Cars drive near an AMC theater in New York City on March 29, 2023.
Leonardo Munoz | View Press | Corbis news | Getty Images
The domestic box office is recovering after posting the highest ticket sales in the third quarter since the pandemic. However, the largest cinema chain in the world is not on such a solid foundation.
AMC operates approximately 900 theaters and 10,000 screens worldwide, a larger footprint than its major rivals Cinema and Regal. Still, even before the pandemic, the company is struggling with a significant debt burden, which may prevent the company from taking full advantage of the theater industry's revival.
CEO Adam Aron, who took the helm of the company in 2015, spent much of his early days acquiring other chains and outfitting existing theaters with luxury seating. By the time the Covid pandemic closed theaters and shuttered Hollywood, AMC was already $5 billion in the red.
Four years later, the company still has more than $4 billion in long-term debt on its books. Although it has managed to refinance and extend maturities to 2029 and beyond, interest payments continue to weigh on operating income.
“They've taken steps to reduce their debt, but they still have a lot of debt and are still paying pretty high interest rates on it,” said Eric Wold, an analyst at B. Riley.
In the third quarter, AMC's revenues exceeded expenses, but about $100 million in interest payments left the company with a loss of nearly $21 million for the period.
“I don't think it will be consistently profitable for years to come,” Wold said.
In the meantime, AMC is taking steps to improve its revenues and lure longtime moviegoers back to theaters, analysts told CNBC. With improved and robust film plans for 2025 and 2026, the cinema chain has opportunities to capitalize on improving box office trends – if it can keep an eye on cash flow.
A boost from a blockbuster-filled slate
Domestic box office reached $2.71 billion in ticket sales in the third quarter, up just under a percent from the same period last year, according to Comscore data. The improvement, however small, is impressive when you consider that the same time frame in 2023 saw the cultural phenomenon 'Barbenheimer' take place.
The double release of Warner Bros.' “Barbie” and Universal “Oppenheimer” took the box office by storm, generating nearly $250 million domestically in its opening weekend. The pair of films managed to rake in almost $1 billion in North America as part of a global haul of almost $2.4 billion.
This year the third quarter was helped by Disney and Marvel's “Deadpool & Wolverine,” which grossed $631 million domestically between its July 26 release and September 30, along with about $360 million from Universal's “Despicable Me 4,” $267 million from Universal's “Twisters,” and $250 million from Warner Brittle.' “Beetlejuice Beetlejuice” and $183 million from Disney and Pixar’s “Inside Out 2,” which was released in June.
Despite its better-than-expected box office performance, AMC saw attendance decline 12% during the period. By comparison, Cinemark saw only a 2.4% decline in global attendance this quarter.
Hugh Jackman and Ryan Reynolds star in Marvel's 'Deadpool & Wolverine'.
Disney
AMC attributed the decline to a Hollywood film that it said did not catch on as well in Europe as it did in North America, noting that attendance in the region fell 16%. The majority of AMC's theaters, about 62%, are in the US, with Europe accounting for about 37% of its footprint. Another 1.4% are in Saudi Arabia, according to reports filed in February.
And it noted that the success of “Barbie” and “Oppenheimer” during the same period a year earlier led to tougher comparisons.
AMC also reported a decline in third-quarter movie attendance in urban centers like New York and Los Angeles, where the company has its largest presence. Wold noted that this was likely because the summer movies were heavily populated with family-friendly films, which typically draw audiences in more suburban areas.
AMC Should Be in Better Shape in Q4 as Universal's 'Wicked' Paramounts 'Gladiator II' and Disney's 'Moana 2' are competing for share of premium large-format screens during the Thanksgiving holiday. Plus, Disney's “Mufasa: The Lion King” arrives in December Sonys R-rated “Kraven the Hunter” and Paramount’s “Sonic the Hedgehog 3.”
Wicked, Gladiator II and Moana 2 movie posters.
Sources: Universal (L), Paramount (C) and Disney (R)
Looking ahead, expectations for 2025 and 2026 are expected to be even better as Hollywood production, which was disrupted by twin labor strikes in 2023, returns to normal release rates.
While the third quarter of 2024 saw 31 wide releases – films that opened or ended up playing in more than 1,500 locations – higher than the totals in both 2023 and 2019, the number of wide releases for the full year still lags at pre-pandemic levels.
More than half of next year's releases are tied to existing film franchises or popular intellectual properties, which could draw entrenched fan bases to theaters but also likely means they will compete for time in premium large-format theaters.
The premium push
AMC theaters currently house nearly half of all theaters IMAXs American screens and all that Dolbies American Dolby Cinema branded screens. In total, it has more than 550 premium large format screens worldwide.
And the company plans to invest in even more.
“We know with certainty from our customer data that moviegoers are increasingly seeking out our premium large format screens,” Aron said during AMC's quarterly earnings call earlier this month. “For example, on average in the US, our PLF screens quadruple the revenue of our non-PLF homes. You all know the saying, 'Fish where the fish are.'”
As part of what AMC calls its “Go Plan,” the company will invest between $1 billion and $1.5 billion over the next four to seven years to improve its theaters in the U.S. and Europe. This includes adding more IMAX screens and updating existing ones with new laser projectors, increasing the number of Dolby Cinemas at AMC locations and updating auditoriums where the screen is at least 40 feet wide to be part of the XL branding and 4K laser projection.
General atmosphere during the Imax private screening of the film “First Man” at an Imax AMC Theater in New York City on October 10, 2018.
Lars Niki | Getty Images Entertainment | Getty Images
“Like [AMC is] By 2025, and the really improved release slate, they're also looking at where they can spend money, where they can invest in the company and where they can improve the company,” said Alicia Reese, an analyst at Wedbush. “They have a lot of talk. about new investments and upgrading their theaters and expanding their premium screens by adding XL screens. That's a lot of money, a lot of capital investment. And I just think they need to approach this in a very balanced way. You know, keep cash.”
Reese isn't the only Wall Street analyst to suggest AMC should exercise caution in making these upgrades.
Eric Handler of Roth Capital Markets noted that the upcoming slate of films will allow the company, which has had to be “very frugal with its money” in recent years, to make much-needed updates, but “they can't go crazy. “
“They still have to be judicious with their cash flow,” he said.
More shares, more problems?
To raise money, AMC has traditionally issued more shares.
The company raised billions during the Covid pandemic by selling new shares, helping it pay down its debt and avoid bankruptcy at a time when movie theaters were closed or only a limited number of products were available to show to the public.
However, investors, including AMC's most loyal fans, have come to fear dilution and have rejected the company's attempts to issue additional shares in the past. According to FactSet, AMC currently has approximately 372 million shares outstanding.
“They said they would consider using their equity to finance capex projects,” Handler said. “And here we are again. If you're an equity investor, you can dilute further to finance these capital investment projects. They can issue more shares, and you know, the number of shares is 20 times what it was before the capital injection. So the equity shareholders have to are still really reaping the benefits of the improvements in the company.”
While AMC shares have posted some gains over the past month, the shares are down more than 26% so far this year and are down more than 43% since the same time last year. The stock has been fluctuating between $4 and $5 each for months.
In the meantime, AMC has closed underperforming theaters as their leases need to be renegotiated, saving some money for other businesses.
“They're trying to shift the footprint so they can maintain their market share gains,” Reese says. “They continue to improve revenue per screen and revenue per visitor with merchandising and popcorn buckets and the like. So all the numbers are moving in the right direction.”
Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal is the distributor of “Wicked.”