?

Like done doing refreshes?

Yes.

We’re eventually running out of theaters to refresh, so I’m not sure if we’re – by the end – probably not by the end of '15 but then again we’re looking at new projects too. We see new opportunity on new build projects. There’s some of that. That’s finished but I don’t think we’re done by the end of '15, but we’ve made a lot of headway in it, that’s for sure.

I guarantee you as we speak and even as people are listening to this call internally that they are already strategically thinking about additional opportunities that we have in that regard, Mike. And some of the stuff that we’re talking about we really won’t see the impact until '16 and some of this will carry over. We got our new location, Sun Prairie, that will open up probably – you won’t see that impact until '16. So there’s a lot of additional things. So I’m sure they’ll tell you they’re not done yet.

I guess a better way of looking sort of the way we’ve had – you want to know how we’re looking at the strategy. We’ve looked at it and said – we did this – looked at our assets that we took a look at about a year and a half ago and said, okay, where are we going? What are we doing? Where do we need to make investments? Let’s get our house in order. Let’s make that job one. And that’s what we’ve been doing. Then the next step is let’s see who’s house we can get in order next, not that we’re not looking at opportunities but it’s certainly been our main focus has been the deal that we have on our plate.

Yes, fair enough. So then assuming you’re getting close to optimization, we’re two quarters through obviously your fiscal year here, then I would expect that M&A would be maybe a bigger consideration here for sort of the internal growth from your theatre side?

Absolutely. If there’s something available – as you know, you follow this industry, who knows. But if it’s available, we’ll be looking at it and we’ll have a pretty good visibility as to what we can do with assets because we know we’ve just done with our own.

Do you feel like networks are sort of holding back from putting out the sales sign until we get some maybe stronger box office performance '15 and '16, is that sort of the feel for the landscape at the moment?

There may be some of that. It’s a mixture. Again, you were in this business where in a lot of cases people who own these chains, these circuits, they tend to have been generational ownership, they like the business, it’s a fun business most of the time.

The last question. Obviously I think you’ve been pretty open about being opportunistic about maybe selling a few of your hotel assets. I’m curious if you’ve had any sort of promising or active discussions to that regard.

We are actively looking at that possibility. We’re not going to talk numbers though, we’re not going to talk about any specifics in terms of number of locations that we might be looking at, but you’re right. We have been very open about saying that we think that we’re in a nice window here where we certainly should be looking at that. As I have mentioned in the past, this is an asset-by-asset decision. This is not some sort of portfolio play. This is an asset-by-asset evaluation that we’re making and so that process is ongoing as we speak.

Okay, guys. Have a great holiday and best of luck on your current quarter.

Thanks, Mike.

Thank you. We have another question for you. This is from Jim Goss of Barrington. Please go ahead, Jim.

Thanks. On both the theatre and hotel sides, are you sort of broadening your geographic sites with Zamora? I know you have stretched outside of the Midwest or even the central part of the country. And is that true in the M&A side for both major activities?

Yes. The hotel side we’ve sort of always looked everywhere, but do I like the idea of having something in Florida as a jumping off point, absolutely. It does help establish that looking in that whole southeast part of the country, which is a great growth part of our country, so we like that. On the theater side, we’ve always said that we will look at anything really anywhere. Is it easier to pick up something that’s contiguous, yes absolutely but it’s not a business that where you need to be contiguous. So we continue to look beyond the seven states we’re in.

Okay. With Zamora, is that a pretty good template for the new style of taking sort of a sliver interest and then the management fee, and that’s the sort of template we would look for you to continue with? And in terms of that 10% stake, is that something you wanted or they wanted? Because I think the ownership part of it tends to just be a cost that’s -- you only get back if the property is eventually sold. So it could be a good thing or a bad thing operationally versus capital gains. Is that the approach…?

Yes. So the first question I would say yes, it is a template that – look at the last two deals we’ve done. One of them was a pure management contract and one of them was a management contract with that 10% sliver equity. And yes, those are the types of deals that we’re looking for as far as 10%. We’ve got 11% at the property in Atlanta and that’s pretty consistent with – I mean the owner likes having the management company with some skin in the game. We’ve got a balance sheet that allows us to do that, gives us a competitive advantage so we can be part of the capital stack. And so in general, yes, we like that model.

