The Marcus Corporation (NYSE:MCS) Q1 2024 Earnings Call Transcript

The Marcus Corporation (NYSE:MCS) Q1 2024 Earnings Call Transcript May 4, 2024

The Marcus Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone. And welcome to The Marcus Corporation First Quarter Earnings Conference Call. My name is Lauren, 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 The Marcus Corporation. At this time, I’d like to turn the program over to Mr. Paris for his opening remarks. Please go ahead, sir.

Chad Paris: Thanks, Lauren. Good morning, and welcome to our fiscal 2024 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, all of which we intend to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act. Our forward-looking statements may generally be identified by our use of words such as we believe, anticipate, expect or words of similar import. Our forward-looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected. Listeners are cautioned not to place undue reliance on our forward-looking statements. 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 fiscal 2024 first quarter results and in the Risk Factors section of our fiscal 2023 annual report on Form 10-K, which you can access on the SEC’s Web site.

We will also post all Regulation G disclosures when applicable on our Web site at marcuscorp.com. The forward-looking statements made during this conference call 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. In addition, we routinely post news releases and other information regarding developments at our company that impact our investors, customers, vendors and other stakeholders. You should look at our Web site, marcuscorp.com, as an important source of information regarding our company. We also refer you to the disclosures we provided in today’s earnings press release regarding the use of adjusted EBITDA, a non-GAAP measure used in evaluating our performance and its limitations.

A reconciliation of adjusted EBITDA to the nearest GAAP measure is provided in today’s release. All right. With that behind us, 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. And then I’ll 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. This morning, we reported a quarter in which we expected to face significant headwinds. The first quarter is always a seasonally challenging quarter with slower leisure travel at our Midwestern hotels during the winter months and what is often a lighter movie slate coming out of Hollywood.

In addition to the normal seasonality, this year, we knew we would face content supply challenges resulting from the prolonged movie production shutdown during last year’s Hollywood strikes. With these challenges in mind, our teams were focused on closely managing our operations and the things that we can control. Our first quarter results were mixed in our two segments. Our hotel division delivered revenue, RevPAR and earnings growth on continued strength in our group business. While our theaters division was negatively impacted by the weaker film slate with significantly lower attendance, we managed expenses well on the lower revenues. I’ll start with a few highlights from our consolidated results for the first quarter of fiscal 2024. Consolidated revenues of $138.5 million decreased $13.7 million or 9% compared to the prior year quarter, with revenue growth in our hotels and resorts division offset by the revenue decrease in our theater division.

Operating loss for the quarter was $16.7 million, a decline of $7.7 million compared to the prior year quarter. Consolidated adjusted EBITDA for the fourth quarter was $2.3 million, a decrease of $7.2 million over the first quarter of fiscal 2023. Turning to our segment results. I’ll start this morning with our hotels and resorts division. Revenues were $57.2 million for the first quarter of fiscal 2024, an increase of 2.5% compared to the prior year. Total revenue before cost reimbursements at our 7 owned hotels increased over $1.7 million or 3.8% over the first quarter of fiscal 2023. RevPAR for our comparable owned hotels grew 2.1% during the first quarter compared to the prior year, which resulted from an overall occupancy rate increase of 2.9 percentage points, partially offset by a 3.4% decrease in our average daily rate, or ADR.

Our average fiscal 2024 first quarter occupancy rate for our owned hotels was 53.7%. The decrease in ADR resulted from an increase in our group rooms as a percentage of our overall room mix with growth in midweek group rooms sold, which generally increases occupancy at lower rates. Group rooms increased to 34.5% of our total room mix during the first quarter of fiscal 2024 compared to 28.9% in the prior year quarter. In addition, improved revenue management during slower weeks and midweek nights in the first quarter resulted in growing occupancy and RevPAR at lower daily rate offerings to optimize overall rooms revenue. Our success in growing group business and better revenue management was evident in our performance relative to our peers. According to data received from Smith Travel Research, comparable competitive hotels in our markets experienced effectively flat RevPAR growth of 0.1% for the fiscal first quarter of 2024 compared to the first quarter of fiscal 2023, indicating that our hotels outperformed their competitive set by 2.3 percentage points.

