The Marcus Corporation (MCS) Q2 2016 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the Marcus Corporation Second Quarter Earnings Conference Call. My name is Lauren and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session 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.

Thank you very much Lauren, I appreciate it. So welcome everybody to our second quarter conference call for our transition period ending December 31, 2015. As usual, bear with me as I again state 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 revenues and earnings expectations, our future RevPAR, occupancy rates and room rate 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 the number and type of our properties and facilities, expectations regarding various non-operating line items on our earnings statement and our expectations regarding future capital expenditures. Of course, our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks, and uncertainties which can 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 or the company. We'll also post our Regulation G disclosures when applicable on our Web site at www.marcuscorp.com. So with that behind, let's talk about our second quarter and first 26 weeks of our transition period that ends on December 31, 2015. More about that transition period and its impact in just a minute. First let me just say that having two distinct businesses definitely benefit us this quarter as record operating income for our hotels and resorts division helped to offset the impacts of a weaker film slate and significant number of screens out of service in our theater division. It's important to note that for the first 26 weeks of the transition period, both divisions have delivered record operating income. Our theater division was going up against record second quarter operating results last year, but even with the challenges we faced this quarter, we still posted our third best second quarter results of all time. I'm 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. Now before I dig into each division, I usually spend a few minutes on each line item before operating income. But as you can see, other than the fact that last year we had a slightly larger loss on disposition of property and equipment, we had virtually no change in any of the four applicable line items during the second quarter. So I will save us some time and skip that step this time. I will point out that the sale of our Hotel Phillips in Kansas City did not result in a significant gain or loss. Our first 26 weeks effective income tax rate, adjusted for losses from non-controlling interests, was 38.1% compared to 39.2% last year. Slightly lower, but still generally right around our past historical range. Shifting gears away from the earnings statement just for a moment, our total capital expenditures during the first 26 weeks of the transition period totaled nearly $33 million compared to approximately $27 million last year. Approximately $21 million of this amount was incurred in our theater division, the majority of which related to both the completion of multiple projects that were previously discussed as part of last year's $50 million investment in new and existing theaters. And then, the newest projects that were referenced in our press release. Approximately $9 million of the total CapEx that we have incurred to-date was incurred in our hotel division with the largest component being carryover dollars from our renovation of the AC Hotel in Chicago. Our upcoming change in our fiscal year obviously does make our previous estimate for capital expenditures for the old fiscal 2016 amount of $70 million to $90 million that makes that number obsolete. We will have some additional capital expenditures in the final five-week period of our transition period, so it would not surprise me to end the 30 week -- 31-week transition period with total capital expenditures in the $40 million to $45 million range, depending on the timing of a few of the projects currently underway. We are reviewing annual capital budgets right now for our new fiscal 2016. So as in the past, we will plan on providing additional guidance for our estimated fiscal 2016 capital expenditures at a future date. The actual timing of the various projects currently underway or proposed will certainly impact our final capital expenditure number, both for our transition period as well as our upcoming fiscal 2016, as well as any currently unidentified projects that could develop. So now let me provide some financial comments on our operations for the second quarter and first 26 weeks, beginning with theaters. As our press release indicates, our box office revenues decreased 3.2%, but our concession revenues increased 2.5% during the second quarter. For the first 26 weeks of the transition period, however, our box office revenues have increased a very healthy 7.9% and concession revenues are up a tremendous 16.3%. As our press release also notes, based on the U.S. box office numbers compiled by us using data from Rentrak, a national box office reporting service for the theater industry, our second quarter box office results were essentially even with the national trend. We calculated the U.S. box office to either be down 2.6% during the period if all theaters are included, or down 3.5% on a same-store basis if known new builds are excluded. Greg will talk about this more in a minute as well as discuss how we are performing now that we are reopening screens closed for renovation during the second quarter. For the first 26 weeks of the transition period, the numbers we have compiled indicate that the U.S. box office is up 4.7%. So even with screens under -- out of service for a significant portion of the second quarter, we are outperforming the national numbers by over 3 percentage points. The second quarter decrease in box office is attributable to a decrease in attendance at our comparable theaters of 3.6% partially offset by an increase in our average admission price of 0.6% for the second quarter. For the first 26 weeks of the transition period, our comparable theater attendance has increased 5.7% and our average admission price has increased 2.2%. We are certainly pleased to report an increase in our average concession and food and beverage revenues per person of 6.6% for the second quarter and 10.1% for the first 26 weeks. Film mix can have an impact on this metric and likely did contribute to our period-to-date increase. But clearly, our investments in nontraditional food and beverage outlets are contributing to this outstanding performance. And lastly, it did not significantly impact our second quarter or first 26 weeks results, and frankly, it will likely have little or no impact on future operating results. But if you were looking closely, you may have noticed at the end of our press release that our circuit size is now listed at 668 screens at 53 locations. That is because after Labor Day, we closed a six-screen budget theater and after Thanksgiving, we closed another seven-screen budget theater. Shifting to our hotels and resorts division, our overall reported hotel revenues were down 0.9% for the second quarter but that needs some further explanation. As we reported, we closed on our sale of Hotel Phillips in Kansas City in October. So if you eliminate that hotel from the numbers and adjust for the fact that last year during the second quarter, we implemented a previously discussed new policy of grossing up service fees into food and beverage revenues and we made a year-to-date reclassification during the quarter to do so, our comparable revenues were up 4.4% compared to last year. Now as noted in our release, our total RevPAR for eight comparable properties was up 2.4% during the second quarter compared to the same period last year. Period to date, our RevPAR is up 0.5%. As we have noted in the past, our RevPAR performance did vary by market and type of property and Greg will talk to this during his prepared remarks. Breaking out our numbers more specifically, our second quarter overall RevPAR increase was due entirely to a 3.4% increase in our average daily rate, or ADR, as our overall occupancy rate declined 0.8 percentage points. For the first 26 weeks of the period, our ADR has increased 3.1%, and our overall occupancy rate has decreased by 2.0 percentage points. Now according to data received from Smith Travel Research and compiled by us in order to compare our second quarter and first 26 weeks results, comparable hotels in our collective markets experienced an increase in RevPAR of 2.7% during our second quarter and 3.2% in our first 26 weeks. As our press release notes, excellent cost controls contributed to our record operating income from this division during the second quarter, as did a favorable comparison in depreciation this period, as last year's results included a one-time adjustment of approximately $700,000 during the second quarter. Finally, I want to remind you that last year around this time, we began our significant renovation and rebranding of our Chicago hotel, now an AC Hotel by Marriott. We incurred significant operating losses and pre-opening expenses from this period until our reopening this past summer, so we expect some favorable comparisons related to this property for the next several quarters. Now, before I turn the call over to Greg, I want to conclude my remarks by referencing the paragraph in our press release related to our upcoming year-end change. This morning, we added an investor presentation to our Web site, marcuscorp.com, that we hope will answer any questions you may have regarding our change from a last Thursday in May year end to the last Thursday in December. We included information on how we will report the transition period ending on December 31, as well as information regarding the fact that the transition period will include an extra 31st week that will certainly benefit our reported results compared to the comparable 30-week period last year. This is the week between Christmas and New Year's, which, as you know, is a significant week, particularly in our movie theater business. We also provided unaudited restated historical financial information that we hope will also provide some assistance to investors and analysts as we make the change to a more traditional calendar-like quarterly reporting cycle. With that, I will turn the call over to Greg.

