Ricky Sandler's Views On The Movie Theatres Industry: Regal, IMAX, AMC, Dividends, Capex & M&A

Ricky Sandler, founder, CEO and CIO of Eminence Capital, was on Wall Street Week on Sunday, and shared some comments on investing in movie theatre stocks and how the whole theatre business has an impact on movie theatres.

Regal Cinemas & The Decline Of Movie Theatres

According to the expert, Eminence is short Regal Entertainment Group RGC, the largest theatre operator in the country in the traditional movie theatres segment. “This is a business that is inextricably in decline,” Sandler explained. “If you look over the past 10 years, the number of tickets sold is down 15 percent; so, about 1.5 percent a year.”

The invertor went on, “Going to the movie theatre is not what it was when were kids any more; kids don’t hang out there. So we think this business is in decline. But one of the phenomenons in this market is that dividends are being valued very highly. And so, Regal is a company that pays out a 4 percent dividend, feels like a nice, safe stable company…”

However, he thinks, investors recognize this is a low growth stock, at best.

Sustainable Dividends

The Chief Investment Officer then went into sustainable dividends that can grow over time. He highlighted that investors need to think where a business will be in five years, and if its cash flow is going to increase nicely over the period.

All About Capex

When asked about IMAX Corporation (USA) IMAX, Sandler said Eminence does not like the company, and also sees some issues there. “They are trying to make some things with the movie theatre business, making nicer seating, dinner (…) They put a lot of capex in.”

The expert noted that AMC Entertainment Holdings Inc AMC is also doing this, putting a lot of capex in, in an attempt to reinvigorate the movie theatre business. And this might be the only way, he added. Older theatres like Regal’s are shrinking and underperforming the industry, actually.

Sandler finally looked into M&A: “this has been the greatest M&A environment we’ve seen in a long time. Regal explicitly put themselves up for sale late last year, and, you know what? Nobody showed up!”