When comparing our RevPAR results to comparable upper upscale hotels throughout the United States, the upper upscale segment experienced an increase in RevPAR of 2.0% during our first quarter compared to the first quarter of fiscal 2023, indicating that our hotels performed in line with the industry nationally. With the continued growth in group business and events, our banquet and catering operations continue to grow, with food and beverage revenues up 6.4% in the first quarter of fiscal 2024 compared to the prior year. Finally, hotels adjusted EBITDA increased slightly in the first quarter of fiscal 2024, an improvement of approximately $400,000 compared to the prior year quarter. Turning to theaters. Our first quarter fiscal 2024 total revenue of $81.3 million decreased 15.7% compared to the prior year first quarter.

Comparable theater admission revenue decreased 13.8% over the first quarter of 2023, with comparable theater attendance decreasing 17.5%. Our first fiscal quarter began on December 29 and ended on March 28, and thus included three days between the holidays, but excluded the opening weekend of Godzilla x Kong: The New Empire at the end of March. When comparing our results to other exhibitors or industry data sources such as Box Office Mojo for the first quarter, it’s important to note that the domestic box office decrease first calendar quarter was approximately 3.3 percentage points better than the domestic box office decrease for the comparable weeks in our first fiscal quarter. When using our comparable fiscal weeks according to data received from Comscore and compiled by us to evaluate our fiscal 2024 first quarter results, US box office receipts decreased 9% during our fiscal 2024 first quarter compared to US box office receipts during our fiscal 2023 first quarter, indicating that our performance lagged the industry by approximately 4.8 percentage points.

We believe that our lower box office performance during the first quarter was primarily attributable to two factors, first, the biggest film of the quarter, Dune: Part Two, played exceptionally well on IMAX screens, resulting in IMAX screens taking market share from our UltraScreen and SuperScreen PLF formats in certain markets. While we believe the overall customer experience on our PLF screens with recliner seating, laser projection and Dolby Atmos sound is second to none, the market and promotion approach for this film negatively impacted our PLF market share this quarter. We also believe the IMAX significant outperformance was unique to Dune and its distribution strategy as we saw a return to historical norms for PLF market share on Ghostbusters: Frozen Empire.

In addition, we believe this dynamic was amplified in a quarter without many other big films playing on PLFs. And given our high penetration of PLFs across our circuit, we tend to outperform in periods when there is a greater supply of PLF content. Second, the total box office in our top seven markets underperformed the overall decrease in the national box office. We believe this is attributable to an unfavorable film mix that was light on family content and due to the stronger relative performance of Dune in markets where we do not have a presence. Our average admission price increased by 4.9% during the first quarter of fiscal ’24 compared to last year. The increase in our admission per caps was primarily due to strategic pricing actions taken during fiscal 2023, which were partially offset by a decrease in the percentage of 3D ticket sales during the first quarter of ’24 compared to the first quarter last year, which was favorably impacted by high 3D ticket sales from Avatar: The Way Of Water.

Our average concession food and beverage revenues per person at our comparable theaters increased by 0.8% during the first quarter of fiscal 2024 compared to last year’s first quarter. The increase was primarily due to inflationary pricing changes implemented during 2023 and was partially offset by a decrease in the number of concession items purchased per customer, which we believe is the result of fewer blockbuster films in the quarter, which tend to result in larger average purchase sizes as customers make a bigger event out of going to see the bigger films. Our top 10 films in the quarter represented approximately 62% of the box office in the first quarter of fiscal 2024 compared to 71% for the top 10 films in the first quarter last year.

The less concentrated film slate resulted in an approximately 3 percentage point decrease in overall film cost as a percentage of admission revenues. On the lower revenues, theater division adjusted EBITDA during the first quarter of fiscal 2024 was $6.2 million compared to $13.8 million in the prior year quarter. Given the soft film slate, we closely managed operating hours and labor throughout the quarter. Shifting to cash flow and the balance sheet. Our cash flow from operations was a use of cash of $15.1 million in the first quarter of fiscal 2024 compared to cash used by operations of $7.7 million in the prior year quarter, with the increase in cash used primarily due to the lower EBITDA. 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 businesses 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 fiscal 2024 were $15.4 million compared to $8.9 million in the first quarter of fiscal ’23. A large portion of our capital expenditures during the first quarter were invested in renovation projects in the hotel business at The Pfister Hotel and Grand Geneva Resort & Spa, with the balance going to maintenance projects in both businesses. Our capital investments and renovation projects have progressed as planned, and we continue to expect capital expenditures for fiscal 2024 of $60 million to $75 million, recognizing that the timing of several of our planned expenditures are still just estimates at this time. We are still finalizing the scope and timing of various projects and the actual timing of these projects will impact our final capital expenditures number for the year.

