You don’t have to maintain them as frequently. So those types of pieces of equipment lend themselves to productivity and then the light steering component of that also is something that could be taking that to another level. So there are things like that that work but yes, there’s a range of things. Even in average new types of equipment, things like that that could lead to productivity. Not necessarily specific to CinemaCon but obviously you see it in different places in the market with unattended retail and things of that sort which could lead to some overall labor productivity depending on as well as revenue growth in pockets of theaters where you may be able to insert some of those things and drive incremental sales. So yes, I would say that’s something that our teams are constantly evaluating and it goes well beyond cinema just looking at what’s coming to market in various pockets of our business from presentation, from labor management, from food and beverage equipment and things of that sort just to drive incremental productivity benefits and overall experiential opportunities.
Unidentified Analyst: That’s great. And then just regarding concession per cap, so you just hit a domestic record in the U.S. for the first quarter. Are you seeing more engagement in terms of incidents of purchase, bigger basket size or price increases? How would you break that down? Thanks.
Melissa Thomas: I’ll take that one Aaron. So on the domestic per cap side per cap was up 2% year-over-year and that was driven by strategic pricing actions to offset some of the inflationary cost pressures that we’ve been seeing as well as a shift in product mixed towards higher price items, merchandise being one example of that. That was partially offset by lower incidence rates due to the content mix in the quarter. So that’s really the breakdown of the drivers there. As you think though about our per cap on a go-forward basis, we do continue to believe that we can moderately grow our concession per cap for full year 2024 domestically. We continue to lean into various initiatives to maximize our incidence rates. So mobile order, ordering adoption, self service capabilities, modifying the flow of concession traffic, as well as leaning into enhanced food offerings, merchandise sales and scaling third party delivery.
We also continue to look to find optimal pricing that will maximize our per cap while maintaining high incidence rates. But as you saw in the first quarter our per cap will fluctuate ultimately quarter-to-quarter with film mix.
Unidentified Analyst: That’s great. Thank you very much and congratulations on the quarter.
Sean Gamble: Thanks Aaron.
Operator: Thank you. Next question comes from the line of Mike Hickey with Benchmark. Please go ahead.
Mike Hickey: Hey Sean, Melissa, Chanda, good morning guys. Great job on the quarter. Just two questions from us. Obviously you don’t forecast the box office Sean for obvious reasons, but I’m giving what you know I guess about Q2 and the rest of the year and maybe just in terms of wide releases do you feel like obviously Q1 — do you feel like you can sort of build on the strength of Q1 sequentially through the remainder of the year or any sort of I guess insight on phasing on the box office. It seems like Q2 would be higher than Q1, Q2, higher than Q2, Q4, higher than Q3. But here is what you think there and then any updates I guess on wide release product in 2025, how that would compare 2024 in pre-pandemic and then Melissa, I’m not sure if you touched on this or not but your concession margin domestically was sort of sub 81%.
I think it’s had about three quarters of sequential pressure here. Just curious what’s driving that and if you think this is sort of a low point in the quarter and you can sort of build back margin through the remainder of the year and medium term. Thanks guys.
Sean Gamble: Sure thanks for the questions Mike. It’s specific I guess starting with this year we saw a little bit of lift in the first quarter. There’s been some title shifts like we know just like Karate Kid just moved out of years. So when we look at the totality of 2024 we still at least from our vantage point we still think it probably looks pretty consistent to what we were seeing at the onset of the year overall volume of wide releases we’re still counting at around 95 or so films which is down a touch from last year’s 110 again relative to about 130 from pre-pandemic time frames and that’s all a byproduct of the six plus months of Hollywood Strikes last year. So as you mentioned the year is definitely back in loaded.
More of that impact is playing through in the first part of the year and then as you get towards the fourth quarter that’s when things really start to ramp up particularly the scale of the releases because those larger films that have more complex productions, more complex visual effects like those are the things in particular that were most impacted. So I’d say at this stage at least again from our vantage point things we’re seeing are we still think the year is kind of looking comparable to what we were anticipating three months ago. As we look out to 2025 it’s still a bit early per normal practice to try to get a full handle on that we’re optimistic that we’re going to see overall volume. Our viewpoint was you saw a nice progression from 2021 to 2022, 2022 to 2023 prior to the strikes we were anticipating 2024 would continue that trajectory and then we had this little hiccup from the strikes, and we think 2025 will likely spring back to that trajectory curve that we’ve been on of recovery so it’ll be somewhere likely in line or above 2023 between 2023 and pre-pandemic levels.
