The Marcus Corporation (MCS) Q1 2026 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to Marcus Corporation's First Quarter Earnings Conference Call. My name is Ellie, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Greg Marcus, Chairman, President and Chief Executive Officer; and Chad Paris, Chief Financial Officer and Treasurer of Marcus Corporation. At this time, I'd now like to turn the program over to Mr. Paris for his opening remarks. Please go ahead, sir.

Good morning, and welcome to our 2026 First Quarter Conference Call. I need to begin by stating that we plan to make a number of forward-looking statements on our call today, which may be identified by our use of words such as believe, anticipate, expect or other similar words. Our forward-looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected or projected in our forward-looking statements. These statements are only made as of the date of this conference call, and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. The risks and uncertainties, which could impact our ability to achieve our expectations identified in our forward-looking statements are included under the heading Forward-Looking Statements in the press release we issued this morning announcing our 2026 first quarter results and in the Risk Factors section of our annual report on Form 10-K, which you can access on the SEC's website. Additionally, we refer you to the disclosures and reconciliations we provided in today's earnings press release regarding the use of adjusted EBITDA, a non-GAAP financial measure in evaluating our performance and its limitations, a copy of which is available on the Investor Relations page of our website at investors.marcuscorp.com. All right. Let's begin. This morning, I'll start by spending a few minutes sharing the results from our first quarter with you and discuss our balance sheet and liquidity. I'll then turn the call over to Greg, who will focus his prepared remarks on where our businesses are today and what we are seeing ahead. We'll then open up the call for questions. I'll begin with an important reminder about our fiscal calendar that impacted our first quarter year-over-year comparisons. The first quarter of fiscal 2025 was the first quarter of transition to a calendar fiscal year and included 5 days at the beginning of the quarter during the week between the Christmas and New Year's holidays at the end of calendar 2024 that are significant days in our theater division. In fiscal 2026 and going forward, the first quarter began on January 1. And as a result, our first quarter results faced the headwind of having 5 fewer operating days when compared to the first quarter of fiscal 2025. Going forward, our year-over-year quarterly comparisons will now be aligned ending on traditional calendar quarters. On the call today, I'll provide the as-reported year-over-year changes in our results as well as the growth on a comparable calendar quarter basis, excluding the impact of the extra days in the prior year to provide an apples-to-apples comparison. As you would expect, our growth for the comparable calendar quarter is even stronger than our as-reported results. We are very pleased to report that we were able to overcome this headwind to deliver another quarter of solid execution and results with both divisions growing year-over-year revenue and an overall increase in adjusted EBITDA. In theaters, a significantly better first quarter film slate with improved product supply and better carryover of holiday films drove significant attendance and revenue growth, leading to our overall improved results. In our hotel division, we continued to see year-over-year improvement in RevPAR and occupancy as we benefited from our renovated hotel assets being fully operational. Shifting to the numbers, I'll start with a few highlights from our consolidated results for the first quarter of 2026. Consolidated revenues of $154.4 million increased $5.6 million or 3.8% compared to the prior year quarter, with revenue growth in both divisions. The 5 fewer operating days negatively impacted consolidated revenue growth by $15.3 million. On a comparable calendar quarter basis, excluding this impact, consolidated revenues increased $20.9 million or 15.6%. Operating loss for the quarter was $19.3 million, an improvement of $1.2 million compared to the prior year first quarter. Consolidated adjusted EBITDA for the first quarter was $2.6 million, an increase of $2.9 million over the first quarter of fiscal 2025. The year-over-year improvements in both operating loss and adjusted EBITDA were negatively impacted by $5.3 million due to the fewer operating days. On a comparable calendar quarter basis, adjusted EBITDA grew $8.2 million. Turning to our segment results. I'll start with our theater division. First quarter 2026 total revenue of $92.9 million increased $5.6 million or 6.4% compared to the prior year first quarter. The 5 fewer operating days negatively impacted theaters revenue growth by $12.2 million. On a comparable calendar quarter basis, excluding this impact, theaters revenues increased $17.8 million or 23.6%. For our fiscal first quarter 2026, comparable theater admission revenue increased 9.8% and comparable theater attendance increased 1.9% compared with our fiscal first quarter 2025. On a calendar quarter basis, first quarter 2026 comparable theater admission revenue increased 29% and comparable theater attendance increased 19.1% compared to the prior year first calendar quarter. When using our comparable fiscal days, according to data received from Comscore and compiled by us to evaluate our 2026 first quarter results, U.S. box office receipts increased 5% during our 2026 first quarter compared to box office receipts during our fiscal 2025 first quarter, indicating our theaters outperformed the industry by approximately 4.8 percentage points. On a straight calendar quarter basis, we also outperformed the U.S. box office by 7.6 percentage points. We believe our outperformance is primarily attributed to our strategic pricing actions as well as a favorable film slate that featured several titles appealing to family audiences, our genre where our circuit typically performs very well. Average admission price increased 7.8% during the first quarter of 2026 compared to last year, benefiting from strategic ticket price optimization actions, an increased percentage of ticket sales from PLF screens and a