We will update our capital expenditure estimates as the year progresses. In addition to our capital expenditures, during the first quarter, we also invested approximately $4 million in a joint venture that acquired the Loews Minneapolis Hotel, a 251-room full-service luxury hotel that Greg will discuss further. This investment and our ability to execute on this deal is a great example of the flexibility and strategic advantage that our strong balance sheet and liquidity provide, making us an attractive asset buyer to sellers in allowing us to move quickly when attractive investment opportunities become available. Our balance sheet remains strong, and we ended the first quarter with $17 million in cash and over $237 million in total liquidity with the debt to capitalization ratio of 27% and net leverage of 1.7 times net debt to adjusted EBITDA.

With that, I will now turn the call over to Greg.

Greg Marcus: Thanks, Chad. Good morning, everyone. We entered the year with a mixed short-term outlook in our two businesses. In hotels, we saw a continuing trend of strong group bookings, an overall healthy economy with steady travel demand, significant events and demand drivers in our markets and several recently renovated properties in our portfolio with strong positioning in their markets. By contrast, in theaters, we know we would have to navigate a short-term content supply disruption resulting from the shutdown of movie production during the 2023 Hollywood strikes that would likely create challenges for several quarters. As I shared on our last call, January and February got off to a slow start. And while I’m happy to share that March was better, it was still a tough quarter for the movies.

We anticipated these short-term challenges in our industry, and we manage the business accordingly. While the comparisons to last year are certainly tough, the overall company first quarter results are actually slightly better than what we expected. We often get asked why we have these two different businesses. And this quarter, along with the last several years, have really illustrated the benefits of our diversified business model that can provide a counterbalance when we encounter periodic bumps in one of our businesses. While the short-term expectations for our theater and hotel divisions are going to differ this year, our long-term outlook for both businesses remains positive and optimistic, and we expect growing momentum in the back half of the year.

I’ll start today with 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 the comp sets and our in-line performance with upper upscale hotels nationally. 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. And in the first quarter of fiscal 2024, we were at breakeven EBITDA, an improvement over our prior year EBITDA loss. There were a few notable trends in the quarter that I would like to highlight. I’ll start with what we’re seeing with average daily rates. Our average daily rates were down 3.4% in the first quarter compared to the first quarter last year, and the drivers of this are due to three factors; changes in our mix of business, changes in revenue management strategy and some market softening.

I’ll start with our mix of business. In the first quarter of 2024, group room revenue was over 34% of our overall mix of business compared with 29% of our mix last year. While group business is typically at lower rates and is dilutive to ADR, it allows us to grow midweek occupancy and is accretive to our overall RevPAR. In addition, the strength of our group business provides growth to our banquet and catering business, which grew 6.4% in the first quarter of 2024 compared to the first quarter last year. Secondly, we continue to refine and optimize revenue management. During the first quarter at select hotels, we adjusted our strategy to sell rooms at lower daily rates during low demand periods to drive occupancy and maximize revenue with our available room night capacity.

This approach was particularly effective during the winter months when demand is seasonally low, and we were more aggressive on rates this year than we were last year. The net result was successful in growing our occupancy and overall RevPAR. Finally, we did see some general rate softening in the quarter at some of our properties. One quarter does not make a trend and the winter months are typically weak demand to begin with, but we do expect moderating ADR growth rates compared to last year, and we will continue to monitor the trend. RevPAR grew in three of our seven owned hotels with average daily rate growth at two hotels and occupancy growth at four out of seven hotels, resulting in overall RevPAR growth of 2.1%. Group business remains strong, and we’re doing a great job capturing our share of group business.

We have previously shared with you the strength in our group bookings over the last several quarters, and we’re seeing that coming through the results. The bookings continue to look strong with our group room revenue bookings for the remainder of fiscal 2024, or group pace in the year, for the year, running approximately 23% ahead of where we were at this time last year. At approximately 11% of where we were at this time last year, excluding the impact of the upcoming Republican National Convention in Milwaukee this summer. Even more encouraging, our group pace for fiscal 2025 is running over 60% ahead of where we were at this time last year. Banquet and catering pace for the remainder of fiscal ’24 and ’25 is similarly ahead of where we were at this time last year.

