Anyone who’s read my commentary about AMC Entertainment (NYSE:AMC) in recent years knows I’m as bearish as they come regarding AMC stock. As a result, some even send me hate emails.
Frankly, I’ve never understood why someone would take the time to send a hate email about something I have virtually no control over. Now, if Warren Buffett said he wouldn’t buy AMC stock if it were the last investment for sale on the planet, that might move the share price.
The company reported Q2 2024 results on Aug. 2, and its report had some bright spots. These are not enough to convince me to recommend AMC stock, but they are enough to suggest that aggressive investors use AMC options to speculate on its future share price.
I’m confident many already do.
If you haven’t dipped your toe in AMC options yet. Here’s how to play AMC stock without losing your shirt.
It’s Taking Market Share
Chief Financial Officer Sean Goodman discussed this subject in the company’s Q2 2024 conference call with analysts.
“Our North American market share continued to increase in the second quarter of 2024 with approximately 50 basis points of growth compared to last year,” Goodman stated on Aug. 2.
This was despite the North American box office declining by 27.2% over last year and the company’s revenue falling by 23.5% to $1.03 billion. Further, its box office admissions fell by 25.6%, 160 basis points less than the industry’s decline in box office admissions revenues.
It did less worse than its peers. That counts for something.
More importantly, it’s showing resilience in revenue per patron relative to its pre-pandemic numbers.
So, the critical metrics for any theater chain are the average ticket price, food and beverage revenues per patron, and contribution margin per patron, which are all revenues in the quarter, less the film exhibition and food/beverage costs divided by the total attendance.
The Key Metrics Point Upward
The average ticket price in the quarter was $11.29 — $12.01 in the U.S. and $9.32 internationally — eight cents higher than a year ago. The food and beverage revenues per patron were $7.34, two cents less than Q2 2023. However, in the U.S., it was $8.34, an all-time high and 12 cents higher than a year ago.
Finally, its contribution margin in the quarter was $13.76, 4.6% higher year over year. Its U.S. contribution margin was $14.73, 48% higher than Q2 2019, before the pandemic, and 6% higher than Q2 2023. Internationally, excluding currency, its contribution margin was $15.96, 21% higher than Q2 2019 and 3.9% above Q2 2023.
“These achievements in market share growth and revenue and profit per patron, they are as a result of the ongoing success of our market-leading food and beverage offerings, including collectible movie themed items, movie themed cocktails and menu upgrades, as well as our leading position in immersive premium large format auditoriums and our innovative alternative content options,” Goodman stated.
It Pushed Out Its Debt
I’ve always felt that AMC has too much debt for a company with flat to negative revenue growth.
The CFO discussed its work on this front to strengthen its balance sheet. For example, it eliminated nearly $175 million in 10% debt in the quarter through a debt-for-equity exchange and raised $250 million through an ATM (at-the-market) equity offering.
At the same time, it pushed nearly $2.5 billion in debt due in 2026 out to 2029, giving it three more years to dig itself out of a huge hole.
“Since the beginning of 2022, we’ve raised more than $1.3 billion of gross equity capital. We’ve lowered the principal value of our debt and finance leases by $888.3 million and we’ve repaid $268.8 million of deferred leases,” Goodman stated.
So, as much as I hate to admit it, it’s making progress. With interest rates coming down later this year and into 2025, the idea of it entering bankruptcy proceedings has become slimmer due to these efforts.
The Bottom Line
Analysts remain very cautious about AMC stock for good reason. Even if it’s able to return to 2019 numbers, that’s not enough to say the patient’s fully recovered—not by a long shot.
If you want to play AMC stock, use options to lower your risk. For an example, let’s look at call options expiring on Sept. 20. As of this writing, the $11 strike was just 9 cents. That’s less than 1% of the $11 strike.
In my opinion, AMC will not get anywhere near that level over the next seven weeks. But when the calls cost $9, and you’re an aggressive AMC investor who thinks shares will hit that level and higher, what have you got to lose?
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
