COVID-19, the once-in-a-century global pandemic, has significantly impacted the financial performance of companies across multiple sectors with the movie theatre industry being particularly hit hard. Since mid-March, theatres have been shut down and it’s been a horrible year for theatre chains. Let’s see what the future holds for AMC Entertainment Holdings (NYSE: AMC).
Overview
AMC Entertainment, which operates theatres in 15 countries and leads in nine of those countries, generates revenues primarily from box office admissions and theatre food and beverage sales. The company also generates revenue from ancillary sources, including on-screen advertising, fees earned from AMC Stubs customer frequency membership program, rental of theatre auditoriums, income from gift card and exchange ticket sales, online ticketing fees and arcade games located in theatre lobbies. As of June 30, 2020, AMC owned, operated or had interests in 978 theatres and 10,833 screens worldwide.
Q2 results
AMC’s second quarter results were severely impacted by COVID-19 crisis as the company suspended all of its theatre operations in the US for the entire quarter and all of its international theatres for two-thirds of the quarter. International attendance was only 100,000 tickets sold compared to around 25 million in the second quarter of last year. The company swung to a loss of $561 million from a profit of $49 million in the prior-year quarter. Revenue plunged to $19 million from $1.51 billion in the year-ago quarter.
Reopening of screens
With the recent reopening of screens, AMC has opened approximately 70% of its US theatre count. Last week, the company started the screening of movies with Warner Bros.’ Tenet. The upcoming releases include The New Mutants, Unhinged, Words On Bathroom Walls, The Personal History of David Copperfield, followed by Broken Hearts Gallery on September 11, Infidel on September 18, and Greenland on September 25.
“Our comprehensive commitment to operating our theatres safely now includes social distancing through limiting ticket sales and automatic seat blocking, seamless contactless ticketing, greatly enhanced cleaning procedures, the availability of hand sanitizer and disinfecting wipes throughout our theatres, as well as a mandatory mask policy for all guests and crew members. We’re also closely monitoring local and state guidance, and we are complying with any additional capacity restrictions. In addition, we have invested millions for high tech solutions to sanitization and disinfection, including electrostatic sprayers, HEPA vacuums and MERV 13 air filters.” – Adam Aron, CEO
Expectations on recovery
Theatre chains have been some of the hardest-hit companies by the economic recession, not only because of the sudden loss of demand but also because they went into the pandemic with high levels of debt on their balance sheets. To get successful reopening, AMC has to get enough customer traffic to compensate the cost of operations.
Also read: Disney + is strong enough but Walt Disney (DIS) needs its theme parks back soon
Final word
AMC stock had gained 19% in the past three months and dropped 3% since the beginning of this year. Debt, higher expenses on maintaining a safe and clean environment in theatres, and uncertainties over the return of customer traffic remain the main headwinds for the world’s largest theatrical chain. AMC had even cautioned investors in April that it could file for bankruptcy protection, though the company has so far managed to avoid that. So, investors can watch how the company performs in the next few quarters and then make a decision.
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