Chad mentioned our investments in renovations in our owned hotels this quarter. One benefit of our seasonality and slower winter months is it gives us an opportunity to complete these projects with limited disruption to hotel operations. We continue to make great progress on our renovation projects with most of the updated ballrooms and meeting space at Grand Geneva now back in service and the guest room renovation of the historic tower at The Pfister Hotel on track for completion in June. The updated spacing rooms look great, and our team has done a fantastic job executing these large and complex projects. As our hotel division heads into the busier spring and summer travel months, we are excited by what we see ahead. The investments we are making in our properties puts us in a great position to win in our markets.

And of course, the Republican National Convention in July will be great for the entire city of Milwaukee and we’re excited to showcase our wonderful community. Last quarter, I shared an update on our growth strategy in hotels and briefly commented on our pending acquisition of the Loews Minneapolis Hotel. Our joint venture closed on the hotel acquisition on March 1, and our team hit the ground running, taking over management of the hotel and executing our repositioning strategy for this property. The luxury lifestyle hotel was rebranded as The Lofton, a Tapestry Collection by Hilton Hotel. It was part of the Hilton reservation system on day 1 of our ownership and management. We will continue to make improvements at the hotel over the next year to create value and turn around what we believe is a property with great potential.

Turning to theaters. Chad went over the numbers with you, including our continued increases in per person revenues. The beginning of the first quarter got off to a very different start than what we experienced last year when the industry benefited from strong holds on carryovers, Avatar: The Way of Water and Puss in Boots: The Last Wish. In fact, Avatar was the number one movie for the first 5 weeks of our fiscal 2023. While there were a number of good films in theaters over the holidays to continue to play into the new year, we didn’t have a single blockbuster like Avatar that held as long and performed as strong in January this year. In terms of the quantity of wide-release films in the first quarter, we had a similar number of titles with 24 wide releases in the first quarter of fiscal 2024 compared to 23 in the first quarter last year.

However, the first quarter slate this year was weaker overall, with lesser performances and fewer blockbuster films with no films in the first quarter opening over $100 million. And with an average opening weekend US box office gross per wide release film that was 25% lower than the same average in the first quarter last year. We believe this was another side effect of last year’s Hollywood strikes with bigger titles getting pushed out on the film slate as a result of the moving production shutdown. And smaller films getting wide releases that would have normally been limited releases if the product supply were stronger. There were a few bright spots in the quarter with Dune: Part Two exceeding industry expectations and delivering on its potential, and Bob Marley: One Love surprising with a strong opening and a great run.

Chad shared some of the market share dynamics that we believe impacted our market share on Dune with the film significantly outperforming on IMAX screens nationally, which only represents 3 of our 125 premium large-format screens. As Chad discussed, the IMAX performance on this film does appear to be unique to Dune and its distribution strategy as we saw a return to a more typical PLF market share with Ghostbusters: Frozen Empire. Chad also noted that our PLF strategy particularly benefits us when there are multiple significant films in the market at the same time. Our admission per caps were up 4.9% in the first quarter, and we were able to overcome the headwind from the high percentage of 3D tickets on Avatar last year. However, as we look forward, we expect our admission per cap growth rate to flatten as we have passed the 1-year anniversary of the pricing changes to our Value Tuesday promotion that we made in March last year.

We will continue to review our regular non-Tuesday ticket prices in our markets to ensure we remain competitive and offer attractive value to all types of customers. This will be increasingly important as we work to incentivize customers to maintain the habit of moviegoing during periods of product gaps in the release calendar. In April, we were with our theater team at CinemaCon, and there were a few things I took away from this year’s conference, first and most importantly, our studio partners. Film directors and talent all continue to reaffirm the importance of theatrical exhibition to the overall filmed entertainment ecosystem and our role in elevating their content. Second, we got a closer look at the film slate for the rest of the year and into 2025.

And as we move past the supply chain issues from the strikes, there is a lot to be excited about with several great titles this summer and later this year that look really good, and we expect a strong — a much stronger slate for 2025. The summer movie season kicks off tomorrow with the opening of The Fall Guy and is followed by a number of big titles, including Kingdom of the Planet of the Apes, Furiosa: A Mad Max Saga, Inside Out 2, Horizon: An American Saga, A Quiet Place: Day One, Despicable Me 4, Twisters and Deadpool & Wolverine. This fall, we are excited about Beetlejuice, Joker: Folie a Deux, Saw XI and Venom: The Last Dance. For the holidays, we look forward to Gladiator II, Moana 2, Wicked, The Lord of the Rings: The War of the Rohirrim, Kraven the Hunter, Mufasa and Sonic the Hedgehog 3.