favorable daypart ticket mix. Our average concession food and beverage revenues per person at our comparable theaters increased by 2.4% during the first quarter of 2026 compared to last year's first quarter, which was primarily due to increases in movie theme merchandise sales and incidence rate as well as inflationary price changes. Our top 10 films in the quarter represented approximately 62% of the box office in the first quarter of 2026 compared to approximately 66% for the top 10 films in the first quarter last year, with film costs as a percentage of admission revenues effectively flat for the first quarter compared to the prior year. Theater division adjusted EBITDA during the first quarter of 2026 was $8 million, an increase of $4.3 million. The year-over-year increase in adjusted EBITDA was negatively impacted by $5 million due to the fewer operating days. And on a comparable calendar quarter basis, theater division adjusted EBITDA increased $9.3 million. Turning to our hotels and resorts division. Revenues were $61.4 million for the first quarter of 2026, up $100,000 compared to the prior year. Total revenue before cost reimbursements at our 7 owned hotels decreased $600,000 or 1.1% compared to the first quarter of fiscal 2025. The 5 fewer operating days negatively impacted hotels revenue growth by approximately $3.1 million. On a comparable calendar quarter basis, excluding this impact, hotels revenue before cost reimbursements increased $2.5 million or 5.1%. RevPAR for our comparable owned hotels grew 13.7% during the first quarter compared to the prior year, which resulted from an overall occupancy rate increase of 8.9 percentage points, partially offset by a 3.4% decrease in our average daily rate or ADR. Our average 2026 first quarter occupancy rate for our owned hotels was 59.2%. Our occupancy rate increase benefited from the Hilton Milwaukee being fully back in service compared to the first quarter last year when the hotel was under renovation and guest rooms were out of service. We estimate that the impact of the renovation in the prior year favorably impacted our RevPAR growth by approximately 4 percentage points during the first quarter. According to data received from Smith Travel Research, comparable competitive hotels in our markets experienced a decrease in RevPAR of 2.9% during the fiscal first quarter of 2026 compared to the first quarter of fiscal 2025, indicating that our hotels outperformed their competitive set by 16.6 percentage points. After adjusting for the prior year impact of the Hilton Milwaukee renovation, we believe our hotels RevPAR growth outperformed the competitive sets by 11.5 percentage points, which we attribute to continued strength in group business as well as generally strong performance from our renovated assets. When comparing our RevPAR results to comparable upper upscale hotels throughout the United States, the upper upscale segment experienced an increase in RevPAR of 3.9% during our first quarter compared to the first quarter of fiscal 2025, indicating that our hotels outperformed the industry by 9.8 percentage points and by 5.8 percentage points when adjusting for the estimated prior year impact of the renovation. Food and beverage revenues decreased 2.1% in the first quarter of 2026 compared to the prior year and were negatively impacted by the decrease in operating days. Hotels other revenues decreased by $1.4 million or 9.2%, primarily due to a weaker ski season at Grand Geneva Resort & Spa and the impact of fees generated from an all hotel group buyout at one of our condo hotel properties in the first quarter of fiscal 2025, an event that doesn't happen every year and did not recur in the first quarter of 2026. Finally, hotels adjusted EBITDA decreased $1.3 million in the first quarter of 2026 compared to the prior year quarter, primarily due to a $400,000 impact from the 5 fewer operating days, lower other revenues resulting from the weaker ski season and the nonrepeating group buyout in the prior year, which included high-margin rooms and banquet and catering business and higher benefits costs. Shifting to cash flow and the balance sheet. Our cash flow from operations was a use of cash of $15.2 million in the first quarter of 2026 compared to cash used by operations of $35.3 million in the prior year quarter, with the increase in cash used primarily due to favorable timing of payments and accounts payable, higher EBITDA and a onetime benefit of $3 million from the sale of historic tax credits related to the Hilton Milwaukee renovation. As a reminder, our cash flow from operations in the first quarter is historically impacted by seasonal changes in working capital resulting from the slowdown in our business following the peak holiday season and by the timing of various year-end accounts payable and compensation payments. Total capital expenditures during the first quarter of 2026 were $6.6 million, a $16.4 million decrease compared to the first quarter of fiscal 2025. Our capital expenditures during the first quarter were primarily invested in maintenance and ROI projects in both businesses. Our capital investments and projects have progressed as planned, and we continue to expect capital expenditures for 2026 of $50 million to $55 million, and we will update our capital expenditure estimates throughout the year. As we discussed last quarter, we continue to expect this decrease in capital expenditures to result in a significant increase in free cash flow in 2026. And this played out as expected in the first quarter with a $36.5 million improvement in free cash flow compared to the prior year. Our balance sheet remains strong, and we ended the first quarter with over $11 million in cash and over $194 million in total liquidity with a debt-to-capitalization ratio of 28% and net leverage of 1.7x. Our strong balance sheet and confidence in our businesses gives us the ability to continue investing in our businesses and pursuing growth while returning capital to shareholders through our quarterly dividend and opportunistic share repurchases. During the first quarter, we repurchased approximately 87,000 shares of our common stock for $1.3 million in cash. We will continue to allocate capital with a balanced approach that supports our strategic priorities while pursuing investments that provide the most attractive long-term returns to shareholders. With that, I will now turn the call over to Greg.

