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February 20, 2007

Year To Date Box Office Update: So Far So Good For Regal

Following several sluggish weeks, the box office found some traction this weekend as several new releases exceeded expectations leading to an 18% gain vs. the holiday weekend a year ago. Based on a January 1st start to the year, the box office is presently down 1.5% vs. 2006. Regal Entertainment (RGC) started their quarter on 12/29/06. On this basis, year to date, the box office is up about 1% this year. The rest of the first quarter has easy comparisons as each week of 2006 was down vs. 2005. The release schedule also looks decent.

The current consensus revenue estimate for RGC for 1Q07 shows a decline of just under 1%. This is looking conservative as is RGC's 2007 guidance calling for a 1-2% gain in revenue and EBITDA for all of 2007. RGC's have pulled backed about 6% since the company reported 4Q06 results. With a good 1Q coming together and the excitement likely to occur surrounding May's big releases of Spiderman, Pirates of Caribbean, and Shrek, I think a good trading opportunity exists. Additionally, an announcement of how RGC will use its share of the proceeds of from the National Cinemedia (NCMI) should come in the next few months. Past history suggests a sizable special dividend. Look for RGC shares to rally to a new high in May at which point I will likely exit this position. Keep in mind that RGC pays a 30 cent quarterly dividend equating to a 5.5% current yield, so you get paid to wait and have some downside protection....

Lots of studios have something to cheer about from the big holiday weekend. Sony (SNE) had the big winner as Ghost Rider smashed expectations with $51 million over the four day weekend. The film tracked ahead of prior B-level comic book characters turned into movies. Disney (DIS) also should be pleased with the $29 million from Bridge to Terabithia. The film is tracking ahead of last year's surprise hit Eight Below which means it could be headed for $90 million in domestic gross. I have not seen an estimate of production costs but with the DIS marketing and merchandising machine behind it, this film should prove very profitable. The next big release from DIS is at the start of next quarter when Meet The Robinsons, an animated film based on a very popular children's book hits theatres.

The Paramount division of Viacom (VIA) has a winner in Eddie Murphy's latest comedy, Norbit. The film looks like it could get to $100 million. Critics hated it but word of mouth has been decent. There is actually some discussion on movie blogs that it could hurt Murphy's chance to bring home the Best Supporting Actor Oscar on Sunday, for which he is favored to win.

Finally, the latest film from the Tyler Perry stable is performing OK for Lionsgate (LGF). With $20 million since it's Valentine's Day release, Daddy's Little Girls is performing as expected. Perry does not appear in the film so even though the result trails the two previous Madea films, LGF long should not be concerned. Perry seems like a sure thing for LGF and he clearly has an audience that will show up on opening weekend.

Posted by Steve Birenberg at February 20, 2007 10:38 AM in RGC