Exhibition industry investors are raising the question today after the No. 1 chain whiffed in its Q4 earnings report last night. Revenues and earnings fell short of expectations. But many are particularly concerned about the disclosure that attendance per screen fell 7.8% in Q4 to 7,336. (Revenues still increased, helped by a 4.7% jump in the average outlay for a ticket — to $9.28 — mostly from people willing to pay extra to see Gravity in 3D.) The report chilled some investors: Exhibition stocks are lagging the overall market, which is up, with Regal -1.5% in afternoon trading. The weak attendance number feeds into the concern that 2014 will be a blah year at the box office. Although Q1 results are tracking ahead of expectations “we are projecting a modest 1% decline for the year with an especially difficult summer comparison,” MKM Partners’ Eric Handler says. Short interest — the number of investors betting that a stock will go down — “has increased to 16.7M shares, representing 19 days of average volume,” Benchmark Co analyst Mike Hickey notes. But Janney Capital Markets’ Tony Wible says things may be better than Regal’s Q4 numbers suggest. The year end results “may have been skewed” by the launch of Sony’s PlayStation 4 and Microsoft’s XBox One game consoles. They “sold more units in their first day …
The numbers are strong, although apparently not enough to excite investors. Shares are up 0.2% post market after the leading exhibition company said it generated net income of $75.1M, +212.9% vs last year’s Q3, on revenues of $813.1M, +17.4%. Analysts expected revenues to come in lower at $800.4M. Adjusted earnings at 38 cents a share beat the consensus forecast of 30 cents. The chain says that it sold 62.4M tickets in the quarter, +16.4%, with an average ticket price of $8.79, unchanged from last year. That resulted in admissions revenue of $548.4M. The average visitor spent $3.59 on concessions, +2.6%, driving total revenues of $224.1M. CEO Amy Miles says that she’s “encouraged by the year-to-date industry box office results and [is] optimistic regarding the box office prospects for the upcoming holiday season.”
Regal and NCM Fathon Events will host midnight screenings of Syfy’s strangely popular Sharknado! on August 2, with the TV movie set for about 200 screens in NCM’s Digital Broadcast Network. Sharknado! premiered on Syfy on July 11, drawing just 1.4 million total viewers. But social media interest was high — most of the media reporting was about that more than about the movie itself, which stars Ian Ziering and Tara Reid as part of a group that investigates the ecological nightmare of sharks falling from the skies and swimming through the streets of LA. A repeat viewing a week later on Syfy drew about a half-million more viewers, and the network has already ordered a sequel (or a prequel) to air in 2014.
CEO Amy Miles seems confident that consumers will continue to flock to theaters, even with the higher admission costs. “Sometimes we joke and say we are an industry that has been dying for the past 50 years,” she told investors today at Barclays Global Technology, Media and Telecommunications Conference. But “as long as we continue to provide that great, affordable out-of-home experience…people are going to continue to go to the movies.” What’s “affordable” is in the eye of the beholder: Regal CFO David Ownby told the group that his company’s ticket prices for 2D movies “will go up in that 3% to 4% range” that’s been the pattern over the last few years. He notes that for IMAX movies Regal adds as much as $6.50 to the price of the basic 2D ticket. The chain’s own RPX large-screen venues have as much as a $5.00 upcharge while regular 3D films cost about $3.50 more than conventional 2D. This year’s potential blockbusters should help the cause.
The Affordable Care Act — also known as ObamaCare – is designed to help provide health insurance coverage for those who are least able to pay. But exhibition execs attending CinemaCon this week are quietly planning to minimize the law’s impact on them when it takes full effect in 2014, even if it means penalizing part time employees who might stand to benefit. Theaters are most concerned about a provision that requires companies to provide coverage for those working at least 30 hours a week, not just full-time employees who work at least 40 hours. So, guess what? Theaters are beginning to reduce part timers’ to less than 30 hours a week. “All of [the major theater companies] are making adjustments in the workforce,” Stephen Gooding, President of Reynolds & Reynolds — an insurance firm that specializes in exhibition concerns — tells me. When it comes to preparing for the changes “the very large circuits are ahead of the curve, but the smaller and midsized ones are just realizing and going ‘Oh, my’.” For example, Regal Entertainment has begun to cut part-timers” hours, and told managers to pin the blame on ObamaCare, according to a memo obtained by Fox News. Progressive activist group Think Progress pointedly …
We’ll probably see several announcements like this over the next few days as theater owners converge on Las Vegas for their annual confab. The nation’s largest exhibition chain says it will stick with Comcast-owned Fandango to 2018 as execs touted its ability to offer print-at-home ticketing, paperless Mobile Ticket service, and reserved seating. “Our partnership with Fandango has led to breakthroughs in the areas of online and mobile, adding value to Regal’s guests with mobile ticketing and mobile barcode ticket scanning,” Regal CEO Amy Miles says. The companies disclosed no financial terms.