We continue to project 95 to 100 wide release films for 2024. As we look to next year, 2025, we’ll feature several strong franchises, including Superman, Fast & Furious, Captain America, Mission: Impossible, Jurassic World, Karate Kid, The Fantastic Four, Snow White, Wicked 2 and Avatar 3, just to name a few. We’ve always taken a long-term view of managing our businesses. And as we look at the product supply ramping back up to and potentially exceeding 2023 levels in 2025, we remain very positive and optimistic about the long-term future for the industry and our theater business. Finally, I’d like to once again express my appreciation for our dedicated associates of The Marcus Corporation. Their outstanding work and commitment to serving our customers is responsible for our success, and we appreciate all that they do every day.

They are our most important asset. So on behalf of our Board of Directors and our entire executive team, thank you to all of our associates. And with that, at this time, Chad and I would be happy to open up the call for any questions you may have.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Eric Wold from B. Riley Securities.

Eric Wold: A few questions kind of based on some of the comments you made in your pre — your opening remarks. I guess, one, other than the — for the theater segment, other than the spending patterns around tickets and mostly concessions that are kind of influenced directly by the film slate. Can you talk about anything you’re seeing from your theater customers in terms of their willingness to spend or changing their spending patterns? Any shifts in ticket price, any movements around upgrade, days of the week they visit, basket size, anything that would kind of give you more or less confidence in kind of the health of the consumer as you kind of enter hopefully a strengthened film slate in the coming quarters?

Greg Marcus: It’s — look, it’s hard to actually tell — like, for example, do we know what days of the week they shift into, we don’t know necessarily. We’re not seeing a lot of — it’s hard to see where they’ve necessarily shifted from one or the other. We can see a little in our data from our loyalty stuff to see where people are moving. But look, I think the bigger thing that we want to be thoughtful about as we look forward and that is that the movie business tends to be a really — if there is going to be weakness, and I think the jury is out. But if there’s going to be weakness, the movie business tends to benefit from that in that they all saying, six out of the last eight recessions, the movie business got better. And that’s — because we become the most attractively priced out-of-home entertainment option for people.

And so for us, we then make sure that our pricing is appropriate to capture that customer who may be feeling some economic stress and being smart about how we do that. But we don’t have any — it’s still a little early.

Eric Wold: And then, Chad, you talked about, the theater segment — sticking with the theater segment still, you talked about some of the market share loss around Dune 2, given the strength of IMAX and what IMAX did to kind of really promote and market that film as shot with IMAX cameras and the best way you could see it and all that. Knowing that IMAX’s goal over the coming years, and they’ve got an increased slate of films shot with IMAX cameras that will be coming out later this year and into next year, even if we get a more robust film slate overall that can be playing in your PLF and you’ve got more versatility there, is there a risk of sustained share shift if that becomes an increasing part of IMAX’s strategy and the studio strategy to use IMAX in that way?

Chad Paris: I mean, this — Dune was a pretty unique movie, Eric, in the magnitude of the shift that we saw. And when we look back at films that were similar last year, we didn’t see that shift. And then when we look at the other films that would be a good fit for PLFs in the first quarter, which — that’s a limited sample size, we didn’t see it at all. In fact, we saw it go back to historical norms. So as I said in my prepared remarks, it really gets amplified when we don’t have a lot of PLF content. And we — as you know, we have such a high penetration of PLFs across our circuit that we do really well when there’s more than one big film to show in any given quarter, and we just didn’t have that this quarter. So we’ll continue to monitor the dynamics here.

But they’ve — I would just say they’ve had that strategy with other films last year. Oppenheimer was one that I would point out. And even with Ghostbusters, it was — it had similar — shown an IMAX-type promotion, and we didn’t see it there. So we’ll continue to monitor it, but we feel pretty good about how our PLFs are set up in the customer experience.

