AMC Entertainment: Navigating Tough Times Ahead (NYSE:AMC)
As a child and teenager, one of my favorite things to do was going to the movies. Sitting in a dark theater, watching the latest smash hit film, eating popcorn, and drinking soda, was a great way to pass the time. So it pains me the stance that I have to take when it comes to AMC Entertainment Holdings (NYSE:AMC), a massive global operator of movie theaters. For some time now, I have been bearish on the business. Its troubles really began with the COVID-19 pandemic. And even though that is now long over, the firm continues to struggle from low attendance rates driven in large part by the delayed impact of worker strikes in Hollywood last year.
In my last article about the company, published in May of this year, I ended up downgrading the stock from a ‘sell’ to a ‘strong sell’. This came after shares had skyrocketed 180.7% since my prior article on the firm in what many have considered to be the second meme stock rally. My conclusion at the time was that this move higher tremendously overvalued the business given the troubles that it is facing. And so far, that call has proven to be correct. Since my most recent article, shares are down 17.9% while the S&P 500 is up 6.6%. And since I first rated the company a ‘sell’ back in January of 2021, shares are down 93% while the S&P 500 is up 51%.
Fundamentally speaking, AMC Entertainment is suffering a great deal. As an example, we need only look at the most recent data provided by management, which would cover the second quarter of the 2024 fiscal year. Revenue during that time was $1.03 billion. That’s a drop of 23.5% compared to the $1.35 billion the company generated just one year earlier. This was driven by a plunge in attendance. In the US, attendance at its theaters totaled 36.49 million in the second quarter. That was down precipitously from the 50.02 million reported the same time last year. International attendance, meanwhile, dropped from 16.35 million to 13.52 million. All told, global attendance for the company declined 24.6% year over year.
Part of this can be attributed to a decline in the number of theaters and, by extension, screens that the company has in operation. In the US, the number of theaters dropped from 569 to 554. And internationally, the number dropped from 337 to 332. Collectively, this brought the number of theaters down globally from 906 to 886, with the number of screens falling from 10,120 to 9,889. For some time now, management has been closing down underperforming locations. This makes sense when you consider the problems the industry has gone through and the fact that the company has had issues regarding profits and cash flows. Between 2021 and 2023, the company saw net operating cash outflows of $1.66 billion. This picture had improved from one year to the next, largely because of a recovery following the COVID-19 pandemic, but it has not improved enough in order to make the company healthy again.
Another problem for the company this year has been a reduction in the number of major films released by studios. The number of films planned for the 2024 box office was lower than what was seen in the prior year, with a forecast for the number of films coming from all production studios expected to decline from 150 last year to 128 this year. However, there have been a couple of major box office hits lately, with films like Inside Out 2 and Deadpool & Wolverine proving to be successful. These successes will likely encourage production studios to start investing more in theatrical content, which could lead to a more meaningful and sustained recovery for the industry in the future.
In a press release issued on July 29th, AMC Entertainment stated that over 6 million moviegoers watched a film at one of its theaters in the US between July 26th and July 28th. This made it the company’s highest weekend of attendance and admissions revenue so far this year. Furthermore, it was the highest weekend for food and beverage revenue that the company had seen since 2019. However, on the bottom line, the company generated a net loss of $32.8 million in the most recent quarter, far worse than the $8.6 million gain reported one year earlier. Operating cash flow worsened from negative $13.4 million to negative $34.6 million, and EBITDA plummeted from $182.5 million to $29.4 million.
Management has been making efforts to navigate these difficult times. In late July, they engaged in refinancing transactions, swapping out existing term loans and issuing new term loans that will come due in 2029. The company also issued exchangeable notes for cash to repurchase second lien notes. These transactions will impact the company’s bottom line, with potential dilution of up to 28.6% in shares. Despite these efforts, the company still faces significant challenges with its debt, cash flow problems, declining revenue, and shareholder dilution.
In conclusion, AMC Entertainment is currently facing tough times ahead. While there may be some glimmers of hope in the form of successful box office hits and efforts by management to refinance debt, the company still has a long road ahead to recovery. With a significant amount of debt, cash flow issues, and declining revenue, the stock remains a ‘strong sell’. Investors should proceed with caution when considering AMC Entertainment as an investment opportunity in the current market conditions.