Thanks, Doug. Before I begin my remarks on each division, I would like to quickly comment on the topic Doug just left off with, our year-end change. You know, we've had a May year-end since we first went public in 1972. It has had some advantages and it has had some disadvantages. As we considered making this change, we certainly felt that aligning our financial reporting schedule with virtually every other public company in our two respective industry peer groups was a good thing. Based upon the feedback we have received since we announced the change, I am glad the reaction has been positive, and that it will be easier to compare our results to others in our businesses. But I must tell you, if that was the only reason to make this change, I am not sure we would have done it. Going through a fiscal year-end change is difficult, and has some one-time costs that we will have to absorb in the transition period. Between auditing, legal, and investor relations-related costs alone, I could easily see us incurring $750,000 or more of one-time costs to make this change and that is not counting the countless hours that our dedicated associates will spend preparing for this change. I am so appreciative of their efforts. But as you know, we make decisions with long-term benefits in mind. And the key swing factor for us was how this change would benefit our associates over the long-term. Notwithstanding the fact that the weather finally gets nice around here in June and July, that is arguably the busiest time of the year for our businesses. Our accounting staff will appreciate closing the books in January and February. Our operating staffs of both divisions won't have to worry about preparing budgets, performance appraisals and raise recommendations during those summer months without that distraction. They can train their focus on managing their businesses. Our hotel associates who are already dealing with a December year-end for our managed properties will no longer have to deal with two separate budget cycles and performance cycles owned and managed hotels will now be on the same calendar. In short, we believe moving our year-end closing activities outside of our busy summer season will enable our associates to better manage their work load and that is a great reason to make this change. In short, we view the cost of this change as an investment in our most important asset; our people. So with that, let me turn my attention to our theater division first. There is no question that it was a challenging period for our theater division. But once again, at the risk of being repetitive, we make decisions with a long-term benefit in mind. We knew going into this quarter that we were going to have an unprecedented number of screens out of service during the period. But we were hoping that strong performance from the film lineup during the period would help overcome that challenge. Unfortunately, as Doug shared with you, ultimately the film slate proved to be weaker than expected, with October being a particularly slower month and a couple of the major November tentpole pictures performing well, but not up to expectations. Interestingly, in comparing our results to the national numbers on a weekly basis, we also had the unusual situation of having one particular week impact us quite a bit. If you ignore that week, we once again outperformed the nation, even with the screens out of service. And to give you a glimpse into a very unique dynamic that our particular circuit deals with this time of year, the reason why we underperformed versus last year during the week in question is in part because last year, during that same week, there was no Packer game on the weekend. I know it may sound crazy to those of you living in a different market, but in Wisconsin, it makes a difference. Looking at the film slate during our second quarter, our box office revenues were more heavily dependent upon so-called blockbuster films this year compared to the prior year, suggesting that the overall film slate was not as deep. I think the decline in box office results during October is indicative of that. As additional evidence of this, I will note that the top five films listed in our press release accounted for approximately 40% of our total box office revenues this quarter. Last year, our top five first quarter films only accounted for 35% of total box office revenues. So with a weaker film slate, higher costs due to investment over the past 2 years, over $400,000 in unfavorable comparisons to last year due to one-time credits to several expense line items and a significant number of screens out of service, we were unable to meet last year's record operating income. Look, having said all that, we are going to have periods when the film slate is weaker. It is our job to manage through that. I know our team would be the first to say that even with the large number of screens out of service we should have reacted quicker when some of these films underperformed. We have a great team, and I am confident that they have already identified future strategies that will undoubtedly need to be applied when the film slate is not going our way. But let's talk about those screens out of service, as there is no question that a significant portion of our decline in operating income occurred at the theaters under renovation. As noted in our press release, you know that with a little picture called Star Wars opening tonight, our team has worked tirelessly over the past three months to put our circuit in a position to maximize the benefits of what is expected to be the largest December film opening on record. With 17 of our largest screens at 11 theaters out of commission for varying portions of the quarter, plus up to 15 additional screens out of service at different points in time, as we added DreamLounger recliner seating to more auditoriums, our reporter operating results were impacted. But now and in the future, we are prepared to get a return on that investment. With the 17 newly renovated UltraScreen DLX and SuperScreen DLX auditoriums now open, we can offer at least one premium large-format auditorium, and in some cases two, in over 61% of our first-run company-owned theaters. Based upon data available to us, we believe that is the highest percentage in the industry. And I will tell you that while we have pre-sold a significant amount of tickets for this opening weekend just like everyone else -- of the tickets sold, at last count, approximately 40% of them were sold for our premium priced PLF screens. And an incredible two-thirds of them are in auditoriums with our DreamLounger recliner seating. Our customers want to see this epic film on the big screen with the latest in amenities, including Dolby Atmos sound and our DreamLounger recliner seating. And we are able to make that happen for them because of the investment we have made in our circuit. And our recent investments have not been limited to PLF screens. At the end of November, we completed the conversion of another theater into all-recliner seating. With that conversion, we now offer this amenity in every auditorium