Shares in movie theatre exhibition company Cineplex Inc. (TSX:CGX) have sank 42% from their all-time highs reached just a year ago.
Today, shares are yielding 5.90%, and the stock has reached an “oversold” condition, meaning it might be time to take a closer look at this dividend aristocrat, which has increased its dividend for eight consecutive years, including a 3.57% hike which the company announced this past May.
Cineplex is scheduled to release its second-quarter results in less than three weeks on August 10.
Heading into the company’s next earnings report, here are five key factors that investors should be watching.
Slumping attendance at theatres may be a temporary phenomenon
In the first quarter, Cineplex reported that attendance at its theatres had fallen by 9.3%, which led to a 10% decline in the company’s earnings before interest, taxes, depreciation, and amortization.
Declining movie attendance has been an issue at the forefront for movie exhibitors like Cineplex for several quarters now with some attributing recent weakness to competition from digital devices and over-the-top streaming services like Netflix, Inc.
However, going to the movies has been a staple of North American cultures for many decades, surviving many recessions along the way.
History may view the current slowdown as nothing but a blip on the radar.
North American box office performance has been strong so far in 2018
2017 was a challenging year at the box office for movie exhibitors and film studios.
However, recent weeks have seen strong box office performance from hit titles from the Avengers, Star Wars, and Jumanji franchises.
It will be critical to see that Cineplex has been able to take advantage of recent box office success when it reports next month.
Cineplex is branching out into other revenue streams
Because box office performance, by its very nature, is inconsistent, and because of the threat of declining attendance in its theatres, Cineplex has begun to take on a strategy of diversifying its operations.
Recent initiatives include selling digital advertising displays to the likes of clients like McDonald’s Corporation and the largest independent franchisee in the world, Arcos Dorados, and organizing live performances at venues like the Metropolitan Opera and National Theatre of London.
This type of strategy is a big risk in that it is dependent on the company achieving success in areas outside its core competencies.
Rising revenue per ticket
One encouraging trend that Cineplex has going for it is that despite the latest fall in attendance, the company has been successful in generating more cash receipts per customer.
Last quarter the company saw gains in both revenue per ticket sold and concession revenue per attendee, including an all-time record for box office revenue per patron.
Extracting more money per theatre attendee will be key if it is going to have any success in offsetting declining attendance.
Popcorn straight to your door!
In the first quarter, Cineplex announced it had entered a pilot program with UberEats to deliver food from its theatres — like the always-popular popcorn — in select locations.
The pilot project is scheduled for a broader roll-out in the second quarter.
It will be interesting to see how this one turns out. If the project ends up being successful, it will help the company to recoup some of the revenues lost to streaming services like Netflix.
