AMC Q3 earnings breakdown: Theater chain 'grew a little too much in the U.S.,' analyst says

Macquarie Analyst Chad Beynon joins the Yahoo Finance Live team to discuss AMC's Q3 earnings report.

Video Transcript

SEANA SMITH: Meme stock favorite AMC out with its quarterly results. You can see the stock under a bit of pressure here after hours. Revenue beating the Street's expectations, coming in at $763 million, adjusted loss per share of $0.44. That was narrower than what the Street had been expecting. Let's talk about all this with Chad Beynon. He's Macquarie's analyst. And Chad, when you take a look at AMC, we obviously know it's been a meme stock favorite, a favorite here amongst retail traders. But what do you make of the numbers that they just put out for the third quarter?

CHAD BEYNON: Sure, thanks for having me. Yeah, numbers just at the tape here. So, I guess, what we're seeing is AMC was able to push through a lot of good price increases here domestically, also internationally, on the ticket side of things. And then also from a concession standpoint, they beat our estimates by about $0.50 domestically and internationally on the concession per head.

And to put it in exact terms, they generated about $7.40 of concession revenues per domestic attendee. That historically had been about $5 per attendee. So they're up a couple of bucks. So these price increases certainly went through the bottom line. They missed their attendance numbers slightly, but I think everything else on the price increase side led to a smaller free cash flow loss in the quarter.

ADAM SHAPIRO: Yeah, I think we all miss the days when we could spend 10 bucks to get a 4-ounce Coca-Cola, but all power to them. They said that basically 100% of their domestic theaters, 351 international theaters, approximately 99% of their international theaters, now open. If you go back to 2019 before the pandemic, I was reading different articles that said that they had expanded too fast, that they had positioned themselves, had there not been a pandemic, inappropriately. Is that no longer the case?

CHAD BEYNON: I think the past couple of quarters have been about pruning some of the assets that aren't generating free cash flow. They are not married to these assets because they lease them. So you have to talk to the landlord. You end those leases early. Or when that comes up, you just end the agreement. Recently, what they've looked to get into is some more premiere kind of anchor assets in big cities. They did this in Los Angeles. They'll continue to do it in New York.

So I don't think we'll see them shut down cities in major markets. It's kind of in some of the smaller tertiary markets they probably shouldn't have gotten into those markets. They can't really leverage the brand. They've recently have actually a marketing announcement, where they're spending money here. So I think they want to stay in the big cities. But certainly, I think they grew a little bit too much in the US. And now they're starting to contract. Their market share did fall sequentially. And competitor, Cinemark, ticker CMK, grew a couple hundred bips versus that 2019 period. So I think that's who's growing domestically.

SEANA SMITH: Chad, going back to one thing that you said a few minutes ago, one of the standouts here in the quarter, one of the things that led AMC to this beat was the fact that they were able to push through some of those price increases. Is that going to continue to be the case, do you think, in this current quarter and then looking out into next year?

CHAD BEYNON: I think on the concession side, that will certainly moderate because there's two things working right now. One, you don't have many matinee movies. Once you start to introduce those matinee movies, you have fewer people who want to buy popcorn and soda at 10 o'clock in the morning or at noon. So just naturally, as that mix comes in, that'll bring down the concessions.

Also, what we're seeing is a lot of the movies that are doing well are these more male dominated action movies. So as this also balances out, then you kind of have natural dispersion of attendance here. I think bringing in more females also kind of brings that down. So from a concession standpoint, I think that'll start to tick down in the next couple of quarters.

On the ticket side of things, they implemented a $0.50 increase earlier in the quarter. I do believe that sticks. I think the consumer is strong. We've seen this in other areas. I think charging $14 versus $14, $15 in New York, is not going to keep someone away from coming into the theater. And I think they're going to try and hold their own in the fourth quarter as you have a slew of new products hitting the big screen.

ADAM SHAPIRO: Is it too soon to determine if the predictions that movies were dead, people would never want to be in superspreader environments for whatever, you know, might be in the air, that those predictions were all misguided?

CHAD BEYNON: I think it is too early. What we've seen is blockbusters have done pretty well. We're certainly not back to some of the numbers we would have seen pre-pandemic. That was evidence this past weekend by "Eternals." That did a little over 70 million domestically. I think pre-pandemic, that starts to put up numbers closer to 100 million. What we are seeing is outside of the blockbusters, there's not much attendance otherwise.

So these movies that are more mid-tier movies that have moved towards the streaming offerings or streaming channels, I think are starting to take away from that. Currently, we're still somewhere between 30% and 50% off of prior levels. We'll see this pick up Thanksgiving, Christmas, into the first quarter. But things are improving, but we're certainly not back to pre-pandemic levels.

SEANA SMITH: Chad, one of the news, I guess headlines, coming out over the last couple of days that caught my attention is the fact that AMC is going to be selling its own branded popcorn, something that I love, and really, one of the reasons that I do go to the theaters. But I guess, put this in perspective. Is this something that investors should be excited about? Or is this going to be relatively small or very, very small portion of their business?

CHAD BEYNON: I think their CEO, who has introduced several innovative and interesting ideas, he's somebody who cares about brand, cares about loyalty. And he's realized that there's less of that, or there had been less of that for the AMC brand and AMC chain, despite them being the biggest theater chain in the United States and worldwide. So I think he's tried to introduce some of these initiatives that are coming with the marketing dollars to kind of help leverage that.

And then also from just kind of an overall EBITDA margin standpoint, while the margins on popcorn are certainly very, very strong, I think they certainly want to get more of that margin in all of their businesses. Pre-pandemic, their EBITDA margins were sub 20%. So an environment like this, we still have them below 12% even after a recovery takes place in 2023. Little initiatives like this, I think will help, and it will also kind of leverage their brand that they're trying to grow.

SEANA SMITH: Chad Beynon, thanks so much for jumping on here with us right after these results were released, an analyst at Macquarie. We look forward to having you back soon again. AMC shares under a bit of pressure here after hours. Earnings call will get underway in just a few minutes.