I would tell you that is our 90% predisposition. If somebody walked in here and there’s an incredible asset you can get it at a ridiculous price, as we’ve always said, we’re opportunistic. So we’re going to look for the best return for our capital but our disposition and our orientation is more toward the template you’re talking about.

With the Chicago hotel repositioning, it sounds like sort of the Marriott version of a W if that would be a fair comparison…

No. Jim, it’s actually more like aloft kind of – it’s more in the select service vein where W is more full service. But I think if someone from Marriott is listening to the call, they’ll probably say, oh, no it’s better than aloft. It’s got a very art-based kind of focus. That sophistication is important to is but I would call it a high-end select service.

Okay. And where I was headed, I wondered if it was sort of the trendy, upscale, significant shift in your ADRs expectations and that sort of thing. So maybe it’s not as extreme a case as I was considering because given the location it seems like it’s in the middle of a lot of the high-end hotels too.

We believe it’s going to be positioning the property up a notch from where it was. So relative to where it was and the flag that it had, we see this as taking it up a notch.

Okay. Then a couple of things in the theatre side. AMC was outlining its approach with the receipting in its conference call whenever it was a month or two ago and talking about after it gets established, perhaps being able to increase the price a little bit. And I think maybe having some build in the demand and then be able to take advantage of some pricing opportunities. I gather you are thinking along similar lines with some of the receipting initiatives for yourself as well.

Yes.

Okay. And given what you’ve talked about with the initiatives, some of which are lapping, and maybe – there are a lot of moving parts right now. And this is a softer quarter comparatively speaking as you pointed out. So I would gather whatever outperformance you get in the current quarter might be more muted relative to what you might be able to expect later in the year as some new initiatives come along and the box office everybody seems to be expecting for 2015 comes into place. So the current quarter will be a little – like the balance would be much smaller in terms of the expected gain than the last couple of quarters.

Yes, I think that’s very fair, Jim. And I don’t want to even double-back to your last question too – we talked about the price increases and I think that it is significant that we haven’t done that in 18 months, but again I don’t want to oversell those either in terms of our approach has been muted related to that as well. It’s been fairly modest in our Midwestern markets and in general we truly believe that our current strategy from a value proposition has been very important to our success and how it’s driven attendance and what it’s done for us. And so I don’t want this to be a story just about price increases because in fact it’s not. It’s much more of a holistic approach and we think that’s what’s been driving this.

All right. Thanks very much. It seems like there are a lot of good things going on there. Congratulations.

Thank you.

Thank you, Jim. [Operator Instructions]. We have another question. This one is from Brian Rafn of Morgan Dempsey Capital Management. Please go ahead.

Good morning, guys.

Hi, Brian.

You talked a little bit, Greg, about what you see for coming up movie wise, the slate of pictures. Any comments on the portfolio 2015 coming up from Hollywood versus what we’ve seen in 2014? Obviously, summer was a little weak.

Brian, my comment is the same comment I would always make. I have no idea. I just don’t know. I mean it looks great on paper but so does every baseball team in spring training. There’s a lot of dynamics that do seem to bode well, the number of films, the number of releases look good but I promise you there’s no studio that’s calling us up and saying, you know that 15 film that we got looks so good well it may not look so good. That’s not happening.

Yes, okay.

What has people excited, Brian, and again as Greg said, we’ll see what happens. What have people excited is that just a number of known titles and the ones that have done extremely well in the past. So the ones that are getting everyone’s attention include – for example, I don’t think anyone is over – it really kind of starts maybe in March, April with another Fast and Furious and then everyone’s pretty excited about the next Avengers picture and that comes out, I think, May 1 give or take and so that’s coming. Then there’s Jurassic Park and there’s another picture, it’s called Jurassic World. Then there’s another Pixar movie coming out in the summer and there’s another Marvel picture called Ant-Man. And then heading into the fall you got another Bond picture and you have the next Hunger Games, the kind of final for Hunger Games. And then everyone’s pretty giddy about the Star Wars reboot or Episode VII, if you will, that will come out next Christmas. I think it’s in December. So on paper, that’s what everyone’s talking about is these very strong known titles and certainly we’re hoping that it will then be filled in by some things that are going to surprise and which is really what helped make the years is that, okay, here’s a title that no one was pointing to, it’s not a sequel and that does extremely well. But on paper that’s what everyone’s been talking about.

