Analyst: Family Friendly Films Bring Higher Attendance to Regal Theaters

Source: Thinkstock

Source: Thinkstock

Revenues came in above expectations driven by higher concessions revenues, while EBITDA came in lower than our estimates due to higher than expected film rental costs. Revenue was $727 million, compared with our estimate of $721 million, and the consensus estimate of $717 million. Adjusted EBITDA was $137 million, compared with our estimate of $141 million. EPS was $(0.01), compared with our estimate of $0.03, compared with the consensus estimate of $0.18, however adjusted EPS was $0.20 (excluding $0.21 per share in one-time charges) slightly closer to our adjusted EPS expectations of $0.22.

A consistent theme with the exhibitors we spoke with 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. Regal (NYSE:RGC) plans on investing in several key areas including expanding its Premium Large Format screens, investing in alternative concessions options, and expanding its tests in luxury recliner seating.

Concessions revenues exceeded our expectations by $8 million during the quarter. This was driven by higher than expected attendance and higher average concessions per patron. The release slate this quarter was dominated by family friendly movies, which tend to drive a higher attach rate for concessions sales.

Other than The Nut Job, Open Road Films’ box office results this year have been sub-par. Sabotage and A Haunted House 2 performed poorly at the domestic box office compared to historic releases from the distributor.

We are increasing our FY:14 estimates for revenues slightly to $3.21 billion from $3.20 billion, lowering adjusted EBITDA to $667 million from of $672 million, and lowering EPS to $1.02 from $1.04 to reflect the quarter’s results. We are initiating our FY:15 estimates for revenues of $3.34 billion, adjusted EBITDA of $744 million, and EPS of $1.50 to reflect expectations for a strong FY:15 box office film slate with The Avengers sequel, The Hunger Games finale, and a Star Wars film scheduled for release during the year. The company once again did not provide forward guidance.

Maintaining our NEUTRAL rating, and price target of $21.50. After accounting for Regal’s ownership stake in National Cinemedia, we arrive at a $21.50 price target. This reflects a roughly 7.5x EV/adjusted EBITDA multiple on our 201

Michael Pachter is an analyst at Wedbush Securities.  

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