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May 08, 2006

Tom Cruise Falls Short But Regal Still Looks Good

Despite a weaker than expected opening for Mission: Impossible III, the weekend box office rose 24% against easy year ago comparisons. Based on the data I use from BoxOfficeMojo.com, the box office is up more than 6% so far this year. With price increases running at less than 5%, this implies that attendance is growing slightly, a welcome relief after a miserable 2005.

More importantly to Northlake's long position in Regal Entertainment (RGC), so far this quarter the box office is up a whopping 29%. Looking over a couple of analyst models, current June quarter estimates show admissions and concession revenue up just 10-12%, so rising estimates are a distinct possibility and usually that is good for the shares.

As I have noted before, box office comparisons are very easy through the end of August. Every week last year from late March through early August had a negative year-over-year comparison and it wasn't until September 2005 that a string of positive year-over-year comparisons finally appeared....

This coming weekend brings the wide release of Warner Brothers Poseidon, a remake of the 1972 release The Poseidon Adventure. Last year the #1 film on the comparable weekend was Monster-In-Law, which brought in $23 million. The comedy Kicking and Screaming opened on the same weekend last year to a respectable $20 million. I have to believe that Poseidon will bring in over $30-40 million and with week two of MI3 holding at north of $20 million, another up comparison seems easily in the cards.

I remain long RGC still expecting box office momentum to carry the shares to $23-24 before Labor Day. A 30 cent dividend in June and another September sets up the possibility of a 15% return in a little over four months.

Posted by Steve Birenberg at May 8, 2006 04:12 PM in RGC