Prior to the strikes we thought there could be the potential for 2025 or 2026 to get back to pre-pandemic levels. With the strikes, we think that pushes out a little bit further, but again, we think that we’ll see some nice lift in improvement next year once we’re fully past the effects of the strikes of last year. And I just say I know there’s been a lot of questions on CinemaCon at least the materials that were shared during that convention for the films that are going to be releasing in 2025 look incredibly promising. We’re really optimistic about what we saw and really pleased just with the quality of the presentation of those titles that are up and coming.
Melissa Thomas: Mike in terms of your question on domestic concession cost rate, the change that you saw year-over-year in Q1 was primarily driven by two key factors one a shift in product mix towards lower margin rate items such as merchandise as well as candy, and then in addition to that we did see some increases in the cost of some of our core concession items. So fountain beverages, bottle drinks and candy and then partially offsetting that with benefits that we realized from the strategic pricing actions that we’ve been implementing. As you look forward, we do expect concession costs as a percentage of concession revenue to begin to moderate over the next few quarters. Now that said, we do still anticipate that our COGS rate will reflect a modest step up for or from full year 2023 levels due in part to product mix as we continue to look to grow merchandise sales, expand enhanced food offerings as well as scale third party concession delivery which have lower margins than our overall kind of core concession offerings.
Now what we do expect ongoing inflationary pressure to continue in 2024 particularly in transportation packaging and certain commodities namely Coco we expect these pressures to be somewhat offset by corn, canola oil and buttery topping prices moderating. So we also continue to execute on strategies to offset inflationary impacts wherever possible including through strategic sourcing efforts or pricing strategies and proactive category management to really drive incidents.
Mike Hickey: Thanks guys, good luck.
Sean Gamble: Thanks Mike.
Operator: Thank you. Next question comes from the line of Jim Goss with Barrington Research. Please go ahead.
Jim Goss: Thank you. You discussed earlier your caution about new builds. I was also interested in looking at the screen count reduction you’ve had over the past five years I think since the pandemic and I imagine the screen count reduction has had less of a revenue impact because of the nature of the screen you have been cutting out and also less of a profit impact but can you talk about the headwind or drag that might have posed on you over the over those years and what it’s doing right now and are you mostly through the process of screen count rationalization or should we expect some more?
Sean Gamble: Thanks Jim. Good question. You know I’d say on the whole the industry has probably seen slightly in excess of 10% screen rationalization since the pandemic on a total net basis of those that we’ve closed relative to those that we’ve opened were slightly below that you know certainly in the U.S. we’re about 7% or so of our screens down versus pre-pan pandemic but the majority of those screens that have closed for us are ones that were lower performing screens. There are ones that were older theaters more on the cuffs of you know just break even performance so from an overall impact on financials net between what we’ve closed and what we’ve opened that’s actually net positive in terms of bottom line, so I’d say we’ve been very particular in that so there’s been many theaters we’ve been able to go back and make modifications to leases and things like that and improve in certain cases it just made sense to rationalize a bit.
So on the whole that’s just part of our overall optimization of our footprint as we’re looking to really shore up our higher performing theaters look to make modifications to those theaters where we have the opportunity to do so with certain leases where there’s a bit of pressure and then exit ones that are a bit more strained you know in that whole calculus and then again we’re adding new theaters to those footprints where there’s opportunity. As we look ahead, yes, I mean I’d say we’re kind of in that normal phase now where it was always part of our practice of as older theaters are coming to the end of their leases we’re looking at how they’re performing and does it make sense to continue with those or does it make sense to look to newer opportunities.
So there could certainly be some incremental closures that we see over the coming years, but I wouldn’t say that’s necessarily a byproduct of the pandemic this point that’s just more of our normal practice, and as I mentioned earlier you know we have reinvigorated our development pipeline with regard to new builds and new looking at new assets to bring into the fold so that could that could also offset that.
