Will Going Upscale Be a Catalyst for AMC Entertainment Stock?

Fewer seats, more frills leads to a short-term bump in box office revenue.

Jul 11, 2014 at 6:59PM

A $600 million bet on premium theater seats might just pay off for holders of AMC Entertainment (NYSE:AMC) stock, Fool contributor Tim Beyers says in the following video.

In a recent interview with The Wall Street Journal, AMC chief Gerry Lopez likened his new company to his old one -- Starbucks -- since selling a premium theater seat isn't so different from selling a $4 latte. Or at least that's what he wants investors to believe.

During the next five years, AMC will spend some $600 million to retrofit about 1,800 of its 5,000 screens. In some cases, renovations will remove two-thirds of capacity in order to make room for comfier seats. According to the Journal, AMC plans to wait at least a year before raising ticket prices on renovated theaters.

Can the strategy work? Apparently, but you wouldn't know it from the box office totals. Year-to-date domestic grosses are down about 5% from last year, Box Office Mojo reports. Even so, the Journal says Cinemark and Regal Entertainment Group are also in the process of renovating on the belief that doing so will lead to higher profits. Lopez, for his part, told the Journal that box office revenue was up 60% in 37 theaters that had been fully renovated in the first quarter.

That's a good sign. But for current or prospective AMC Entertainment stock investors, it's the long-term record that matters. Check back in on AMC's overall and per-theater grosses in September, after the summer movie season has run its course.

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Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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