Carmike Cinemas Inc fka CKEC

[Enterprising Investor]

Carmike Cinemas stock rallies as analysts say time to buy is now (3/01/16)

BY MarketWatch — 4:25 PM ET

Theater chain blew past fourth-quarter earnings estimates thanks to small town focus

Carmike Cinemas Inc. (CKEC) blew past Wall Street expectations for the fourth quarter.

The nation's fourth-largest theater chain reported per-share earnings of 27 cents, or 41 cents on an adjusted basis, well above the FactSet consensus of 14 cents per share. Revenue for the quarter came in at $221 million, above the FactSet consensus of $211 million. Carmike (CKEC) shares closed up 14.8% on Tuesday.

All of the four major theater chains--Regal Entertainment Group (RGC), AMC Entertainment Holdings Inc. (AMC) and Cinemark Holdings Inc. (CNK) --beat earnings expectations, thanks mainly to a record year for the domestic theatrical box office. But Carmike benefited also from its small town focus, being the main, or even only operator in a lot of markets in which it does business, according to B. Riley analyst Eric Wold.

Carmike was also the latest chain to adopt and see the benefits of a "tax-on-top" pricing strategy for concessions. Rather than an all-inclusive price of, for example, $5 for popcorn, the price stays the same but no longer includes tax, which is tacked on.

Carmike operates about 2,930 screens in the U.S. and reported admission per screen increased more than 15% in the fourth quarter, while ticket prices rose about 10% year-over-year. Attendance per screen saw a 5% bump.

Despite the "tax-on-top" strategy Carmike recently embraced, as well as ticket price inflation and more premium film formats, Carmike plans to raise the base ticket price by the low single digits in 2016. Raymond James analyst Joseph Hovorka views that as a potential risk.

"Products and services in the leisure group are discretionary purchases," he wrote. "A decline in consumer spending could negatively impact the performance of leisure stocks."

There were concerns in the film exhibitor sector that 2015's record year was going to create tough comparisons for the current year, which had led to a drop in share prices across the four major chains. But Wold said that now that the companies have beat expectations and stocks have recovered, it is time to buy. He believes 2016 could be another record year.

Benchmark analyst Mike Hickey said that looking even further to 2017, the film slate should continue to be strong.

"We remain confident Hollywood movies as an entertainment option over the exhibitor market as a distribution medium will remain a relevant value solution for consumers over the long term," Hickey wrote.

Benchmark believes the recent selling of theater exhibitor stocks is mostly due to worry that 2016 box office would be hurt by a less compelling slate of new moves. Those concerns were exacerbated by sub-trends from the record 2015 record box office that suggested market growth was mainly driven by a few blockbuster films.

"We are somewhat sheltered from greater valuation alarm in the near term based on our belief that the potential problematic box office environment in 2016 has been effectively discounted, and the general unpredictability of the box office and the underlying film slate as it relates to ultimate market performance in fiscal 2016 that could prove better than expected."

-Trey Williams; 415-439-6400; [e-mail]