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Entertainment and lodging company, The Marcus Corporation (MCS - Snapshot Report) reported first quarter fiscal 2013 earnings of 37 cents per share, which lagged the Zacks Consensus Estimate of 49 cents per share. Reported earnings also dipped below the year-earlier quarter earnings of 42 cents per share due to the absence of a key holiday weekend.

The Milwaukee-based company’s revenues slipped 4.8% year over year to $117.9 million and missed the Zacks Consensus Estimate of $129 million as well, which was mainly attributable to the poor performance of its theater business.
 
The Marcus Hotels & Resorts division posted a 2.9% growth in revenues, thanks to 3.7% rise in revenue per available room (RevPAR). The increase in RevPAR was driven by continued improvement in the average daily rate arising from an increase in business as well as leisure travelers.

Marcus’ box office revenues fell 10.8% year over year during the reported quarter due to a weaker line up of films as compared with the year-ago quarter and lesser theater visits by people owing to the broadcasting of the Olympic games on television. The top performing films during the quarter were The Dark Knight Rises, Brave (3D), Ted, The Amazing Spider-Man (3D) and Madagascar 3 (3D).

Operating income of Marcus declined 12.4% to $20.5 million, as the entertainment division's operating income fell 21.4%, partially offset by a 10.2% spike in the lodging division operating income.

Financial Position

During the quarter, the company repurchased 97,000 shares and its debt-to-total-capitalization ratio was 36%.  At the end of the quarter, the company had cash and cash equivalents of $14.3 million versus $12.4 million in 2012. Shareholder’s equity was $352.3 million as compared to $343.8 million in 2012.  
 
Our Take

Marcus reported lower-than-expected results in the first quarter of fiscal 2013. Concurrently, we expect the estimates to go down in the coming days. The Zacks Consensus Estimate for fiscal 2013 is pegged at 85 cents.

However, management remains focused on developing hotels under management contracts and therefore, recently announced a plan to buy The Cornhusker Hotel and its attached office property – The Cornhusker Office Plaza, situated in Lincoln, Nebraska. Moreover to boost its portfolio base, the company continues to make efforts to refurbish its existing properties. In the first quarter it completed the renovation of an AAA Four Diamond hotel - Hilton Milwaukee - located in the heart of downtown Milwaukee. Furthermore, with limited supply growth in the market, management expects to gain pricing power as the economy improves.

The company expects the upcoming quarter to be promising for Marcus Theater with films like Disney’s Frankenweenie (3D), Taken 2 and Paranormal Activity 4, scheduled for release in October 2012. The line of films scheduled for release in the upcoming holiday season in November includes Wreck-It Ralph, the next James Bond film Skyfall, The Twilight Saga: Breaking Dawn – Part 2, Life of Pi (3D) and Rise of the Guardians (3D). To further boost income, the division is focusing on extending its food and beverage concepts to additional theaters.

The Marcus Corporation currently carries a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. We also have a long-term ‘Outperform’ recommendation on the stock. Marcus competes with the likes of Wyndham Worldwide Corporation (WYN - Analyst Report) and Choice Hotels International Inc. (CHH - Snapshot Report) and more.

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