As interest rates rebound from near-zero levels following the Great Recession, many investors have chosen to avoid consumer discretionary stocks. The consumer discretionary sector has exposure to economic cycles, resulting in profit declines during sluggish economic periods.
Although the movie exhibition industry is part of the consumer discretionary sector, it has its own cycles. The movie theater industry’s cycles result from seasonal viewership. Its strongest viewing seasons are during the Christmas holidays and throughout the summer. As a result, movie studios release their high-budget movies during one of those two viewing seasons.
With movie ticket prices averaging $8.93 in the third quarter of 2019, the quarter brought a total box office gross exceeding $2.8 billion. This places the movie theater industry above the $2.7 billion in proceeds from the same quarter last year.
Box office revenues since the Great Recession have been solid, attracting the attention of the retail property management business. Malls need foot traffic and movie theaters are desirable anchor tenants because they enhance that traffic. Resilient box office revenues in the era of streaming availability of first-run movies are driving investors to load their portfolios with movie theater stocks.
AMC Entertainment (AMC) has a unique history. On Aug. 30, 2012, Chinese conglomerate Dalian Wanda Group purchased AMC Entertainment Holdings, Inc. from a consortium of investors at a cost of over $2.6 billion.
Some of the consortium members included J.P. Morgan Partners LLC, The Carlyle Group and affiliates of Bain Capital Partners. On Dec. 18, 2013, Dalian Wanda Group took AMC Entertainment Holdings public by way of an initial public offering (IPO), while retaining 80% ownership of AMC.
AMC Entertainment Holdings has a market capitalization of $727 million, putting it near the lower end of the mid-cap spectrum. As of the end of 2018, AMC owned or operated over 600 theaters with more than 8,000 screens. In 2016, AMC acquired Carmike Cinemas.
Regal Entertainment Group
Regal Entertainment Group is the largest movie theater chain in the U.S., but it's now owned by the U.K.-based company Cineworld, which purchased Regal in 2017. This $2.5 billion market cap company owns 790 theatres across 11 countries.
Accordingly, it is AMC Entertainment Holdings’ primary competitor. Regal had previously concentrated on the markets of mid-sized metropolitan areas and suburban growth regions of larger metropolitan centers throughout the U.S. Some 80% of Regal theaters had offered stadium seating.
Since Regal, and its previously hefty dividend yield, is no longer a public company, investors are left with AMC if they're looking to get exposure to this unique part of the consumer discretionary market.