Weak box office results continue to spell pain for movie theater chains. After dropping 6% in 2005, box office numbers are up slightly this year but have declined six straight weeks. That spells bad news for companies like Carmike Cinemas ( CKEC) and Regal Entertainment Group ( RGC), which depend heavily on putting people in seats at the local multiplex. Both found themselves the subject of a dour analyst report Monday. Bank of America's Michael Savner lowered first-quarter estimates for both companies, saying that an expected pickup at the box office during the first quarter failed to materialize. Savner estimates that box office is up 1.6% for 2006 but that it declined roughly 8% in March. That's not good in a sector that is facing easy comparisons to last year. Shares in Carmike have dropped 11% this year, while shares in Regal are down 4.5%. Bank of America revised same-store attendance targets for both companies, slashing previous estimates of 1.8% growth at Regal and 1% at Carmike to negative 1.5% and 4.5% respectively. Bank of America does business with both Regal and Carmike. At Regal, BofA cut its per-share earnings view by 3 cents, to a dime, and slashed its revenue estimates by $20 million to $604.8 million. At Carmike, the bank cut its earnings target to 13 cents a share from 22 cents while trimming its revenue estimate by $6.5 million to $112.9 million. "Despite the strong start to the quarter, the box office decline over the past six weeks is disappointing given the relatively easy comps," writes Savner, who maintains on overweight rating on the sector and buy ratings on both stocks. He has a $22 price target for Regal and $33 target for Carmike. The first quarter is traditionally the slowest for movie-going. Summer blockbusters starting Memorial Day weekend mark the start of one competitive season while the Thanksgiving through Christmas period is the second all-important season for both the studios and the exhibitors. Either way, a further slowdown doesn't portend particularly well for businesses already under attack from a slew of other entertainment choices for consumers.
The further into the red box office results fall this spring, the more dependent exhibitors like Regal and Carmike will be on blockbuster summer hits to pick up the slack. If recent history is any indication, some have been prone to lackluster takes. Witness The Island, which grossed just $36 million domestically on a production budget of $126 million. Any further softness at the box office will put extra pressure on this summer's films -- such as Mission Impossible III, Pirates of the Caribbean, Cars, The Da Vinci Code, X-Men III and Superman Returns -- to exceed the lofty expectations that come along with their summer theatrical release. Savner adds that his firm "would be buyers of theater stocks opportunistically over the next few weeks and forecast box office growth in second quarter 2006 of 4.75%." On Monday shares of Regal were up 1 cent to $18.20 while Carmike shares traded up 13 cents to $22.60.