Thanks, Chad. Good morning, everyone. We entered the year with a plan for projected growth in both of our businesses. In theaters, we expected a stronger film slate in 2026, coupled with improvements in per capita sales to drive growth in the theater division. In hotels, we expected our recently renovated properties to drive outperformance within our competitive sets after several years of significant investment in an overall stable macroeconomic environment. We're happy to report that the first quarter generally played out a little better than we expected with strong outperformance in both divisions. Theaters led the growth and improvement in our results on a better-than-expected box office and hotels continue to grow RevPAR and revenue with outperformance being driven by our renovated hotels. As Chad discussed, we were able to overcome the headwind from having fewer operating days in the quarter, which was no small feat considering the week of the year that those days fell in the first quarter last year. With the normal seasonal headwinds in our hotel business, the first quarter is always challenging. So it's incredibly helpful when we're able to get off to a good start as we did this quarter. The first quarter that we are reporting today continues to make year-over-year progress, and we're pleased to be sharing these results with you. I'll start with the theater division. Our theater division got off to a much stronger start than last year and what a difference a year makes. A stronger film slate drove significantly higher attendance for the comparable quarter with a combination of solid carryover performances from several holiday films, successful original family films in Hoppers and Goat and a major tentpole in Project Hail Mary that delivered blockbuster results, all contributing to deliver the best first quarter in the U.S. box office since the pandemic. This quarter was a great reminder of what is possible with better product supply when there are several things working at once. It also demonstrates that audiences will come out whenever there are good movies, not just during the peak summer and holiday periods, and the industry needs to continue to fill in the slate across the calendar. The first quarter national box office was up over 21%, and there is still a lot more opportunity for further growth with additional products in the future. As Chad discussed, we continued to realize strong per capita growth during the quarter with average ticket prices benefiting from our ongoing price optimization efforts and continued growth in merchandise sales, which are included in our concession revenues. Last quarter, I shared several initiatives we are executing this year to drive per capita sales growth. As an update, we have now completed our rollout of tap-to-pay terminals to all ticketing and food and beverage points of sale, both in-store and our mobile wallets for our digital purchasing channels. This week, we will complete the rollout of in-seat QR code mobile food and beverage ordering to all 20 of our dine-in theaters, which we believe makes food ordering faster and easier for customers. Looking ahead, we continue to work redesigning a best-in-class food and beverage digital purchase experience in our mobile web and app for all theater locations that we expect to roll out in time for the holidays later this year. A couple of weeks ago, we were with our theater team at CinemaCon, and once again, our studio partners, film directors and talent all continue to reaffirm the importance of theatrical exhibition and our critical role to the overall movie and media ecosystem. After years of experimentation and discussion around the length of the exclusive theatrical window, I believe we have reached an inflection point and recognition by studios and distributors that a longer theatrical window enhances the overall performance of films across the ecosystem, and we applaud the significant announcements from major studios, including Universal, Sony and Paramount, extending or committing to minimum exclusive theatrical windows. While the industry has more work to do on windows and improving product supply, we are heading in the right direction. Second, we got a closer look at the film slate for the rest of the year and into 2027, and we remain very optimistic about the coming attractions. The momentum from the first quarter continued into April with the blockbuster success of Super Mario Galaxy movie and last weekend's record opening of Michael, getting the second quarter off to a solid start. We kicked off the summer movie season this week with the opening of The Devil Wears Prada 2, which will be followed by