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August 28, 2007

Summer Box Office Record Falls

The weekend box saw another gain, rising 4.9% vs. a year ago, the 7th straight up weekend. Quarter to date the box office is now up 16.5% and the year-to-date gain is 7.7%. Gains should continue to moderate now that kids are back in school and studios are no longer releasing potential blockbusters. September is typically the second or third slowest month of the year and studios either dump films thought to be lacking a potential audience or offer fare that is pointed the Oscars and major awards.

Sometime last week, the summer box office surpassed the all-time record of 2004. Manu media outlets are reporting that summer receipts now exceed $4 billion for the first time ever. My own spreadsheet shows the tally at $3.96 billion, up 3% over the 2004 record with the measuring period ending on Labor Day. I started my calculation with the opening of Spiderman 3 on the first weekend in May while others went back to May 1st.

Gross receipts matter because costs inflate with ticket prices. Nevertheless, on the basis of tickets sold, according to Media By Numbers as quoted in the Wall Street Journal, the summer of 2007 only ranks in terms of ticket sales likely to end up around 606 million. The all-time record summer for ticket sales was 2002 with 653 million. The top grossing movies in the summer of 2002 were the original Spiderman, Star Wars: Episode 2 – Attack of the Clones, Signs, Austin Powers in Goldmember, and Men In Black II. According to BoxOfficeMojo.com, the original Spiderman sold 69 million tickets, while Spiderman 3, the top grossing film this summer sold 51 million tickets.

I still like Regal Entertainment as a long trade off the record breaking summer box office....

....Catalysts are lacking now that the big gains every weekend will disappear but the current yield is attractive given the market environment and the fact that estimates for 3Q are rising. RGC can easily pay the dividend and has a leverage cushion on the balance sheet most likely dedicated to future acquisitions. The company has a history of paying special one-time dividends, including a $2 dividend earlier this year with its share of the proceeds from the National Cinemedia IPO. The capacity for a small special dividend exists but it is not something I am counting on.

My thought here on RGC is as a trade. I have owned the stock on behalf of Northlake clients for almost 18 months and would most likely exit if the stock moved to new highs over $23, which is where I believe it would be fairly valued.

Posted by Steve Birenberg at August 28, 2007 03:45 PM in Box Office