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August 20, 2007

Box Office Remains Strong

The box office continues to roar with the top 12 movies up 23% this past weekend. Last week marked the fifth straight up week and the weekend was up for the sixth consecutive time. Gains should moderate from this point forward as all the major releases are now in theatres. However,, gains should continue thanks to expected good legs from a few films.

Superbad, from the same creative team behind The 40 Year Old Virgin and Knocked Up, led the weekend box office with a much better than expected opening weekend of $31 million. Coming in second was Rush Hour 3, which fell an acceptable 55% in its second weekend. In third place showing good legs was The Bourne Ultimatum which fell just 42% in its third weekend. By comparison, The Simpsons Movie fell 55% in its third weekend. In fact, Bourne has grossed just $1.5 million less than Simpsons in one less week. The point is not to denigrate SImpsons but to show that Bourne is showing good legs that will help overall box office comparisons for the next several weeks.

The big story though is likely to be Superbad. Both Virgin and Knocked Up showed very good legs. The success of those films may have set the stage for a more front loaded run for Superbad but with a little competition on the horizon, I expect the film to perform well at least through Labor Day.

Quarter to date the box office is now up 16.6%. The back end loaded summer which I had stressed in many comments over the past two months has come to fruition and the 2004 summer box office record will fall this weekend. With a few more weeks, albeit historically slow ones for movies going, it looks like the old summer record will be exceeded by at least 4%.

This should be good news for theatres stocks like Regal Entertainment (RGC), Cinemark Holdings, and National Cinemedia (NCMI)....

All three found their footing last week. RGC was firm even earlier in the week thanks to the box office and the 5.5% current yield. CNK reported good earnings and initiated a dividend giving the stock a 4% current yield. I still think the shares can work higher in the near-term as estimates seem certain to rise (in fact, as I a type this comment, I received an alert that Wedbush raised its RGC estimates for 3Q to above consensus).

I still expect to use the next push higher in the shares to reduce positions as comparisons will be stiff in 2008 and the end of the summer of the box office season will reduce favorable news flow. But for now, given recent market volatility in both directions, I feel very comfortable with the ability to play offense and defense with theatre stocks.

Posted by Steve Birenberg at August 20, 2007 02:06 PM in Box Office