Yes, okay, on that point and I have asked this in the past, historically, the January, February, March has kind of been a graveyard of releases. And yet it looks like Hollywood over the last couple of years has tried to sequentially broaden out some of the pictures. Do you see a little of that when you look at the slate of the pictures coming out? You mentioned it looks like the first big one is in March. Does that mean that you think that January, February might be a little weak?

By no means. Again, from a competitive standpoint and when you look at it, those known titles, that’s when you’re seeing some of those titles. But the best I’ve seen, the quantity of pictures coming out is going to be pretty comparable to what it’s been. So as Greg said earlier, who knows.

I think the relevant point is who knows. It’s harder in the spring. You can get some surprises there. There is some stuff that looks interesting. They have – I would tell you from a more broader intension, yes. Hollywood has started to spread stuff out over the year better.

Okay, I think that’s fair. The success you’ve had in packaging the DreamLounger with the UltraScreen DLX, the Atmos sound systems, has that success caused you at all to audible on maybe the newer installations, newer conversions, build out, or are you still pretty much on the same CapEx program to install that new technology into your auditoriums?

I’m not sure I follow. Like what will we do differently? I’m a little confused.

I’m just saying, given the success of the DreamLounger, the UltraScreen, the Atmos, has that at all accelerated your thoughts, your kind of internal CapEx plan that, hey, this is really good. Let’s get this into more auditoriums than maybe we had planned in the past or are you still pretty much on plan?

Brian, I think Eric had a similar version of that question earlier too in terms of – that look we’re continuing to look at all of our locations and where these various amenities and things might be applicable. The low hanging fruit was easy. Now as each decision kind of goes on, it becomes a little harder. We’re very disciplined about that. So we’re not going to put any numbers as it relates to, look, we’re going to do X number more locations at this point in time. We’re evaluating that. Our guys are looking at every location. We’re seeing how the results occur in this latest wave of ones. We’re watching the market lift. And so really so many factors that came into play and we’ll continue to be disciplined about it but as you’ve seen, we’ve not hesitated to jump in and we’ve spent some significant money these last two years and if we see more opportunities, we’ll follow that.

Yes, okay. Now as you guys are kind of launching, and I’m just going to call it a new flagship, new prototype with Sun Prairie. You had Majestic in the past over in Waukesha. Is that something that you guys are constantly building in kind of your five-year plan to always have kind of a new prototype going in or is it just based upon geography and when it comes out, it comes up, that’s not something that you’re always trying to build?

I don’t think we’re trying to build a flagship every certain number of years. It was really a confluence of activity and in a way it’s a continuum of things. So when we did the Majestic on the west side of Milwaukee, we put a whole bunch of new stuff – really, really new stuff in a way that we really hadn’t done. Sun Prairie is got a – if you think about it, a lot of what’s in the Majestic but a refined and just sort of – we think we have a better idea of what’s working, what’s not working, a little less R&D but still a market appropriate theater. It probably stands out more because frankly the opportunities to build a lot of new theaters just aren’t there and it’s not a world that needs a ton of new theater products. So it will seem to stand out more when we do it.

Okay, yes, I think that’s fair. As you look at $5 Tuesday now as you kind of look at your traffic volume and attendance without maybe talking numbers or percentages, are you still seeing a positive delta change and increased attendance as you kind of anniversary $5 Tuesdays? Is it still growing or have you reached a little bit of a plateau saturation?