Eric Wold: And then last question for me. I guess more of a corporate philosophical question. I mean, the stock price is at kind of the lowest level it’s been in 10 years, excluding the pandemic hit. I guess, given the optimism you guys have, and I think we all have on the box office recovery path post this strike-impacted year along with your ability to kind of continue to grow the hotel segment. When do buybacks become a better use of cash flow? I know there is some uncertainty around CapEx needs with the hotel segment and one of your properties there. But just thinking about when does that become a better use of capital than maybe something else given what we could see in the coming years from both of your segments?

Chad Paris: I guess I’ll start with, I think you’re right. We certainly have strong conviction and optimism long term on both of these businesses. But we are weighing several things on capital allocation. The $60 million to $75 million of CapEx this year is certainly significant and a big ramp-up in the hotel business, and we’ve got some other reinvestments to consider as we head into next year also in the hotel business. But it creates a unique opportunity down here at the share price, and we want to clean up the capital structure. So there’s a few different ways that you can look at share repurchases, and we’ve got to convert that is coming due next year that we’re going to want to deal with over the course of the next one and half years. So those are all the things that we’re thinking through, but we do have an open authorization on share repurchases and opportunistically that’s always an option for us.

Operator: Our next question comes from Jim Goss from Barrington Research.

Jim Goss: One question on the hotel side with this conversion and purchase in Minneapolis to the Tapestry Collection. I’m not so familiar with that particular brand. I think you mentioned it was a luxury lifestyle hotel. I wonder if you could talk about that in terms of the pricing level and the incremental benefit you think you’re going to be able to get out of that particular property?

Greg Marcus: Well, the Tapestry Collection hotel is — Tapestry Collection, it’s Hilton. The goal is to get into the — on the Hilton reservation system and on the Hilton loyalty program. So that’s — and that’s one of their, what they call, soft brand. So it’s not — doesn’t have the Hilton — it’s not called the Hilton, but it’s Tapestry by Hilton, so it’s pretty close. And again, it gets the benefits of being in their system. And we don’t discuss specific hotel projections and increases, but trust that we expect that by moving to a stronger system, we expect that, that will drive increased performance.

Jim Goss: And One follow-up on the — to Eric’s question about Dune. I was wondering if you feel that particular movie had more of an urban focus. And to the extent that most of the competition you would have with IMAX would be in a smaller subsector of your markets where that would be a conflict. Do you think that’s part of the issue, too, that it’s just the nature of the film itself relative to your markets?

Greg Marcus: We believe — and we believe, generally, we’ve had some — one of the things contributing this quarter was just a film mix stuff. When you get to the smaller films, they don’t play as well in the Midwest. And Dune is not a smaller film. But again, that one had more — when you get more urban focus, that’s not where we shine. And so it’s — you’re right, we were facing headwinds from that. And we even saw — we have an IMAX in a pretty isolated market and its performance was not as robust as some of the other ones. So we have some insight into what’s going on with IMAX because we do have a few of them. But it performed really well on IMAX, but it was — that was one time one analyst wrote something about a tax treatment we got. Asked the question, is it an aberration or a revelation? I’m not sure it’s a revelation.

Jim Goss: Also, I wanted to ask about the impact of the footprint optimization you’ve executed over recent years, along with the rest of the industry. I think you’ve been a little more aggressive than some. And I wonder what sort of headwind do you think that might characterize or you might be able to quantify in terms of the revenues you’ve been able to generate out of the theaters. Has that been significant, do you think? Maybe this is a Chad question.

Chad Paris: just to clarify, when we talk about our growth rates and our comparisons year-over-year, those are same-store numbers. And so I’ll start with that. Then generally, in the locations that we’ve closed, we often have other theaters in the market. And what we’re really doing is consolidating customers into other capacity in the market. Now is there — are there some customers who may not come anymore because the theater that we closed was really close to them and they have to drive another 5 miles to get to our next closest theater. Yes, there’s some — there may be some level of that. But our general view is that our recapture of displaced customers is quite good. So that all goes into our analysis as we think about pruning the portfolio and looking underperforming locations. And our conclusion on the bottom line is that it’s accretive to earnings and a bit of a headwind, perhaps top line revenue, but we try to recapture as many of those customers as we can.

Greg Marcus: And generally — remember, the stuff that we’re closing, not exactly robust numbers, that there’s not a lot to — generally, not a lot to capture, to be honest.

Jim Goss: And one last one. A number of the companies in your sector have been talking more about alternative content. And I’m just wondering in terms of your particular markets, if there are any particular types of content that you might put on, say, during the week, in particular, that might resonate best with your particular customers.