a number of big titles, including Mortal Combat 2, Star Wars: The Mandalorian and Grogu, Super Girl, The Odyssey and Spider-Man: Brand New Day. I am particularly excited for the widely appealing family features such as Toy Story 5, Minions & Monsters and Moana. The fall and holiday film slate is also exciting with Avengers, Doomsday, Dune: Part Three and Jumanji: Open World, just to name a few. There are many more great films coming noted in today's earnings release. Looking even further ahead, the 2027 film slate also looks strong with major franchises, including Shrek 5, Star Wars: Starfighter, Minecraft 2, Frozen 3, The Batman Part II, Sonic the Hedgehog 4, Spider-Man: Beyond the Spider-Verse, Man of Tomorrow, The Legend of Zelda, Avengers: Secret Wars and many more. We are excited about the momentum that is building in theaters and the film slate ahead in the coming years, and we remain very positive and optimistic about the long-term future for the industry and our theater business. Moving to our hotel and resorts division. You've seen the segment numbers and Chad shared some additional detail on the performance metrics, including our outperformance to our competitive sets and upper upscale hotels nationally. We have made significant investments in several of our hotels over the last 3 years, and we continue to see customer demand for newly renovated room product and freshly redesigned meeting and event spaces. These amenities allow us to drive strong rates and outperform within our markets, and our sales teams have done a great job capitalizing on this opportunity. As we've discussed in past years, there is significant seasonality in our hotel business given that most of our company-owned hotels are located in the Midwest. We often lose money in this division during the winter months as was the case this year with adjusted EBITDA that was slightly negative. In addition to having fewer days in the quarter, there were headwinds from a few items in the first quarter of fiscal 2025, including Milwaukee hosting the men's NCAA basketball tournament, an all-school -- I'm sorry, an all hotel group buyout at one of our condo hotels last year and favorable weather for ski season that did not recur this year in the first quarter. This is the nature of event-driven group rooms business. And while we did not see these events repeat this year, these are similar events will likely return in the coming years. There were a few notable items in the quarter I would like to highlight. While average daily rates decreased around 3% in the first quarter, this was not unexpected and was primarily driven by 2 factors. First, all of the Hilton Milwaukee rooms are back in service, resulting in less rate pressure with more room supply. This contrast to last year when we were able to create some rate compression in the Milwaukee market with the reduced available room count due to renovation. And second, at Grand Geneva, the weaker ski season resulted in weekend transient demand that was softer and resulted in lower rates compared to last year. The decrease in rates was more than offset by the significant increase in occupancy from the Hilton Milwaukee rooms back in service, resulting in overall RevPAR growth of 13.7%. Group bookings remain stable with our group room revenue bookings for 2026 or group pace in the year for the year, running approximately 5% ahead of where we were at this time last year. Looking a bit further ahead to 2027, group room pace is running in line with where we were at this time last year for the next year out. Although this far out, the timing of bookings can vary significantly. Banquet and catering space for the remainder of 2026 is running in line with where we were at this time last year. As our hotel division heads into the busier spring and summer travel months, we believe we are well positioned to win in our markets. While transient demand has remained healthy, it is important to acknowledge there continues to be an elevated level of economic uncertainty with recent volatility in key travel costs, including gas prices and airfare. If market conditions change and we begin to see softness, we are prepared to react and adjust quickly. Before we open the call up for questions, I want to once again thank all the people that work so hard every single day, making our ordinary days extraordinary for our guests. We talk a lot about the investments that we make in our businesses, but we can never lose sight of the fact that our people are our most important asset, and they proved that once again this quarter. With that, at this time, Chad and I'd be happy to open the call up for any questions you may have.