in 14 theaters, approximately 29% of our first-run company-owned theaters. And when you add all our DLX PLF auditoriums, we now offer our DreamLoungers in a whopping 35% of our first-run screens, easily the highest percentage among the top chains in the industry as far as we can tell. And, as noted in our release, we are in the process of renovating and adding recliner seating to another five theaters, which will further increase that percentage. We expect most of those new screens to reopen in March and April in time for the busy summer movie season. Doug also shared with you our solid increase in concession revenues per person this past quarter despite the reduced attendance. And we have been making additional investments to drive that number in the future as well. We have opened three more Zaffiro's Express outlets in the past few weeks, two with alcohol service and one more Take 5 Lounge. That means that 39% of our first-run theaters now offers Zaffiro's Express outlets and 31% of our first-run theaters have separate Take 5 Lounges. We are excited to see what these new outlets will do with the large crowds expected in the coming weeks. We have previously stated that one of our goals is to continue to outperform the national box office, regardless of how the films do compared to the prior year. I can tell you that as our renovated screens have come back online, we have returned to doing just that in the first three weeks since the end of the second quarter. According to the numbers we have compiled from Rentrak, our box office results have outperformed the nation by an average of over 9 percentage points during this short time period. We didn't have weekend Packer games during two of those weeks, so that certainly helps. But regardless, I am encouraged to see how our customers are responding to the continued investments we are making in our theaters. So while I will be the first to say that we were disappointed with our reported results for the theater division this quarter, I think you can tell we are very excited for the future. And yes, we are excited to see how Star Wars and the other holiday season films perform. But more importantly, coming back to what I said at the beginning, we are excited about what we are doing to drive our long-term performance in this business. With that, let's move on to our other division; hotels and resorts. You've seen the segment numbers and Doug gave you some additional detail. It was great to report another solid increase in operating results from this division. In fact, as noted, it was both a record second quarter and a record first 26 weeks for us. Our results this quarter had several similarities to our first quarter. Last quarter, we reported a small decline in RevPAR, but increased operating income. During the second quarter, we reported an increase in RevPAR, pretty consistent with the markets in which we operate, but once again, a very strong increase in operating income. When you dig into the numbers a little, this result is pretty explainable. Yes, as Doug shared, we benefited from a favorable comparison to last year related to depreciation. But it is much more than that. I will start with the revenue side of the equation. From a rooms perspective, increased supply and reduced demand in one market had some impact on occupancy this past quarter. But six of our eight comparable company-owned hotels reported increased RevPAR this quarter. Once again, our overall RevPAR increase was the result of an increase in our overall ADR, in some cases at the expense of occupancy. We have been talking about our desire to increase our ADR for some time now. For those of you who follow this industry, you know that properly managed increasing ADR, even at the expense of some occupancy, can result in better operating margins. I believe we saw that again during the second quarter. We also continue to make the conscious decision to focus on growing total hotel revenues through more group bookings with a higher ancillary spend. In other words, sacrificing some room revenue dollars for a higher total spend throughout the resort. After adjusting our reported food and beverage revenue this quarter for the sale of the Hotel Phillips, and last year's year-to-date adjustment when we implemented the new policy of grossing up service fees, our overall food and beverage revenues were up nearly 7% this quarter. Our new Safe House restaurant and a very good period for banquet and catering revenues contributed to this increase. Once again, you will note key words in my earlier comment were properly managed. It is still ultimately incumbent upon our management teams to not only execute good revenue management strategies, but to control costs in the process. This has continued to be a key focus of our hotels and resorts management team and they again did a very nice job of that during this quarter. They are to be commended. Looking ahead, this past quarter, we returned to reporting RevPAR increases more in line with what is happening in our markets and we hope that continues in the future. As I believe you know, our properties tend to be the leaders in our respective markets, as evidenced by our overall RevPAR occupancy and ADR indexes significantly above the market average. The AC Chicago, while still ramping up, has shown good progress in booking activity. And it goes without saying that we will have particularly easy comps for that hotel for the next seven months or so, coinciding with when we began our renovation and had our then-existing flag removed. Our overall group booking pace also continues to run ahead of last year, another positive sign. We are certainly keeping an eye on hotel supply in our markets and the macroeconomic factors that impact our industry. But, in the near term, we are looking for continued improvement from this division. We are still pursuing a number of additional potential growth opportunities, with a particular focus on management contracts, possibly with some sliver equity at times. We recently announced that 20-year hospitality veteran and lodging industry expert Andrea Foster has joined our team. And she has hit the ground running. We are excited to have her with us. And while we recently sold our hotel in Kansas City and are still reviewing opportunities to sell one or more additional hotel-owned hotels, it is important to state again for the record that our overall goal is to increase, not decrease, our management company business. It could be that more of our properties in the future are being managed for other owners beside ourselves, but that really is a corporate asset allocation strategy, not a divisional strategy. That wraps up the hotel section of the report. But before we head to questions, I want to take a minute to thank all our associates who work so hard each and every day to take care of our customers and grow our company. As I said earlier, we believe our associates are our most important asset. I would like to wish Merry Christmas and a happy New Year. With that, at this time, Doug and I would be happy to open up the call for any questions you may have.

