The domestic box office is experiencing a resurgence, with third-quarter ticket sales reaching their highest point since the pandemic. However, this positive trend isn’t translating into unwavering success for AMC Entertainment, the world’s largest movie theater chain. Despite a larger footprint than its competitors, AMC continues to grapple with a substantial debt burden, a legacy issue that predates the pandemic and now threatens to hinder its full recovery. While recent box office successes offer a glimmer of hope, AMC’s long-term financial health remains a significant concern, highlighting the complex challenges facing the industry as it navigates its post-pandemic landscape.
Key Takeaways: AMC Entertainment’s Tightrope Walk
- Box office resurgence: The third quarter of 2024 saw a significant rebound in domestic box office sales, exceeding pre-pandemic levels by a fraction, a clear indication of a recovery..
- AMC’s debt burden: AMC continues to carry over $4 billion in long-term debt, significantly impacting its profitability despite increased revenue.
- Strategic investments: AMC is investing $1 billion to $1.5 billion in upgrading its theaters with premium large-format screens (IMAX, Dolby Cinema, and XL screens), aiming to boost revenue per screen but simultaneously increasing their expenses.
- Share dilution concerns: AMC’s history of issuing new shares to raise capital raises concerns about further dilution for existing equity shareholders.
- Future prospects: While a robust movie slate is anticipated for 2025 and 2026, AMC’s ability to manage its debt and successfully execute its strategic plan will determine its long-term viability.
A Boost from a Blockbuster-Filled Slate
The domestic box office achieved $2.71 billion in ticket sales during the third quarter of 2024, a slight increase compared to the same period last year. While modest, this growth is notable considering the exceptionally strong performance of “Barbenheimer” in 2023. This year’s success stemmed from a series of major releases including Disney and Marvel’s “Deadpool & Wolverine” ($631 million domestically), Universal’s “Despicable Me 4” ($360 million), Universal’s “Twisters” ($267 million), Warner Bros.’ “Beetlejuice 2” ($250 million), and Disney and Pixar’s “Inside Out 2” ($183 million).
AMC’s Performance Lags Behind the Box Office Boom
Despite the overall box office uptick, AMC experienced a 12% decline in attendance during the third quarter. This contrasts with Cinemark’s more moderate 2.4% decrease. AMC attributed its lower attendance to weaker-than-expected performance in Europe (a 16% decline), where approximately 37% of its theaters are located. The company also cited the exceptionally strong “Barbenheimer” performance in the prior year, making comparisons challenging. Additionally, a decline in moviegoing in major urban centers like New York and Los Angeles, where AMC has a significant presence, was noted, potentially due to the summer slate being heavily weighted towards family-friendly films— typically more appealing to suburban audiences.
Looking Ahead to a Stronger Fourth Quarter and Beyond
AMC anticipates a stronger fourth quarter, bolstered by upcoming releases such as Universal’s “Wicked”, Paramount’s “Gladiator II”, and Disney’s “Moana 2” vying for premium large-format screen space during the Thanksgiving holiday. Further releases in December, including Disney’s “Mufasa: The Lion King”, Sony’s “Kraven the Hunter”, and Paramount’s “Sonic the Hedgehog 3”, promise to further fuel box office receipts. The outlook for 2025 and 2026 is even more promising, with a significantly improved film slate expected as Hollywood production returns to normal following the 2023 labor strikes. While the third quarter of 2024 saw 31 wide releases (films opening in over 1,500 locations), exceeding 2023 and 2019 levels, the full year still lacks the pre-pandemic number of releases. However, over half of 2025’s projected films are sequels or adaptations of established franchises, increasing the likelihood of pre-built audience interest.
The Premium Push
AMC is making a significant bet on premium large-format screens. The company currently possesses nearly half of IMAX’s US screens and all of Dolby’s Dolby Cinema-branded US screens, with more than 550 premium large-format screens globally. AMC CEO Adam Aron emphasized the importance of these screens, stating during the company’s third-quarter earnings call, **”From our patronage data, we know with certainty that moviegoers increasingly seek out our premium large-format screens…On average, our PLF screens in the U.S….do about quadruple the revenues of our non-PLF houses.”** Under its “Go Plan”, AMC plans to invest between $1 billion and $1.5 billion over the next four to seven years in upgrading its US and European theaters. This comprehensive plan includes adding more IMAX screens, upgrading existing ones with new laser projectors, expanding the number of Dolby Cinemas, and upgrading larger auditoriums to its XL branding with 4K laser projection.
Concerns Regarding the Premium Push and Spending
Analysts express some caution about AMC’s ambitious investment plan. While acknowledging the potential for increased revenue from premium screens, several analysts from firms like Wedbush and Roth Capital Markets stress the need for a balanced approach, prioritizing cash preservation given the company’s substantial debt. Alicia Reese of Wedbush highlights the significant capital expenditure and urges a careful approach, emphasizing that **”they need to approach this in a very balanced way. You know, preserving cash.”** Similarly, Eric Handler of Roth Capital Markets notes that while the improved film slate allows for long-awaited upgrades, AMC should **”can’t go crazy”** with spending and must carefully manage cash flow.
More Shares, More Problems?
AMC has a history of raising capital through issuing additional shares, as evidenced by billions raised during the Covid-19 pandemic. While this helped the company navigate the crisis, this approach has sparked trepidation among investors, who fear further shareholder dilution. With approximately 372 million shares outstanding (FactSet data), the prospect of additional share issuance to fund capital expenditures concerns many. Handler points out that **”If you’re an equity investor, you may be further diluted down to fund these capex projects. They may issue more shares, and…the number of shares are up like 20 times from pre-pandemic. So, equity shareholders have yet to really reap the benefits of the improvements in the business.”**
Balancing Act: Strategic Closures and Improved Metrics
To counterbalance its financial challenges, AMC is strategically closing underperforming theaters as leases expire. This allows for cash preservation and refocusing efforts on more profitable locations. Despite these challenges, positive internal financial metrics point toward improvement. **Reese of Wedbush** explains that **”[AMC is] trying to shift the footprint so that they maintain their market share gains. They continue to improve revenue per screen and revenue per attendee with merchandising and popcorn buckets and the like. So, all the metrics are going in the right direction.”** While AMC’s stock has seen some recent gains, its overall performance remains considerably below pre-pandemic levels, emphasizing the challenges faced by the company. The future success of AMC hinges on its ability to navigate this complex landscape, balancing its aggressive growth strategy with the imperative to alleviate its considerable debt.
