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September 02, 2008

Weak Finish Overshadows Strong Summer Box Office

It looks like a weak finish to the summer box office will leave Summer 2008 just short of Summer 2007's all-time record. Labor Day weekend is down 22% for the top 12 films likely making it five straight weeks of negative growth. According to my data, pulled from BoxOfficeMojo.com, from the first weekend in May through Labor Day, the box office fell 0.4% vs. a year ago.

This is actually a very impressive performance that is well ahead of expectations as 2007's all-time record looked like an extremely high hurdle given three $300 million films in May 2007 and an unusually strong July and August. I had been expecting a mid-to-upper single digit decline for the summer with the possibility that 3Q08 could be down as much as 10%. 3Q is presently down a bit less than 3%....

....The better than expected performance can be seen in the charts of the major theatre stocks. Regal Entertainment, Cinemark Holdings, and National Cinemedia are all up between 10% and 20% from their lows made earlier in the summer.

4Q08 comps are pretty easy, especially in the Thanksgiving through New Year's time frame. Positive comparisons seem quite likely for 4Q even though a can’t miss blockbuster, the 6th Harry Potter film, was moved from November to summer of 2009.

I think that the combination of recent stock strength and a less positive 4Q limits the upside for the theatre stocks. However, should the stocks move toward their summer lows, I think an excellent trading opportunity would be in place with downside supported by healthy current yields (RGC – 7.2%, CNK – 4.9%, NCMI – 5.7%). The growth story in the group is NCMI which has a troubled 2008 but should return to double digit growth in 2009 as theatre advertising resumes its market share gain of the advertising pie.

Posted by Steve Birenberg at September 2, 2008 11:38 AM in Box Office