Last year was a good one for the exhibition industry, and the CEO of the No. 1 theater chain. Regal gave Amy Miles the highest compensation package she has seen since 2009, according to the company proxy just filed at the SEC. It included $800,000 in salary, $1.79M in stock awards, $1.2M in non-equity compensation, and $668,409 in other compensation. Miles’ compensation was 2.8 times higher than the median for the three other executives listed in the proxy, in the safe zone for corporate watchdogs wary of excessive CEO power. Regal shares appreciated 16.8% last year. The company plans to hold its annual meeting on May 8 in Knoxville, TN.
The stock is up 3.9% in post market trading after Regal declared a $1 a share special cash dividend, on top of its previously announced 21 cent quarterly payment. The company says that it intends to keep paying that quarterly dividend for the “foreseeable future.” The announcement, which coincides with Regal’s acquisition of the 25-theater Great Escape circuit, demonstrates its “commitment to delivering shareholder value,” CEO Amy Miles says. Regal is just the latest company to award a special dividend before the end of the year when taxes on such payments could change. (For example, Disney raised its dividend yesterday.) Unless there’s a deal in Washington to avoid the so-called “fiscal cliff,” a collection of tax and austerity measures that nobody seems to want, the policy to tax dividends as capital gains will expire. That could raise the rate to 39.6% from 15%. Regal’s $1 payment is “less than we had projected was possible given the low leverage ratio, improving free cash flow trends” and a recent shelf filing, B. Riley & Co analyst Eric Wold says. But it may indicate that Regal has “more acquisitions to come” following the $91M it paid for Great Escape.
Nomura Equity Research’s Robert Fishman and Michael Nathanson slashed Q3 earnings forecasts for exhibition chains Regal and Cinemark after noting that industry sales in the quarter will be -8% vs last year — which is “worse than we expected.” They cut Regal by nearly 49% to 16 cents a share, which they say is 6 cents lower than the consensus forecast from their peers. And they took Cinemark down 22% to 35 cents a share, 7 cents below the Street’s expectations. Theaters were hurt because only about seven films in Q3 are likely to generate $100M or more at domestic box offices vs nine films that did so in the period last year. As a result, the analysts cut their domestic box office projection for the year to $10.6B (it had been $10.9B), which would still be up 4% for all of 2011. They remain optimistic that holiday releases including Lionsgate’s The Twilight Saga: Breaking Dawn Part 2, Warner Bros’ The Hobbit: An Unexpected Journey, and Sony/MGM’s James Bond film Skyfall will contribute to a bounce-back resulting in a 7% increase in Q4 sales vs last year.
The earnings statement from the largest theater chain begins with a statement from CEO Amy Miles about last week’s shooting in Aurora. “We believe that movie theatres have always been and will continue to be places where friends, families and communities can safely gather together for a few hours of fun and entertainment,” she says. “We were devastated and heartbroken by the senseless acts that took place in one of those theatres last week, but remain committed to providing a safe and secure environment for our guests.” There was virtually no commentary about the Q2 results themselves, which were mixed. Regal reported net income of $37.2M, up 6.9% vs the same period last year, on revenues of $723.3M, -4%. The revenue figure missed analysts’ expectation for $732.9M. But adjusted earnings at 25 cents a share beat the 20 cent forecasts. Attendance at 54,297 was down 8.5% from last year — but at 6,552 screens, down about 100. The average ticket price was $9.11, up from $8.75. Concessions revenues also were up to $3.55 per patron from $3.37.
The exhibition chains are weighing in with their response to the Colorado theater shooting.