[Operator Instructions] Our first question comes from the line of Mike Hickey from Benchmark Company.

Hey, Greg and Doug, happy holiday guys.

Hey, Mike.

I'm curious on Star Wars. Obviously, there is a fair amount of demand and that demand is selling over PLF and of course your recliners. Curious any insight on what you are seeing for average ticket price for that movie maybe in particular?

What I would just tell you, Mike, is that we have an upcharge for -- on average, we have a $3 upcharge for our UltraScreens -- UltraScreen DLXs and a $2 upcharge for our SuperScreen DLXs. So certainly seeing a large percentage of the tickets going to those screens is something that we are happy to see.

And also you've got 3D as well.

And also -- that is correct. Greg just mentioned obviously it is in 3D. We don't know what percentage ultimately 3D will be. We will see what happens. It will be interesting to see. But that certainly has a potential to drive average ticket price as well.

Good, good, good. All right, thanks. And on the theater side, obviously some pretty big margin declines and I think you gave pretty good evidence as to why that happened. And obviously you've been managing that piece of your business for a while. Curious maybe outside of Star Wars, but obviously that is a fact that you can't ignore. But thinking forward here, should we anticipate continued pressure or do you think this is sort of a one-time thing?

I think that overall, I think it's a one-time thing. I think -- as we talked about, the things that contributed to it in terms of the big contributors were the screens out of service. But we have to react better to the films as well. But I think if you look overall and say where are we going to be overall? It's a business of ups and downs, as we know, over time and we just caught a tougher period, I think. But I think overall, historically our game plan is to get back to the margins we know. That being said, we've got a higher food and beverage component and that does impact margins a little bit -- but not to what you saw this period.

Okay, thanks. The last question from me. Obviously, you have been very successful here with your outperformance relative to the market. But as you sort of -- I guess you think about maybe your amenity refreshes here coming towards not an end, but it feels sort of like it's late innings and maybe the comps of course are not getting easier. Maybe even you think sort of start thinking more of a normalized for growth opportunity from the theater side, do you find yourself with any greater immediacy to grow your theatrical network? And clearly M&A there are some deals being done before Star Wars, which was seemingly sort of an oddity. And now that Star Wars -- once we get through that, it seems like the window is going to open up. Just curious sort of how you are managing your expectations to try to grow the network now.

Well, it is our goal to grow the network. We’re looking at the opportunities as they come across. As you know, they aren't -- they are hit or -- there is a high variability in that, in this business, just due to the ownership structures. But we are looking at that and our goal would be to be able to increase the size and take the things that we've done. Because if you look over historically what we have been able to do to our assets, we would like to be able to apply that to other chains as well and bring capital to the table. And do the things that the markets are demanding now.

All right, guys. Thank, you. Good luck.

Thanks Mike.

Next question comes from Eric Wold, B. Riley.

Question on the hotel side. Obviously you have had this goal of kind of pushing ADR at the expense of occupancy for a while, successfully to push up ADR. I know it is going to vary by region kind of where do you think you are typically relative to the competition in our market in terms of ADR and kind of where you think you can continue to go. What is the -- how far along are you on that path of taking ADR up to where you think it should be?

