As interest rates slowly rise from their post-financial crisis, near-zero level, many investors avoid consumer discretionary sector 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 Q3 2017, the third quarter of the year brought a total box office gross exceeding $2.15 billion. This places the movie theater industry well below where they were in Q3 of 2016, where the industry grossed $2.95 billion. It was actually the worst Q3 performance the industry had seen since 2005. These statistics do not include revenue from snacks, popcorn and beverages.
Despite the 2008 financial crisis and the Great Recession, movie theater box office revenues have been above $10 billion per year since 2009. The total box office revenues during gloomy 2008, at $9.78 billion, actually represented a $20 million increase from the previous year. These strong box office revenues through the Great Recession have attracted attention from the retail property management business. Malls need foot traffic. Movie theaters are desirable anchor tenants for malls 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 Holdings, Inc.
AMC Entertainment Holdings, Inc. (NYSE: 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 $1.9 billion, putting it near the lower end of the mid-cap spectrum. As of June. 30, 2017, AMC owned or operated over 1,000 theaters with more than 11,000 screens (NASDAQ: CKEC). On March 3, 2016, AMC announced it had entered into a definitive merger agreement to acquire all of the outstanding shares of Carmike for $30.00 per share in cash. The transaction, valued at approximately $1.1 billion, is subject to approval by the Federal Trade Commission (FTC) in accordance with antitrust laws.
Regal Entertainment Group
Regal Entertainment Group (NYSE: RGC) operates the largest movie theater chain in the United States. Accordingly, it is AMC Entertainment Holdings’ primary competitor. Regal operates 561 theaters with 7,315 screens. During calendar year 2016, Regal’s movie attendance exceeded 211 million. Regal concentrates on the markets of mid-sized metropolitan areas and suburban growth regions of larger metropolitan centers throughout the United States. Approximately 80% of Regal theaters offer stadium seating.
Regal Entertainment Group has a generous dividend yield of 3.89%. Between May 2002 and December 2015, Regal paid approximately $4.1 billion to its shareholders in the form of quarterly and extraordinary cash dividends. Regal experienced 5-year revenue growth of 3.62%, compared to the industry average of 2.1%. Regal has a trailing 12-month ROA of 8.11%.
Regal may soon no longer be an individual publicly traded company, as it was announced in December of 2017 that Regal would be selling itself to UK Cinema chain Cineworld (CINE) in order to compete with AMC and streaming services like Netflix. The proposed deal would see Cineworld buying Regal for $3.6 billion, paying $23 a share in cash.