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Bleak AMC Outlook Sends Movie Theater Stocks Falling

Shares of AMC Entertainment Holdings AMC plummeted to a new 52-week low in premarket market trading on Tuesday after the company reported a third-quarter net loss and updated its 2017 guidance, which painted a similarly bleak picture. The rest of the domestic movie theater industry fell following the announcement.

AMC reported a 51% year-over-year revenue surge to hit $1.18 billion in quarterly sales. The movie theater chain’s sales rose in two major categories as well, with admissions revenues jumping nearly 52% and food and beverage sales popping 45.2%.

However, investors decided to leave the theater stock early because AMC reported a $42.7 million loss in the third quarter, which looks dismal compared to its $30.4 million profit in the year-ago period.

The company’s CEO pointed to bad box office offerings as a big reason for the substantial year-over-year profit decline.

"We have been predicting weakness in the third quarter industry box office, due to the quantity and subject matter of the films,” AMC chief executive Adam Aron said in a statement.  “In a high fixed-cost, low variable-cost business, this has led to lower EBITDA generation for AMC in the third quarter of 2017.”

Nevertheless, Aron painted a positive picture of the future, signaling that he does not predict the demise of the movie theater industry anytime soon—even as the rise of streaming services like Netflix NFLX continue at a rapid pace.

“We, however, remain bullish about the fourth quarter movie slate… When Hollywood and international movie makers offer appealing movies, Americans and Europeans will pour into our theatres in huge numbers and pay top-dollar to do so,” Aron continued. “We are similarly confident and excited about the film slate that is coming in 2018 and again in 2019. Accordingly, we remain optimistic about the viability and strength of the movie theatre industry generally, and of AMC specifically.”

AMC updated its 2017 revenue guidance and now expects full-year sales in the range of $5 billion to $5.20 billion, which would mark a nearly 60% increase from 2016.

For now, however, many investors don’t buy the plot twist, especially since AMC is excepting to post a full-year net loss of up to $175 million.

Shares of AMC have surged a bit since its premarket lows, as some investors look to buy the dip. But this small uptick hasn’t helped other movie theater companies, and shares of fellow industry heavyweights sunk on Tuesday following AMC’s poor profit guidance.

Regal Entertainment Group RGC saw its stock price fall over 2.50% to as low as $14.85 per share. Shares of Cinemark Holdings CNK dipped by nearly 2% to near their 52-week low. Imax IMAX shares declined marginally in morning trading.

Two weeks ago, Regal announced a plan to test demand-based pricing at its theaters, where it will charge moviegoers more for hits and less for box-office duds.

With moves like this, along with AMC’s call out of Hollywood for a lack of great films, it seems clear that the industry is truly worried about the quality of movies they have to offer.

Now—at a time when Amazon AMZN, Netflix, Hulu, and HBO are spending more and more money for excellent programming, which includes landing some of Hollywood’s biggest stars—movie theater companies will have to flip the script in order to remain the preeminent place for an entertainment-based escape.

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Regal Entertainment Group (RGC): Free Stock Analysis Report
Cinemark Holdings Inc (CNK): Free Stock Analysis Report
AMC Entertainment Holdings, Inc. (AMC): Free Stock Analysis Report
Imax Corporation (IMAX): Free Stock Analysis Report, Inc. (AMZN): Free Stock Analysis Report
Netflix, Inc. (NFLX): Free Stock Analysis Report
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