[Operator Instructions] Your first question comes from the line of Drew Crum of B. Riley Securities.

Greg, you provided an update in your preamble on the various initiatives you've rolled out or plan to launch over the course of the year to drive concession revenue. Any early learnings or observations you can share just the overall receptivity on the part of your patrons to these? And maybe for Chad, is the 2% cap rate reported in 1Q a good quarterly run rate to think of as you progress through the year?

I'll go first with the question on what we're seeing. We see a number of things. One is the QR codes are being very well accepted, and we're happy with how that's going. That makes for a better experience for everybody. If nothing else, we get better customer service because it's really interesting. One of the things that could happen is if you order and you don't sit in the right seat and your food is delivered to the seat that you ordered it to, you don't get your product and then everybody is unhappy. And so we were seeing better efficiency, if nothing else, with people going to their seat and they -- because the QR code is linked to their seat. So the food arrives, it arrives hot and it just makes the whole operation much better. So that's very helpful. The other thing that we've seen, and I don't have a number to give you yet, but I think we talked about before, one of the -- I talked about how we're really working to develop a best-in-class food and beverage experience for our customers' ordering experience digitally because we know that basket sizes are larger when people order digitally. And primarily that comes from that never missing on whether it's an upsell. If you've got 10 people deep in a concession line, you're just trying to get through a Friday night, you may not be -- you may not always try to upsell that medium soda to a large. But digital, that never misses. And we have a whole -- I think we can't do even live. It's a last chicken saw, last time offer, we call it. So before you check out, oh, do you want a popcorn with that soda? Do you want whatever it might be with that, a dessert with your food? And so we're able to do that suggestive selling and upselling much better digitally. So we feel with that and then making the whole experience more frictionless for the customer, we're going to have an opportunity to increase our concession sales.

Yes, Drew, on the concessions per cap increase, we said last quarter, we're trying to get to low single digits. We were at 2.4% in the quarter. I think that kind of 2% to 3% range is probably about right. And in terms of the way we're getting there, we're trying to get to that 3% with just inflationary pricing and growing another point or so with the results of some of the initiatives that Greg has just talked about by increasing incidents and by increasing basket size. So that's -- I think that's a reasonable number for purposes of modeling.

