With the $175 million Iron Man 3 opening weekend just passed, it may be hard to remember that the first quarter of this year was a rough one for the movie business. Weak theater attendance and a lack of big-draw films made it an ugly quarter for studios and theaters alike. Carmike Cinemas was no exception. Especially frustrating was that this year's weak quarter follows Carmike's record first quarter from 2012. Long term, though, this is a growing company that is well managed and holds a lucrative niche spot in the competitive, low-margin theater business. Here's what you need to know about Carmike Cinemas.
As mentioned, things weren't great for the first quarter, but by no fault of the company. While 2012 had a strong, balanced film slate to get the industry through to summer, 2013 was nearly the opposite. As a result, attendance was down nearly 5% (563,000 patrons). This includes the 1.5 million patron benefit the company received from its purchase of Rave theaters in November of last year.
Per-screen revenues dropped more than 10%, while per-patron admissions revenue rose 2.6%. Concession sales also increased -- up 2.7% to $48.6 million. Film exhibition costs remained nearly flat with the prior year (a good sign of managing content fees) at 53.1% of admissions revenue.
All in all, operating income ticked down substantially from $14.5 million to $3.3 million. Lower attendance and ongoing expansion were the main culprits. On the bottom line, the company entered negative territory at a loss of $5.8 million, or $0.33 per share. Adjusted EPS, which excludes one-timers, came in at a loss of $0.20.
It wasn't an enjoyable quarter for investors and analysts, but the company did outperform the industry by 200 basis points on a per-screen basis and is set to make a strong recovery through the summer season. Management claimed 2013 will be one of the strongest years in its history.
Investors should expect much stronger earnings along with continued one-time costs related to the expansion effort. Carmike is set to hit 300 theaters and 3,000 screens in the next couple of years -- an ambitious yet achievable goal based on current growth rates.
Carmike has a history of wise acquisitions -- from theater ad firm Screenvision to Rave Theaters. In 2011, value investor Chris Mittleman put a $17 target on the company, exactly where it is today. But, trading at under 11 times forward earnings and with a strong growth runway, the company is by no means a pricey stock today. For comparison, Regal Cinemas trades at more than 17 times forward earnings and is much further along in its growth cycle. It's also more profitable.
If you want to own a piece of the movies, Carmike Cinemas might be one of the best options.
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