Greg Marcus: Again, Midwest, the faith based stuff works better with our customers. Some of the retro stuff is, like, we did a Harry Potter series that really performed nicely on our — with our new passport, to be honest. And we talked about that in a prior call. So it really — it depends, but that tends to be what does perform better for us. But we’ve had some — we’re playing more stuff. We’re throwing a lot of spaghetti at the wall right now to find out what sticks and stuff will stick and some stuff is sticking.

Operator: [Operator Instructions] Our next question comes from Mike Hickey from The Benchmark Company.

Mike Hickey: Greg, you mentioned maybe some softening on the hotel side tying in to weakness in ADR. You said it wasn’t too early to be a trend here. And I get the seasonality piece, but obviously, you’re probably adjusting for that. But could you just sort of give us a little bit more insight into what piece of that market is softening and what implications it could have and adjustments you would make if it does become more of a trend?

Greg Marcus: Well, let me be careful. One of the things — I think that we may have not been — I mean, I’m not have been as clear. When I say we were — our — when we change some strategy, I would potentially say, at least my revenue management people would say to me that maybe we got a little too aggressive with some things last year that we sort of — we re-strategized and changed our approach on a few places. That’s not really reacting to the market so much as who’s reacting to what we had done last year and looked back and said, gee, in a low demand period, we probably weren’t — we probably were too aggressive so we altered our strategy and it paid off. And the other thing, as we said in the call — as we said in the remarks, part of it is a mix issue.

If we’re going to see a move from transient — leisure transient to more of a group mix, we are going to sacrifice a little bit of rate, but we’re going to also pick up ancillary revenue banquets and catering things like that. So those are trades that we’re making that are really strategic, not so much saying that we’re seeing a weakness in the customer. But look, if there’s a weakness in the customer, we’re going to react to what’s going on in the market. We’re going to watch what’s happening. I think historically, we’ve looked back over time and cutting rates generally does not solve the problem because it doesn’t generate more demand, it’s just share shift. And one of the things that the industry seemed to be very good about through the pandemic was they didn’t just cut rates.

And so — because it ended up being a zero-sum game. And my hope would be if there is a softening, it’s not then the response is, well, let’s all just cut rates and to try and — because it won’t be — it won’t drive demand. But we’ll have to look at what’s [Technical Difficulty] to the market.

Mike Hickey: So it sounds like the — I mean, it’s a weird quarter, like you said, I mean, a winter in Milwaukee is not maybe the best leisure travel. But that said, is it the leisure piece that was sort of holding and then group was picking up or is it just leisure was down a bit in the quarter? Is that sort of the takeaway?

Chad Paris: Mike, I would say, certainly, leisure was down in our overall mix because just of how much more group we were driving into the middle of the week. In terms of demand side, leisure was holding, but if you think about the last couple of years, we’ve had really strong rate growth, particularly being driven by leisure customers. And those growth rates are sequentially coming down as we kind of normalize here. So I — our expectation for the year was low single-digit kind of overall RevPAR growth. And it’s probably going to come more from a little bit of occupancy than — this year than it is going to be the ADR that’s driving it as it has the last couple of years. But yes, leisure is the pocket that is probably not going to be as strong as it was, not saying that it’s weak.

Mike Hickey: And then on your gross profit within your concession business, looks like sort of you and your peers that are showing some pressure there, there looks like you’re down nearly 6 percentage points in your concession gross profit in the quarter. So just curious if you could sort of dig in there. And if what that means, I guess, is a trend moving forward. And I guess you look at your hotel, food and beverage, and it looks like your margin there is actually holding up really well year-over-year. I think maybe it expanded. So it looks like it’s sort of just on your theater concession side where you’re feeling some pressure. Just curious with that. Why? And what sort of trend we should extrapolate, if any, from that?

Chad Paris: You should not extrapolate a trend from that. In the theater — the way we report the theater concessions numbers, we did make some immaterial changes on how we classify some of those expenses in other areas of the P&L and just line them up better with how we think they should be reported. And again, immaterial, but that’s really all that’s driving the change. It’s not an underlying change in the profitability of our concessions business.

Greg Marcus: And by the way, on the hotel side, you get a mixed [FYI], that’s the benefit of a mix shift, too, because the leisure customer is eating in our outlets. When you get to more of a group mix, you’re getting more in the banquets and catering business, which is just a more profitable food and beverage operation.