Analyst: AMC Entertainment Sees a Dip in IMAX Performance
The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
AMC Entertainment (NYSE:AMC) will report Q2:14 results after the market close on Wednesday, July 30, and host a conference call at 2:00 p.m. pacific time (dial-in: 877-407-3982, webcast: investor.amctheatres.com).
We expect Q2:14 results in line with our below-consensus estimates for revenue of $739 million vs. consensus of $745 million and for EPS of $0.27 vs. consensus of $0.34.We expect a decrease in Q2:14 attendance per screen, a decrease in average ticket price from premium product underperformance, but market share gains from the continued roll-out of customer experience initiatives.
We expect that AMC’s higher exposure to IMAX and premium product performance will cause a drag during the quarter. Premium product did not have as much traction this year compared to Q2:13. IMAX domestic results were down year-over-year and other exhibitors with high exposure to premium screens cited premium product as a headwind during the quarter.
A consistent theme with the exhibitors we spoke to at CinemaCon in March was the testing or roll-out of the attendance and concessions initiatives we first highlighted in our AMC initiation report earlier this year. While competitors are trying to catch up to AMC, the company continues to innovate and introduce new concepts that we believe will keep the company ahead of the pack in the trend towards quality over quantity. Last quarter the company disclosed details regarding generation 2.0 of its recliner reseat initiative, which removes only half of the existing seats instead of the existing concept that requires two thirds of seats to be removed, Red Kitchen, AMC’s fast casual version of Dine-In Theatres, and AMC Prime, a proprietary premium sight and sound experience a level above ETX.
Q3:14 is off to a slow start, down 33 percent quarter-to-date.The Fourth of July weekend was the worst Independence Day weekend since 1999 and down over 40 percent year-over-year. Poor results were due to several factors, including a Friday Fourth of July shortening the weekend and large viewership of the World Cup.
Maintaining our OUTPERFORM rating and price target of $28. We arrive at our $28 price target by applying a roughly 8.5 times multiple to our 2014 EBITDA estimate and adding the value of AMC’s shares of National Cinemedia. This is a slight premium to the other exhibitors, which we feel is warranted considering AMC’s high-return initiatives and superior film rental margins.
Michael Pachter is an analyst at Wedbush Securities.