Jim Goss: Okay and one other one in recent calls you’ve talked about alternative content and it seems like it’s a lot of the chains are talking about this a little bit more I’m wondering what type of content are you thinking might resonate best with your audiences would it be concerts or sports if you can get the right or other smaller genres like the faith base that you’ve brought up are there other things, and also I’m actually and it’s called was talking about using other days which seems to be the conventional wisdom as to when you might both net net ahead with alternative content can you talk about any plans along those lines.
Sean Gamble: Sure look definitely overall we’ve been thrilled to see a burst of life with alternative content. Historically it just kind of hovered around 1% to 2% of box office and we always felt there was a lot more potential in these types of titles and we’re finally seeing that. For our circuit, I wouldn’t say there’s any one particular category that is necessarily driver it’s really across the board, so you named a few of them whether it be concerts faith based films multicultural titles, anime, we’re seeing great success across all of these different categories and we’re thrilled just to see more and more titles of significance coming into theaters in that area. Again, for the first quarter non-traditional content represented about 14% of our box office so is definitely inflated again similar to last year which was a banner year for non-traditional films.
So we’re certainly leaning into that. I’d say the key is there’s often work to be done in this space so finding those types of products that lend themselves to scale. Sports as you mentioned is an area of opportunity it’s a complicated one just due to the way the licenses work and then also the question becomes how can you get scale because those tend to be singular events on a singular showtime versus something like a concert or something like a faith based film that can run throughout the week or weeks really. So there are some questions there so it’s all about finding those properties with scale looking for things that could be more unique opportunities to also fill in slower periods during the week. There’s also the potential for that I mean we were talking about that earlier with some of the other kinds of event types of products that we bring into our theaters, so we’ll have to see but I do think what’s been wonderful to see is yes the potential of these types of titles has being realized what’s also nice is that these types of films can also bring new types of audiences into theaters who then get exposed to the films get exposed to the recliner seats, folks who may not have been in this frequently and then they start a movie going practice so it can kind of expand beyond this type of content.
So again, we remain really optimistic about continued growth in this space and it really cuts across a range of categories.
Jim Goss: Alright thank you very much.
Sean Gamble: Thanks, Jim.
Operator: Thank you next question comes from the line of Stephen Laszczyk with Goldman Sachs. Please go ahead.
Stephen Laszczyk: Hey guys, thanks for taking the questions. Sean. you mentioned earlier the resilience you’re seeing on the consumer front maybe just given that could you update us on your latest thoughts on taking ticket price especially from some of the more in demand stretches coming up here over the next few quarters. And then one for Melissa just on facility lease expense Sean, I think you mentioned it in your prior response but there might be some opportunity to negotiate on rent I’m curious how much opportunity you think there is to move the needle there over the next few years. Thank you.
Sean Gamble: Okay thanks for the question. Stephen. Look, I mean the question on pricing is an important one. I mean obviously we were talking about the environment that we’re in right now, so it’s an area that we need to be careful about and we are very careful about use a lot of data to drive our decision making on what’s the right price point, so while consumer resilience has certainly been there demand has been strong we got to be careful that we don’t go too far and push things that could change that dynamic, right especially in a high inflationary type of environment where people may be starting to be a bit more discretion in what they select. We’ve seen that over the years, and again we use a lot of data we have a team that focuses heavily on this to make sure that we’re trying to capture as much opportunity as we can which basically cuts both ways it’s not unilaterally up it can go both ways to really maximize attendance, maximize box office, maximize incidents with regard to food and beverage sales and overall food and beverage revenues.
So again, it’s something that we believe there’s lots of ongoing opportunity with further analytics. It constantly is evolving, but it’s a dynamic that will just continue to stay on top of it and it isn’t unilaterally one way.
Melissa Thomas: And with respect to facility lease expense. So it’s important to note that lease is our contractual obligation so unless there’s an event such as the end of a lease term or a landlord needs our consent for their redevelopment there isn’t much of a catalyst to renegotiate a lease particularly given the strength of our financial position. That said, we’re actively working to renegotiate leases as their expiration in our renewal dates approach and we have seen some success in that regard particularly as it relates to more challenge theaters, but keep in mind that only about you know call it 10% to 15% of our leases are up for renewal in any given year, so it’s a fairly small percentage.
Stephen Laszczyk: Great, thank you both.
Operator: Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Sean Gamble for closing comments.