Well, we overindex in all three metrics, Eric, in our markets. So we have on average -- I don't have the numbers in front of me. We actually have a slide in our investor presentation. But we are in the 110 to 120 index, with 100 being the same as everybody else in occupancy rate and RevPAR. So we -- but that is a function also of the fact that we tend to have the properties, the best properties in our markets, kind of the go-to properties. So -- but -- I am not so sure that you can just say that because of that, we can't keep pushing that. It becomes a balance between occupancy and rate. That becomes the bigger issue more so than where we are in our markets, Eric. So we have been pushing a pretty conscious strategy, in particular at a couple of properties where we are looking at it -- revenues in its totality. And so sometimes we are choosing to give up rate -- room rate -- in order to drive total revenues, i.e., food and beverage and you are seeing that in the numbers. And in some properties, we are actually looking to give up some occupancy in order to drive rate. So it's hard. Because when you put eight of these properties together, you get kind of this average. But it's really, if -- you know, it really is a property-by-property strategy.

Perfect. And then last question, still on the hotel side. I know you're looking at both finding additional opportunities for a managed property as well as possibly divesting some of yours. What is the environment like out there as the buyer? Are there a lot of attractive properties out there that are worth looking at, where sellers are reasonable both in their expectations and valuations? And how would you kind of describe that environment?

Well, that market has been pretty strong in terms of where the pricing has been. Now, the REITs are out of the market right now because their cost of capital has gone up as the -- because the price of their stock has been under pressure in the last number of months, quarters. But I am not sure there has been a big pricing change. And frankly, we are not looking to make big acquisitions of hotels right now to put out lots of capital in buying hotels. So we are not deep into the market. We still think the pricing is pretty good and again, we have these really good assets that we think will demand good prices when we want to be able to monetize them.

Perfect. Thank you both.

Thanks, Eric.

Next question comes from David Loeb from Baird.

Good morning. I have to say I lost the bet with myself on how many times people would say Star Wars.

Actually, David, we decided that the answer to every question now starts with Star Wars. So whatever you ask, we are just going to say Star Wars.

Okay. We are up to five, I think. But on that topic, can you give us an update on what advance ticket sales are to date? And I guess how long do you think this could run; how big a picture could this really be relative to what the lineup was last year?

Well, I will tackle the first part, which we are not actually allowed to provide that. We have been asked not to buy the studio. So I am not going to give you a number. It is substantial, David. It is substantial. There is no question about that. And I am not sure that we have seen anything like this.

I think they have talked publicly. It is a record.

Yes, yes.

But look, how -- boy, David, your guess is as good as mine. I have got a theory, but I mean it is only a theory. Please read the expectation section of your copy. My theory is, what I said earlier in the week, because we are going to see how it plays out. This movie is going to be -- it's going to be really good from a standpoint of how it is going to perform financially, no matter how good the movie is, right? And we had no idea. Nobody had seen it. There weren't any reviews out, nothing. I said but it if it is a great movie, it could really -- it could, has the potential, to really perform strongly beyond the first of the year, really into January, because -- and it has gotten great reviews. It has gotten great reviews. Rotten Tomatoes, I looked this morning, it's 95% fresh. It got four stars in the USA Today. It really -- I hadn't seen it yet, but all reports are it's really a great movie. It's got some real potential. So it should really perform, but we don't know. That's one of the fun things about our business, we just don't know how long it will last. But it has great potential, I will tell you that.

How far out are you selling advance tickets now? So if I wanted to go and buy a ticket for one of your theaters, how far in advance could I do that from today?

I mean the focus has been -- I am seeing advanced tickets being sold out well over a week. I mean obviously, the weekend is the big push, where everyone felt that they wouldn't be able to see the movie unless they bought them ahead of time. So as you get past the weekend, you start to. But I --

I don't know what our outside time limit on it is. I may know in a few seconds.

Yes, but I mean, just looking in terms of what we have done, it certainly has -- we certainly have sold tickets all the way through next week.

Right. I am wondering about Christmas night, the 26, New Year's Day, things like that. So, but it's --

We are selling through New Year's.

You are, okay.

Yes.

Okay. That is pretty interesting. And what is the premium for 3D? Is that also $3? Is it the same $3 as the other screens?

It is $3, David, on average in a traditional auditorium. But in our UltraScreen DLXs, it is only an additional $1.

Okay, that makes sense. All very good, let's hope people are hungry when they come as well, because that would be even better. I am assuming that film costs on this is pretty high.

That is a good laugh line, but the fact is that that is a key learning there. I mean we are really focused in on, with all these people in the theaters, we worked hard to try to get those additional Zaffiro's Expresses open and Take 5 Lounges, because man, we think that there is a real opportunity that we can capitalize on with these food and beverage outlets.

Right, and when you are running --

And we do market to it. We create drinks that are thematic to the movie that's playing.

I can only imagine. And what else are you going to do when you are at a three in the morning movie screening? You're going to -- got to have --

Exactly. And since as long as you mentioned that, David, we have 30 of our theaters -- I believe the number is that will be 24 hours starting today, tonight. I think we still have another 19 of those that will continue that way through the weekend.

So that is clearly not something that was in the year-over-year.

Correct.

