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June 24, 2008

Box Office Remains Healthier Than Expected But...

The box office rose for the fourth consecutive weekend with the top 12 films up 9.7% according to BoxOfficeMojo.com. Every weekend in June has been up bringing the summer to a 2.6% gain. Quarter-to-date the box office is still down 2% due to a very weak April.

Comps stiffen considerably starting this coming weekend but until the middle of July the release schedule should provide enough oomph to keep the box office close to year ago levels. From mid-July onward, it would not surprise me if weekly comparisons fell by double digits as last year had some unusually large hits in what historically has been the weakest part of the summer.

Movie theatre stocks broke to substantial new lows last week with additional losses of 4% or more added on yesterday. Besides putting the best part of the summer season beyond them, the stocks may also have taken a hit on a negative analyst comment regarding Regal Entertainment's concession sales.

Theatre stocks look cheap and dividend support is getting significant. RGC's current yield is now 8.25%. Cinemark Holdings, the other quality play, yields 5.50%. To perfect a bullish, contrarian setup, I'd like to see the stocks weaken a little further on weak late July and August box office. At that point the stocks would be at 52-week lows, estimates would have been cut, yield support would be even stronger, and most importantly, the next big season ahead, Christmas, offers the possibility of big gains against a weak performance in 2007.

On the studio front, last weekend offered little new tradable information. The #1 movie was Get Start from Time Warner. The film did fine but will not have a meaningful impact on expected financial performance for the company. The #2 film was Kung Fu Panda. The decline of 35% in its third weekend is a good hold and the film remains on track to gross $220-240 million, ahead of analyst estimates. I think estimates could rise following next week when analysts see how big a hit Panda takes from the new Pixar/Disney film Wall-E. A decline of less than 40% from last weekend's gross would be good news....

....The #3 film was The Incredible Hulk. The drop of 61% was about as expected. Hulk is owned by Marvel Entertainment. MVL shares have pulled back from recent highs. I except good 2Q earnings and optimistic discussion of the business but I don’t see any other catalysts with the big summer releases out of the way. Some further pullback to fill the early May gap from $30 to $33 off MVL's Iron Man opening seems plausible.

Finally, last weekend had one disappointment as the latest Mike Myers film, The Love Guru, came in a weak 4th with $14 million in receipts. Guru is owned by Viacom. It's a modest disappointment but not a killer for Viacom shares which were down over 4% yesterday setting another 52 week low.

Posted by Steve Birenberg at June 24, 2008 01:32 PM in Box Office