Got it. Okay. Very helpful. And then just one follow-up on the hotels business. Can you address the divergence between rooms and food and beverage revenue? I think you mentioned there were fewer operating days that impacted the food and beverage figure. But was there anything else that drove the divergence between the 2?

There was. The one item that sticks out aside from the days difference which some of those days come between the holidays and we actually do get a fair amount of F&B business in that period. But the all group hotel buyout that we had in one of our properties that I mentioned in my remarks, actually had a very heavy F&B component. That's a piece of business that we don't get every year. We had it last year. We had it 3 years earlier. It's on its own cycle. And so that had a heavier F&B impact than we normally would have had.

Your next question comes from the line of Mike Hickey of StoneX.

Chad, congrats guys on a great 1Q. Just a few. First on windows, Greg, good to hear from you that you're excited. I think last year, there were some big plans, but I think we felt stuck too on windows moving anywhere positive. So just curious how impactful you think this new windows is sort of when you think the consumers' behavior might change and maybe the future of windows because it seems like this year at CinemaCon, there were a few studios talking maybe even longer windows.

Yes. Look, I'd start with -- what's the word in the financial community, the trend is your friend. I'd say that the trend is our friend here. This is -- but it didn't just happen overnight. I credit Michael O'Leary at the Cinema United but really starting to really raise the issue publicly a year ago at CinemaCon and say, this is really important. So this is not something that happened overnight. It's an education. It's an understanding. It's the evidence that we see on the importance of a window. And let's be very clear, studios control the window and the studios are not doing -- it just not charity, the theater business. They know that a help of theatrical business is good for the overall ecosystem, and it maximizes the value of their product. That whole concept that we've talked about many times, windowing, selling the same thing to the same person over and over again. Well, if you match those windows too tight together, you lose that second or third or fourth sale. But if you create some space, not only do you get people who pay more -- remember, the other concept of windowing is important is a high -- that you start with your highest per capita set of eyeballs. And to the extent that you trade somebody paying $12, $15, whatever it might be, to putting 5 people in the room splitting $20, it's a much better deal to catch those per capita eyeballs and nothing else, and then you get that second sale on top of it or that third sale when somebody consumes it in a transactional video-on-demand or a streaming video-on-demand environment. And so I thought that -- and the other thing, too, is you don't have people saying, well, I'll just wait for it at home. And we've been very clear to say that, that very short 17-day window is one of the contributor -- was one of the contributors to this idea that because people don't -- they're not paying enough attention. They just hear at home now. They don't know that it's $20. They get something in their e-mail saying, "Hey, get it now." It doesn't say it's -- and they maybe don't pay enough attention. It just feels like it's coming so fast. So stretching that out, continuing to educate the customer that stretched out is really important. And Universal who just recently made the announcement that they are going to move back from their pandemic era experimentation and go to a standard -- go to 45 days, I thought was unbelievably important and signals that, and you've got Tom Rothman of Sony saying it's theatrical is important and for theatrical to be healthy, it has to have a window. And so as Stephen Spielberg said 45 days is a good start, but how about 60 or more? And I would presently say an easy way to explain that, I think, is my mantra should be 2 and 5. That's 2 and 5, 2 months for transactional, 5 months for streaming video-on-demand. So I'm for the 2 in 5 model. Very simple to understand for everybody. And I think it will be good for theatrical and what's good for theatrical will be good for the overall ecosystem.

Right. Obviously, on the concession side, you've really been doing some cool tech and it looks like you're getting progress there. Curious on the seating side, if you see any sort of innovation or enhancements you could do on seating. And also curious about the Infinity vision. It looks like sort of a mixed reception from operators on Disney certification.