In the year-ago period, yes. Got you. That makes sense. And film costs obviously directionally, is it fair to assume that this is going to be an expensive film for you? Doesn't mean it's not profitable.

Sure, it will be.

Okay. Enough about Star Wars. I had to say it one more time. Doug, just a kind of a thank you on the info that you filed in the presentation. That will be very helpful, although we might come back and ask more. On the hotel side, you certainly have ample capital capacity. We seem to be at a time in the market where the hotel REITs are out of the acquisition market and transactions are happening slowly, but there is a lot of product available to be acquired. Are you seeing interesting opportunities? And I guess really behind that question is what's your view of the cycle, such that is this a good time to be buying hotels? If you think the prices are coming down a little.

Can I ask you that question?

Happy to answer it off-line.

Our current strategy has been not to be deploying our own capital into buying full-service hotels right this minute. As we work with other people, if they think it's appropriate, we certainly would look for opportunities in the marketplace to make acquisitions.

Certainly a big part of what Bill Reynolds is doing, David, as you know, is that if he sources a property that is an acquisition candidate, he in turn then is looking and thinking about who might be the best partner to bring together with that. As he has been developing some of these relationships. And so if there is that type of a buying opportunity, while it is not likely that it would be a Marcus Corporation buy, a key element of what Bill is trying to do is trying to put the right people together then to make that deal happen.

Okay. And last question, also on hotels. Can you just give an update on the Milwaukee market? How is it absorbing all the new supply and what else is ahead? I guess there is the Kempton Hotel that is under construction, but is that it for a while? And how is that supply being absorbed these days?

The Milwaukee market supply is being absorbed, but we are seeing some weakness in the -- I won't say weakness in the market. It has muted our market's performance I think is better way of saying it. You compare us to what's going on nationally, we are seeing some struggles year-over-year. We are seeing more supply coming online, but not much more demand. And it is sort of just -- it is eating away at the market. Now we, on the other hand, have been able to stay above that, as you know, because we've invested in the assets. You're seeing a sort of a tale of two cities. The older, more tired inventory is more challenged. So if you look at the market as a whole, you are starting to feel the pressure of the increased supply. But if you look at sort of there is the haves and the have-nots, I would say, as well.

I mean David, just to put some numbers around that, as I shared with you, we pretty much matched our market from a RevPAR perspective. But the chain scale, upper upscale for our comparable second quarter, our compilation says that RevPAR was up 5.9%. So that is directly to what Greg is talking about, is that our markets may be -- that is where you are maybe seeing some of that dampening in our particular markets.

Okay.

Yes, you are right. The Kempton is the next one online and then there is the announced hotels. We got the Springhill Suites coming pretty soon over near the convention center. And then there's some other -- there is an announced Weston; there is an announced Extended Stay hotel that is taking up an old Italian pizza place that -- a building they are rehabbing.

Okay, great. Thank you for all that.

Thanks David.

Next question comes from Jim Goss from Barrington Research.

Thank you. The concessions accounting, I am sort of curious in that the food service operations are increasingly straddling both theaters and hotels. Zaffiro's, for example. How are you accounting and allocating some of those shares? And is there any interest on your part in almost carving it out as a separate third category between your hotels and your theatrical group?

Yes. So what we have been doing Jim, as we have continued to report all of those concession and food and beverage revenues on that concessions line on the face of our statement. Feeling, with our sense, feeling that that is better and more useful reporting to you, investors, versus pull it out and start co-mingling food and beverage with our hotel food and beverage on the face of the statement. Those of you that have been -- David will remember this back in the days when we had a restaurant division, that is what was happening. So when you looked at food and beverage, you saw it was a combination of hotels and restaurants. So I don't think -- from our perspective right now, since the food and beverage that we have for the most part is so inherently tied into just our overall theater operation, I don't see it being a separate segment. I will tell you internally, we absolutely manage it as separate businesses. We produce separate P&Ls for these outlets and we think that is the best way for us to try to manage the business because they do have different cost of sales, as Greg mentioned earlier, as a margin question. So it's -- I don't think it's of a size that would warrant separate SEC segment type, but -- so we are trying to report it the best way we can to you for it to be useful by combining it with our concession revenues.

Okay. But like, at Zaffiro's itself, if you have one that is next to a theater and it sort of ties into the theater, then you decide that that's either part of the theater or not? And --

Well, we've got -- if you are alluding to our standalones, we do have three -- we call them standalone, but they are built into the theater. We have three Zaffiro's restaurants and bars that where we actually took an auditorium out and put a restaurant into the theater. And we are reporting those revenues on that same line because while certainly there is a component of the sales and we've talked about in the past that is truly that's someone coming for lunch or for dinner and not going to movie, it still is pretty integrated with a theater. And so we have continued to report it. We have to pick one or the other and we continue to pick -- choose to have it be part of the theaters.

Okay. And if you look at the lost revenue impact in the quarter from the theater closings for the upgrades, is there a way to quantify that or I am sure there is a way. Are you willing to quantify that? And are you closing entire theaters during that process or are you doing certain auditoriums that's one at a time? How do you manage that process and not lose the audience to other habits by your customers?

