Regal Entertainment Earnings Outlook: Expect Lackluster Attendance

Regal Entertainment (NYSE:RGC) will report its Q4:11 results after the market close on Monday, February 13, and host a conference call at 1:30pm PT (dial-in: 877- 407-0778, webcast: We expect results in line with our recently revised estimates. We expect revenue of $615 million compared to consensus of $635 million, and EPS of $(0.02) compared to consensus of $0.03. Regal did not provide guidance.

We expect attendance per average screen of down 6.4%, in-line with Regal’s internal estimates and the industry average. Q4 attendance was relatively lackluster despite a release slate full of blockbusters. We believe that the studios should have better managed the release slate timing to optimize box office receipts, but instead it was over-crowded with single-genre weekends, causing a decline in attendance. We also expect relatively flat average ticket prices in Q4, as audiences appeared unwilling to pay premium ticket prices for the wide range of 3D fare offered in Q4, as a number of movies were not worth the incremental dollars.

Due to the relatively low concentration of Q4 box office revenue among the top 10 films, we expect modest margin expansion. The percentage of total Q4:11 box office within the top 10 films was 50.8% compared to 51.7% in Q4:10. Given the lower concentration, we expect film rental margins to be slightly higher year-over-year, and therefore modeled modest admission margin expansion. We believe there could be some upside to our concession margin assumption of flat year-over-year, should the company continue to improve this metric at the same run-rate it has over the previous six quarters.

Despite recently lowering our box office projections and 3D mix assumptions for 2012, we believe there could be upside to our numbers. We continue to believe that while 2011 was disappointing in relation to 2009 – 2010, it was in line with long term growth rates. We suspect that growth may continue at a rate faster than what we have modeled for 2012 should the studios produce more compelling fare worthy of premium ticket prices in the coming quarters.

Maintaining our NEUTRAL rating and $10.50 price target. After accounting for Regal’s ownership stake in National CineMedia, we arrive at a $10.50 price target, which reflects a 6.2x EV/Adjusted EBITDA multiple on 2012 estimates. This multiple reflects a stable business with low growth, while also reflecting debt levels.

Michael Pachter is an analyst at Wedbush Morgan.