Well, the -- on the -- let's start with the seating. Any new seating stuff that you -- there's de box, there's things like that, that can be experimented with. There's things we can do. I don't think there's anything huge that we're going to be able to do. We've had others experiment with just charging more for premium seats, and I don't know that, that went so well. But on the -- so I don't -- so there'll be on the margins, maybe a little bit here and there, but nothing sharing. I mean the recliner investment we made was so significant. And for us, it's great. We made ours with 2,000, let's call it, $15. So that I think has been very helpful for us. On the Disney thing, I'm not familiar with the exact details of it, although look, the ability to brand PLFs, it's very interesting if you think about it, I think the -- taking out IMAX out of the PLF. IMAX is a PLF. But taking IMAX out, I think that the footprint of PLFs in the country is double IMAX in size. And so, in any given weekend, the ability to unify that marketing effort, I understand why Disney is trying to do what they're trying to do. Now whether they'll be the ones to do it, I don't know. But there's power -- when you speak with one voice, you speak louder. Everyone getting together to speak with one voice is much more effective. And so I see -- I understand what they're trying to do, whether that's the model that works, I don't know, but I'm not against the idea. And so that's my feeling on that.

Nice. Last question on free cash flow. Obviously, it looks like you're inflecting this year. Just curious, Chad, your confidence there. Obviously, that's really resonating with investors. So post 1Q, after a strong quarter, I'm guessing you're more enthusiastic, but I love to hear from you and then how you're thinking about carrying that into '27.

Yes. Mike, I think we feel really good about it because we control the CapEx spend. We've got a $30 million planned decrease with our current guide on CapEx. And so that alone will provide a meaningful uplift and that if the business is flat, and we don't expect the business to be flat. And getting off to a really good start in Q1 certainly helps. So 3 quarters to go, but in terms of confidence, I feel good.

I want to just build -- I want to add one thing, Mike, on your question about premium large format, and that is one thing that's not lose sight of and that is still 80% of our business is regular traditional screens. And that's a customer that we -- theatrical has always been known as the least expensive form of out-of-home entertainment. It's a cheap date, so to speak. And I think we always have to remember that. And I think in our theater, specific to our platform, we have probably the highest incidence of PLF in the industry. And yet we also have a very robust discount program with our Tuesday program and our Marcus Movie Club. And I like to think about it as we've talked about this before, learnings from our hotel business, the right price for the right customer at the right time. And so our averages look sort of in line, but I think that our -- we offer a real wide breadth of opportunity for our customers.

Your next question comes from the line of Eric Wold of Texas Capital Securities.

A couple of questions. I guess first on the hotel and resorts division, now that you've completed the renovation of Hilton Milwaukee, maybe talk about the level of rate hikes that your rate increases or that you're looking to kind of push through that you have pushed through at that property maybe around both kind of group and leisure travel and how that compares to kind of what you're able to push through following a Pfister renovation a couple of years ago?

Yes, I can take that one. So we absolutely have seen uplift from both group events that we're able to win and book into renovated properties. We're winning that business, and we're getting an uplift in transient rates that's driving growth in ADR at those properties. As a general rule, Eric, I would say we're in the range of 10% to 15% on rates after we do make rooms renovations like this. And that's across our experience on the 3 major renovated properties, the Pfister, Grand Geneva and now Hilton Milwaukee. But there's no doubt you -- once the customer knows that room product has been refreshed and you are the desired asset in the market to stay at, you get to take share and you're commanding premium rates to do so.

Got it. And have you seen any reaction from others in the market on their pricing when you've taken rate changes? Or are they kind of playing catch up a little bit given the lack of remodel?

I can start and then Greg can add his thoughts. I mean, I think at the end of the day, it's a perceived value on the quality of the product and the customer is making a choice on what experience they want to have. And it's a dynamic pricing business. We're continuously adjusting prices based on where we see that demand. And I think others in the market are doing the same. And so we're able to capture a premium because there is demand for the renovated product. I would believe that others are hurting from that loss of demand, and they're adjusting prices to try to capture volume.

The other thing too that could happen is, it may not look on its face as if the rates are going up as much because it can also be a mix of business thing, too, that you may not see like just looking at the rates. And so our rates do go up, and you can't see it specifically in like a [ Star ] report because they don't divulge the specific hotels rates. But you can see that our rates are improving because we're moving out lower-rated business out of a hotel like the Hilton where we have so many rooms, and we're able to move that business -- that lower-rated business out.