Well, I tell you, certainly it's a challenge and even as fair amount of guys are listening to this call right now, they are shaking their head saying yes, it's tough because but we are what we are do not close our theaters; we do not I mean, we got some theaters; we have had some theaters where there is a lot of activity and we try to make this customer friendly as we can. But there is -- that is the reality when you are going through as much changes we are going through. We will do auditoriums -- selective auditoriums at a time. What is unique about this particular time period Jim was, first of all, we did more at one time than I can recall as ever doing in terms of how many different theaters were being impacted. These were also in general, our largest auditoriums because again the key focus here was in getting in the large format, UltraScreen and SuperScreen format in place for Star Wars. So it was almost without exception, our largest auditoriums with the most seats at each of these theaters that were being impacted. So they were all out of commission, out of service for varying periods of time as that was happening. When we do DreamLounger allocations, we tend to take a handful of screens at a time, could be four a time, 2, 6, it depends and can vary. But we tended to them in terms of -- take certain number of amount of service at a time.

And it becomes very distracting for the manager on site even if he tries to manage the construction; it becomes -- the bigger the project, the tougher it's for the manager and the management team on site. It's a challenge to operate in that environment. I think to go back to I think your question really is -- was reflecting earlier question which is how we're looking at this business. And the way we are looking at this -- take the long-term look and the historical look and say yes, other than some probably some a little bit of margin pressure from -- margin from a mixed shift to a little more often be. Predominantly, we are going to look at -- our expectations are -- our margins are going to be -- where they have been historically.

And I suppose you Jim; I'm not going to give you any specific numbers. But I will tell you this. That if you look at our -- if you look at maybe the top 20 theaters of ours in terms -- when I look at and rank the decline in the operating income that we saw in this particular quarter and just rank those. And if I look at the 20, that had the highest dollar amount outside of -- was half of them where these theaters. And so there is no question that was a disproportionate impact because of these particular theaters.

Okay. One last thing, I appreciate that. But one last thing, with the Paramount, Paranormal et cetera experiment sort of it recently in the rear view mirror, is there a way to work for the theaters theatrical group to work with the studios to be flexible about the window while participating in home video pre-sales? Though you both benefit and you are both in the same page.

All I'm going to say on that is, look, we have to be very careful as an industry with what we do. I will never say never to anything. I'm not going to say no or -- the industry has openly stated we are willing to talk to the studios about ideas but on the same time, I'm going to talk about to look historically what's going on. And to be very, very sensitive to thinking about the value of that window of exclusivity and how the customer views it. And I think if you go out and ask the average customer what they think the average window is, I think you would say window, they wouldn't know what we are talking about. They would be saying what the average -- what the average length of time before it comes out on your home TV. They would say two months, when it's four months. And so as you shrink it, you will continue to shrink that yield impact that that value looks exclusivity and you will start to see further pressures and we have already -- why you think $5 Tuesday is so positive, such a good thing because of -- people left our industries started watching at home. We are not immune to the laws of supply and demand. And as you fill that -- the fire hose is coming to your house with product. It becomes easier and easier for the customers say know what, unless I move to go out to theater. I'm not here telling you that they are not going to go to the movies, there is a kitchen in every house, people still go out to eat. But our marginal customers are most profitable and as you fill that pipeline with cheap content it puts pressure upstream. And so I would tell any studio I was seating with -- well, as we talk about anything let's be very, very careful because this is the only venue where you get paid per capita. And let's think about what the definition of the word window. The definition of the word window is to sell the same product to the same customer over and over. Well, as you start to shrink the window, you start to lose your duplicate sales. And the studios know this. And they want to help the theater business. And not only need to look at -- all of a sudden -- maybe we shouldn't have Netflix all that product so early, well, that's an window in issue in a way. And so they get it. It's an ongoing discussion. But it's important we keep all that in mind. I will now step back myself back and just say Star Wars.

All right. Well, thanks very much. I appreciate it.

Thanks Jim.

Next question comes from Spencer Markby from Gabelli.

Hi, thanks for taking the question. Just real quick, any changes thinking on the real estate strategy given the fed announcement yesterday to raise rates?

In terms of what? In terms of potential monetization of hotel assets or --

Yes, in terms of monetizing the real estate, the hotel assets, yes.

No. We don't know what the long-term impact is going to be of rates going up and love to see. I have looked historically as I'm sure you have it at the gap between where the -- where historical cap rates have traded for commercial real estate and where the -- and the risk free rate basically. And that gap has increased over time that spread has increased just -- and so there maybe some room for that rates to come a little bit on the bottom side not have that spread narrow too much. Now, where rates going longer term that's an issue. But for us, one of the other bigger issues that we have talked about is that we want to be tax efficient with what we do. So we are looking for the opportunity to make 10/31 transactions and light exchanges into real estate that we want to be in as we do this. So there is a whole bunch of things that come as not as strictly a rate play.

Great. Thank you.

[Operator Instructions] Next question comes from Brian Rafn from Morgan Dempsey.

Good morning, Greg. Good morning, Doug.

Hi, Brian.

Greg, you talked a little bit about managing a little weaker film slate, flip it around on the other side, you got star wars, what are the challenges to Star Wars crowding things out and how do you manage it, certainly running at 24 hours, what are some of the challenges you face with something that's just a blockbuster epic?