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We are shocked and saddened by last night’s tragedy in Aurora, Colorado and extend our deepest sympathies to the family and friends of those affected. The safety and security of our guests remains our top priority, and while we believe this was an isolated incident, we have security measures in place for our upcoming shows.
Cineplex Entertainment will donate a portion of the proceeds from tonight’s box office to the Red Cross RespectED: Violence and Abuse Prevention program. This program provides violence and abuse prevention education in schools and communities across Canada.
Everyone at Landmark is stunned and saddened at this horrible tragedy in Aurora. Our hearts go out to the victims, their families and friends as well as everyone who was at the theatre. Guest safety which has always been of utmost importance will continue to be a major priority for us and all theatre operators. What was one of the world’s most anticipated nights of movie-going has now been affected in the worst imaginable way. Although the media coverage naturally is focused on the shooter, it is the innocent victims and their families who we mourn for today.
We are profoundly saddened by the tragedy that occurred
They’re up about 3.6% in post-market trading following CEO Amy Miles’ disclosure that the exhibition company had its “highest ever first quarter” measured by cash flow. The theater chain generated net income of $46.3M, up from a $23.6M loss in the period last year, on revenues of $684.9M, up nearly 20%. Analysts expected revenues to come in at $670.2M. Yet earnings, at 30 cents a share, stood out vs expectations of 14 cents. Revenues from ticket sales were up 20% to $474.1M as admissions grew 16.1% to 53.7M. The average ticket price, at $8.83, was up 31 cents vs last year’s Q1. Concession sales hit $180M, up about 19%, while spending per patron rose 8 cents to $3.35. Miles attributed the gains to “a strong film slate combined with our continued focus on cost control.” She adds that she’s “excited about the upcoming summer movie season” and is “optimistic about the potential for box office success for the remainder of 2012.”
Don’t become too giddy over the MPAA’s optimistic forecast last week for the theatrical movie business, and the record sales for The Hunger Games. Nomura Securities analyst Robert Fishman warns today in a 91-page first look at the exhibition business that chains are in for a tough couple of years after 2012 is over, with admissions falling slowly but steadily from 2013 through 2016. He says domestic box office sales slid 3.8% last year to $10.2B while attendance dropped 4.2% to 1.3B, and that’s “just the beginning of emerging secular headwinds facing the box office.” MPAA data shows that from 2000 to 2011 the percentage of people who frequently go to the movies dropped to 10% from 30% while the ranks of those who never attend grew to 33% from 26%, Fishman says. The biggest drop was among young people. The analyst also says theaters could suffer as the major studios begin to slash the number of movies they make. Although smaller producers have picked up some of the slack, “we do not think the scale of the majority of these other films will be sufficient” to draw the same number of ticket-buyers who typically turn out to see big studio productions. Fishman also notes that consumers are rebelling against high priced tickets — including for 3D. And he fears that theaters will be hurt by changing release patterns, including premium VOD. “Based on our discussion with different studios,” Fishman says, “we believe there is likely to be another push for premium VOD either towards the end of the year or next year.”
UPDATE, 2:30 PM: “You had a lot of weekends (including Thanksgiving) when the box office was dominated by kids’ pictures” which lowered the average ticket price, CEO Amy Miles told analysts in a conference call. When she talks to execs “the theme from the studios was, ‘maybe we can do a better job with scheduling’.” In addition to the drop in number of tickets sold in Q4, Regal patrons were less likely to pay extra for a 3D or Imax showing: Premium tickets accounted for 17% of the revenues for the quarter vs 24% in 2010 when audiences turned out for Fox’s Avatar and Disney’s Alice In Wonderland. But Miles says she’s optimistic about the releases due in 2012. Regal’s sales are already up 19% in the year’s first 6 1/2 weeks vs the same period last year. Films she singled out included Disney’s John Carter, Universal’s Dr Seuss’ The Lorax, Lionsgate’s The Hunger Games, Marvel’s The Avengers, and Warner Bros’ Dark Knight Rises and The Hobbit. She says that customers like Regal’s expanded food menus, which it will introduce at additional locations this year. And she likes the early performance of film distribution venture Open Road, which is half-owned by Regal. She expects the company’s first two films, Killer Elite and The Grey, to become profitable as they go through different distribution channels.