Got it. And then just the last question, kind of a follow-up on the free cash flow question from earlier, given kind of the understanding there's kind of a relative lack of transaction activity in both the exhibition and hotel segments, I guess how aggressive would you be willing to be on share repurchases as that cash flow grows? Do you feel you need to build up a war chest in case transaction activity picks up? Or are you kind of really comfortable where your leverage is and possibly leveraging up for the right opportunity?

Yes. I think we tend to have a very balanced approach. We're opportunistic when we see really attractive opportunities to buy back shares. We've leaned in and we've done that. But we are trying to maintain some dry powder to give us the ability to go and move quickly, which I think is one of our advantages in M&A. And we have seen across both businesses, some activity. And so far, nothing has resulted in deals, but we're trying to maintain a balance.

[Operator Instructions] Your next question comes from the line of Patrick Sholl of Barrington Research.

I was just wondering if you could maybe talk about how you're evaluating the leased footprint of your theaters and maybe just in general, kind of with the box office expectations for 2026 and 2027, how you kind of evaluate the overall screen base both within markets, but also kind of the industry overall?

Well, I'll take the first part of that question on our footprint and Greg can layer on about the industry. I mean, portfolio management is an ongoing part of our operating process, really. We're constantly looking at the store level performance of all of our locations, both our owned real estate, which is a little over 60% of our theater screens, even higher percentage of our cash flow in that business. And then our lease locations as well. And as leases mature, that gives you the opportunity to reevaluate investments in those properties and renegotiate terms, which tends to be necessary because many of the leases were negotiated on a pre-pandemic box office. And so that's an ongoing process. Historically, we've had a preference to own real estate, but we've certainly done M&A where often you're looking at acquiring leases as part of the deal. So it's more about what's the actual financial performance, whether it's after rent or after a return on our invested capital in the real estate is how we look at it.

Overall, it is -- we've talked about this before, there's a lot of leases that are very expensive compared to the level of business, which leaves me the point of there's been -- we talked earlier about windows and the 2 factors that really will be very helpful to getting the business in a good place, and that is in a better place. And that is, one, it would be to have windows extend. And the other is getting enough product in the pipeline and enough product on the shelves. Right now, we've got some room on the shelves. And so to the extent that we can get a full year's calendar's worth of films that will drive more sales and then those leases will start to look better. Otherwise, people will be trying to figure out what to do with some of the space in their theaters to some of the bigger ones. We've been -- we are different. We've been very conservative about how big we build our theaters for the most part. And so we don't see that as much.

Okay. And then maybe just on concessions. To the extent that like the film slate is a healthy contributor to incidents or on the merchandise side, I guess when you look at the upcoming film slate or maybe just sort of like the broader expansion of that film slate, as the film slate kind of like broadens out, do you think it would be similarly supportive of concession per cap? Or do you think that could -- as it maybe expands out, would that be a headwind? Or is that probably just too soon to tell?

And your question, Pat, is specifically around merchandise?

Broader concession activity.

It all depends on the mix of films. The right mix of films will drive better per cap. That really is what it comes down to in any given year. And I think -- but over time, that does tend to even itself out. I don't think there's anything that would -- more films wouldn't drive down per cap.

And then because merchandise is a component of our concessions and food and beverage per cap, merchandise tends to lend itself to more event-driven type of product. And so in any given period, when we've got a heavy mix of big event films, we are seeing more merchandise sales that provide some uplift in those periods, which gets back to Greg's point on product mix being part of this.

At this time, it appears that there are no other questions. I'd now like to turn the call back to Mr. Paris for any additional or closing remarks.

We'd like to thank you once again for joining us today. We look forward to talking to you again in early August when we release our 2026 second quarter results. Until then, thank you, and have a good day.

That concludes today's call. You may now disconnect. Goodbye.