Well, I mean look, it's going to be tried -- I think our biggest challenge is going to be delivering a high-quality guest experience. People -- it's very interesting people love a crowd, people love to be part of something that's really big, so that we get some of that. But, when you have that many people coming through the door, for us our biggest challenges are going to be making sure that we give them a great experience. That we are able to sell them concessions because there is just only so many terminals. It's something we have been preparing for months. And we have been thinking about it and trying to work on it, but it is not without its challenges, but they are great opportunities. And I think a great opportunity for us really is that for the -- we are going to see people who haven't been to the movie theater in a long time. People who haven't been since -- they were younger and went to Star Wars, people who are just want to be part of the spectacle. And for us that's an opportunity to get some people back into the theaters who haven't been there and get customer -- build our customer base too -- make it larger. And so with that in mind, we got to take good care of them.

On that same thought Greg, did you have a 24-hour run when you say Titanic or Avatar and what in a 24-hour showing, what kind of concessions do you see traffic, you run a full staff, I'm just curious on the 24 basis?

Look, we have never done it before. We never had this kind of front-end knowledge, first, in the business, the world had changed, we are selling more tickets online upfront so that helps us -- get us a little more window into what kind of traffic we are going to see. I don't know what's going to happen from the concession standpoint, we just going to have to play it by year. And -- but our goals to do what we have been doing in this line and continue to maintain our share of wallet.

Okay. Talk a little bit maybe about your value Tuesday $5, maybe your progress on concessions sales, you had like Thursday college and then your retro series, how were those different things pacing?

Look, we will tell you is that the -- that number is a -- we sell less concessions on $5 Tuesday; it is a value oriented customer. But, we are making progress on getting that concession per cap to be a little bit better. And we continue to work at it and we are looking at new strategies, it's a -- we are making progress. And it's a work in progress. But, I call a high class problem, right? I'm trying to figure out; I got a lot of customers there. And I'm trying to figure out how to efficiently able to monetize those customers more efficiently.

Okay. Your new flagship in Sun Prairie, is that met by this expectations anything you learned from it versus say the Majestic when you launched it?

It certainly met expectations. It is -- we were always learning, I would tell you, but it met expectations. One nice thing about Sun Prairie, the one big difference, we did the Majestic that was a lot of R&D; we were really trying to figure out where the business was going. You see where -- we were right in a lot of ways. We were but those ways need a refinement. And I would say the Sun Prairie was really the refinement of those ideas.

Let me ask you, I get a 12-year-old that lives at Marcus and bring all those buddies and I get a pay for it. When you have a lot of the amenities you have in all of the restaurants and the different stuff, I see my guys going into a movie then they go a restaurant. Then they want to go to a second movie with the Marcus managerial award, can you track that phenomenon, or am I the only guy that [vote] [ph] for two movies?

Well, I'm hoping that as long as they are paying, we can track that phenomenon.

Yes, I thought. Okay. If you look at -- we certainly had a very mild winter -- weather with El Nino. Year-over-year comparisons that we have a mild winter through and your heating cost, snow plowing and will that have a meaningful comparison versus 2014?

It could -- it could have particularly on the -- I would say particularly on the heating. Snow plow was not -- snow plowing costs were not particularly high last year, I think it was two years ago that was very, very high. Last year it was, I think from a snow perspective it wasn't so bad. So we can go the other way, either if we have all the slip, we have a lot more snow, I could see that swing in the other way a little bit. But certainly I think -- I think we do have the potential to -- to have some savings on our heating cost if this holds on. With the big challenge for us, is snow where people can't get to the theater, right? That for us, like freezing cold and no snow is a recipe for success because you can't do anything and there is not really not much to do, yet you can get to the theater. That's -- but no snow is helpful.

Yes, you mentioned [school quotient] [ph] that's a probably a pretty good thing for you --

Yes, absolutely.

I got you. One more question, on the DreamLounger side, are those always installed with a Dolby Atmos Ultra or a SuperScreen or if you put those in a standard screen format?

All of our original UltraScreen's didn't have that Brian, but now, we only, I think only have four left that have not been converted to what we call DLX, which includes the Dolby Atmos and the recliner seats. So we have converted -- the handful that we did, that weren't like that we converted most of them. And so everything else as the whole combination.

When we have a super and UltraScreen DLX that comes with Dolby.

Correct.

Yes, I got you. And then Doug on the food beverage side, there has been some commodity deflation in food stock grains and meat and some dairy, has that helped you guys in margins at all?

Look, we ride that really close to like anyone else certainly to degree that's occurred we do benefit. It's just not when you roll it all up into our numbers and the size of the numbers, I'm not sure you are going to see that so much. But, just look at our concession cost, the line item that we do have of both food and beverage and concession and divide that by the revenues, you will see that we've done pretty well with those margins.

All right. My partner wants to give you one message.

Yes, may the force be with you guys.

Once again, Star Wars.

Star Wars.

David [indiscernible]. Thanks guys.

All right. Thank you.

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

So listen, we like to thank you all, again, for joining us today. We look forward to talking to you once again in February. It will be in February, when we release our final results for the 31-week transition period that ends on December 31, 2015, until then thank you. We wish you a very Merry Christmas and a happy New Year and Star Wars. Take care.