Adam Lenhardt
Senior HTF Member
Movie theaters poised for comeback in 2002
Reuters
Dec 28 2001 8:30PM
LOS ANGELES (Reuters) - After a long, cold intermission, the nation's beleaguered movie theaters are seeing the reels of business turn again, thanks to ogres, boy wizards, adult sorcerers and the shuttering of unprofitable locations.
A happy ending finally seems to be in sight for an industry hit hard by overbuilding, with many theater operators posting their first meaningful bottom-line gains in years.
Operators have helped themselves by shutting down less stellar theaters, but a boost has also come from recent box office hits that include "Harry Potter and the Sorcerer's Stone," "The Lord of the Rings: The Fellowship of the Ring," and "Shrek."
Investors have been applauding the fledgling turnaround this year, bidding up some companies' stock by as much as 350 percent.
"Most of the companies have basically gone through a restructuring," said John Maxwell, an entertainment analyst at BNP Paribas. "As companies complete the restructuring process, they're going to come out and emerge ... as healthier companies. They'll be more profitable."
A showcase of the industry's budding recovery is AMC Entertainment Inc., operator of the AMC theater chain and one of the few industry players that managed to avoid bankruptcy.
For the quarter ended Sept. 27, the company reported a net profit of $19 million -- a marked improvement from a net loss of $5.5 million for the comparable period the year before.
Even more telling, AMC reported operating income -- an important gauge of a company's health -- of $34.4 million in its latest quarter, a quantum leap from $1.3 million a year ago.
Over the same period, Kansas City, Missouri-based AMC opened five new theaters with 92 screens, but closed 20 older or underperforming theaters with 139 screens.
Investors have cheered the turnaround for much of 2001, bidding up AMC stock from a low of $2.88 a year ago to a close of $12.19 on Thursday. It was off 14 cents at $12.05 on the American Stock Exchange at mid-afternoon.
GREW TOO FAST
Other companies have reported similar turnarounds, though many remain in bankruptcy as they nurse themselves back to health.
Carmike Cinemas Inc., which filed for Chapter 11 bankruptcy in August 2000, reported net income of $11.1 million for its quarter ended Sept. 30, compared with a loss of $2.1 million in the year-ago quarter. The Columbus, Georgia-based company's operating income nearly tripled to $15.1 million from $5.3 million over the same period.
Loews Cineplex Corp., another major operator that filed for bankruptcy in February, reported a net loss of $9.9 million for the quarter ended Aug. 31, compared with a $55.5 million loss a year before. Operating income shot up to $15.5 million from a $31 million loss a year ago.
New York-based Loews said it had 276 theaters at the end of August, down from 376 a year before. Carmike's theater count fell to 329 from 390 over the same period.
Maxwell said that AMC, Carmike, Loews and other operators all fell victim to overbuilding during the 1990s.
"The industry wasn't the problem," he said. "It was the way these guys went about their growth program. They grew too fast."
Indeed, many of the nation's major theater operators added substantial capacity during the decade, on the assumption that newer theaters with state-of-the-art projection and sound systems would boost attendance.
Attendance did grow, but not nearly fast enough to justify the millions of dollars that theaters spent on new multiplexes. As a result, many theater operators found themselves saddled with huge debt loads that ultimately forced them into bankruptcy.
As they return to health, however, most companies should be able to emerge from bankruptcy in 2002 as meaner and leaner entities, Maxwell said.
A boost should come from a strong national box office that, despite the economic slowdown, is expected to generate revenues of more than $8 billion in 2001 compared with $7.7 million last year, according to Exhibitor Relations Co.
"The underlying business fundamentals remain relatively healthy," Maxwell said. "You combine that with a stronger box office and the lower screen counts ... and you're seeing an industry where more healthy companies begin to emerge."
Reuters/Variety
Does this mean theaters will finally stop raising ticket prices?