It is still growing, Brian, there’s no question about it and I alluded to that earlier. We saw this thing just by word of mouth continue to expand. One of the things we’re very proud of when we rolled this thing out was we referred to it as gorilla marketing where we really made a conscious effort to get the word out about this and it just kind of steamrolled from there. And each month tendered to get better. And so I think there’s still some upside opportunity, no question about it, but is it as extreme? No, it’s not as extreme but like for example, the great thing that we’ve got is – one of the great things about $5 Tuesdays that we’ve seen is really been able to have a high positive impact on Magical Awards, our frequency program, our loyalty program. That really has been a huge contributor to that and the growth of that, it has put numbers in place that we never have – we honestly just didn’t imagine. We’re going to get to 1 million members in that club way faster than we ever thought we were going to. And the Tuesday program has been a big contributor to that. Now that means that we should be able to then lever that to ultimately more frequency and help the Tuesday program. Now again, is it going to be what it’s been would seem unlikely. But as Doug point, still growth opportunities left.

Brian, we have another questioner waiting too. You have one last question, please.

One last question, okay. You guys got hit with Ice Station Zebra last year and polar snow and cold. If we have a more tempered winter in the Midwest, will that be – will that buttress somewhat in less expenses or is it a nonevent?

No. If we do have a more tempered winter, Brian it’s a good question, we will notice it. We last year actually pointed out a specific dollar amount last year that was impacted by the two things as combination; the snow removal costs and the heating costs the utility costs and it was not an un-significant number…

While Doug’s looking for that, I would tell you this though, Brian. This is why it’s going to be really tough to put a finger on this and what it might mean, because yes it will save us money in expenses. The other side is you get a couple of frozen Mondays where there’s not snow and it’s so cold they call off school, that’s really good for our business. So these kids [ph] have nothing else to do. So we had a couple of days where it was like – and I think we did call an audible and offered free hot chocolate and we drove a lot of people in the doors. So we have even done the math to figure out, well, okay, are we better off – I’m guessing we’re better off with less snow plough costs but it was tempered by the fact that we got some people in on days we didn’t expect it.

We had combined what I would call additional snow removal costs and additional heating costs of $950,000 last year in that second half of the year.

Got you. All right, guys, have a good holiday. Thank you.

Thank you, Brian.

Thank you, Brian. We have one more question for you. This one is from the line of Herb Buchbinder at Wells Fargo Advisors. Please go ahead, Herb.

I’m not sure if this is a good last question, but can you comment on the Sony situation and if you think a bad precedent has been set for studios and theatres to be held hostage by a threat? I don’t think the movie was pretty poorly reviewed. And then let me know what you think might happen to this film if it could become a cult film in some way and – but really just the comment about what’s happened. I think it would be interesting to hear what you say.

Well, Herb, we came so close, so close, because we didn’t think anybody would ask that question.

I can’t believe it. Nobody said anything but I had to. I think it’s important.

Herb, our position on this is as follows. Our belief is that this is a unique and complex situation with circumstances that extended beyond the movie. And in the end, the choice to play the movie was not ours. Sony pulled it before we came to any conclusions. So I can’t even begin to guess what – if you would have asked me two weeks ago if this was going to happen, I would have said I would not have expected it and so I can’t begin to start prognosticating about what might happen next. So, as I said, I will highlight the fact I think it was a very unique and complex situation with extenuating circumstances beyond the movie itself.

Do think they did the right thing?

They did what they did, not my choice.

Yes, but I mean it could be a precedent. I mean you would hate to have this happen to a bunch of films where somebody doesn’t want to see a film come out, whether it’s Gods and Kings or something or other and make threats. So I’m sure the FBI and Homeland Security will probably get a little bit more into this. But people could be – could be a little bit reluctant to go to the theatres if they feel unsafe. I mean that’s the only issue here. And it happened once before when that awful situation in Colorado. I think there was a couple of days after that where movie attendance was down quite a bit. But I just wanted to get a little bit more comment on – I guess you’re not going to give as much as I wanted but that’s okay.

Since you didn’t ask the question, I’ll let you…

Thank you, Herb. I’d like to pass it back to Doug Neis for closing remarks. Please go ahead.

We’d certainly like to thank all of you once again for joining us today. We will be looking forward to talking to you once again in March when we release our fiscal 2015 third quarter results. Until then, thank you. We wish you all a very Merry Christmas, Happy Hanukkah and a Happy New Year.