PREVIOUS 1:15 PM: The movie exhibition chain offered data to support bulls and bears alike …
B. Riley analyst Eric Wold says it will in a major look-forward report today for the film business. He predicts 4% growth in box office sales this year — the result of a 1% uptick in attendance and a 3% rise in average ticket prices. What makes him so confident, especially following the 3.9% drop in 2011? Wold says that more consumers would have gone to the movies last year if Hollywood hadn’t released so many dogs. He dismisses another theory: that tickets are becoming too expensive. If that were the case, he says, then we would have seen soft numbers throughout the year — instead box offices set records in Q2 and Q3. He’s also optimistic about 2012 because there’ll be at least 25 sequels of films that collectively generated $3.64B at box offices. Sequels typically deliver about 6% less in ticket sales than the originals. But even if 2012′s films slip 20%, consumers will spend 12% more than they did for sequels in 2010. That could “set up 2012 for a potential rebound,” Wold says. He’s also encouraged to see that there’ll be at least 40 wide-release 3D
The weak box office sales this past weekend made it clear that the year is going to end with a whimper. Regal’s shares fell 8.7%, making it the biggest loser among the theater chains followed by Carmike (-4.9%) and Cinemark (-2.9%). Companies closely aligned with theaters also suffered: 3-D technology provider RealD fell 6.2% while ad seller National Cinemedia was off nearly 3%. “The hoped-for 4Q11 box office pop is slipping away,” says Lazard Capital Markets analyst Barton Crockett. Ticket sales so far this quarter are down about 6.9% vs the same period last year, he says. He predicts the quarter will end down 1.9% following an expected surge of Christmas weekend turnout for Paramount’s Mission: Impossible Ghost Protocol as it goes into wide release, Warner Bros’ Sherlock Holmes: A Game Of Shadows, Sony’s The Girl With The Dragon Tatoo, Fox’s Alvin And The Chipmunks: Chipwrecked, and Paramount’s The Adventures Of Tintin.
The exhibition company’s per-share earnings of 16 cents narrowly beat the 15 cents that analysts expected. But the 3Q revenues of $743.6M, up 6.8% from the period last year, were well ahead of the $729.2M forecast. Net income came in at $25M, down from $42.6M last year — but that included a $31.4M one-time gain from the sale of stock in National CineMedia. “We are pleased that industry attendance growth combined with our continued focus on cost control allowed us to achieve significant growth in both adjusted EBITDA and adjusted EBITDA margin for the second consecutive quarter,” CEO Amy Miles said. She added that the company is “encouraged by the record summer box office and remain(s) optimistic regarding the upcoming holiday film slate.” In addition to the earnings news, Regal declared a cash dividend of 21 cents a share that it will pay on December 16 to stockholders of record on December 7. Regal says that it “intends to pay a regular quarterly dividend for the foreseeable future.”
Sony’s warning that it will stop subsidizing 3D glasses is “bluster over substance,” Lazard Capital Markets analyst Barton Crockett says today. He’s struck that the National Association of Theatre Owners is vigorously opposing the idea while he’s heard no word — publicly or privately — about whether Warner Bros or Paramount might back Sony. “With theaters united and studios split, we see little chance of a studio victory,” Crockett says. What’s more, there’s “little chance” that consumers will be “stuck with big extra charges.” He raises the possibility of a compromise in which theaters would benefit from lower-cost distribution for the glasses, while studios reduce their payments — now at about 50 cents a pair — and consumers kick in about 25 cents a pair. “But even that seems unlikely,” he says. The analyst has a “buy” recommendation on Cinemark and National CineMedia but is “neutral” on Regal Entertainment.
Regal Entertainment is partnering with Hannover House and Patriot Pictures to exclusively screen the Christina Ricci comedy All’s Faire In Love. Hannover plans a full marketing push for the release, which is set for Friday, October 28; tickets go on sale October 14. The film, set in the world of Renaissance fairs, centers on the fight for the fair’s top Shakespearean stage between Ricci’s acting troupe and a devious rival actor’s gang. Owen Benjamin, Cedric the Entertainer and Chris Wylde co-star in the movie, which made the festival-circuit rounds in 2009 after showing in the Cannes market that year.