AMC Entertainment’s (NYSE: AMC) share price dropped nearly 3% in the pre-market trading hours today after the exhibitor reported higher losses in the first quarter than estimates. However, revenue exceeded analyst expectations. The company’s stock has increased above 19% this year after hitting a new 52-week low level of $11.66 in late December.
Due to seasonal softness in the film releases, attendance dropped 12.2% (US traffic down 11.1%; International down 14.5%). Average ticket price decreased 4.8% to $9.16, while food and beverage revenue per patron bucked the trend improving 3.6% to $4.62 aided by renovations in the theatres, improving growth from the loyalty and AMC Stubs A-List subscription program.
For the first quarter, revenue dropped 13.2% to $1.2 billion due to lower traffic witnessed in the quarter. It’s worth noting that Q1 is a seasonally weak quarter for AMC due to the absence of marquee releases. In addition, last quarter’s results were lifted by the release of Black Panther, which was missing in the first quarter of this year. However, the top line surpassed $1.19 billion expected by the street.
AMC’s loss came in at $1.25 per share compared to earnings of $0.14 per share in the last quarter. Apart from seasonal softness, the surge in the loss was due to an increase in rent expenses (up 28%) and a decrease in the market value of assets resulting in a $28.4 million. The street was expecting a loss of 54 cents per share, which the company missed by a huge margin.
Operating cash flow reduced to $1.4 million compared to $165.4 million in the prior year and adjusted free cash flow was a negative $49.8 million compared to $113.4 million. Adjusted EBITDA dropped 61.1% to $108.2 million hurt by weaker revenues and increased expenses.
Optimistic Outlook
For the rest of 2019, AMC sounded optimistic based on the strong pipeline of film releases which is going to augur well for the exhibitor. Commenting on the outlook, CEO Adam Aron said, “We are optimistic that the full year 2019 box office will be at least as strong as 2018, and potentially could be the first year ever that the domestic box office breaks $12 billion.”
Investors can expect second quarter results to be better as AVENGERS: ENDGAME is having a great run in the box office both in the US and across the world. CEO Aron added, “Grossing well over $2 billion globally in just its first two weeks in theatres, AVENGERS: ENDGAME continues to validate the appeal to consumers of seeing high-quality movies, communally, in theatres, on the big screen.”
Growing Subscriptions
AMC’s Stubs A-List subscription program surpassed 785,000 members. The program was launched in June last year and the growth has exceeded the company’s expectations. In the first quarter, AMC has hiked its membership fee by 10% in 10 states and 20% in five states. The healthy growth of subscribers would bring in recurring revenues throughout the year, helping the firm to offset seasonality.
Debt Concerns
The company’s debt at the end of the first quarter rose modestly to $4.75 billion. The surge in debt was mainly due to its buyout of firms in the US and Europe (Carmike, Odeon, Nordic). In addition, AMC has been investing in renovating its properties to improve customer experience. It has been replacing its existing seating with recliner seats in the US.
AMC expects these investments to be accretive to earnings in the near future. However, investors would be keeping an eye on the debt and how the company plans to reduce it over the course of the year.