It's been a tough couple of years for companies in the theater business, and AMC Entertainment Holdings (NYSE:AMC) is no exception. Fewer theatergoers, the widespread adoption of streaming, and overall concerns about the future of the movie business all weighed on AMC stock. The company was able to put some of those concerns to rest, sending the stock up more than 14% on the day following AMC's earnings report.
For the fourth quarter, AMC reported revenue of $1.41 billion, essentially flat year over year but up about 1% in constant currency, edging past analysts' consensus estimates of $1.4 billion. A year-over-year decline was anticipated, the result of tough comps due to the success of Star Wars: The Last Jedi to close out 2017 -- so flat was better than expected. This resulted in earnings per share of $0.43, up from a loss of $2.14 in the prior-year quarter and easily topping analysts' expectations of $0.16.
A mixed bag
Ticket sales, which makes up the bulk of AMC's business, contributed $862.3 million, down about 4% year over year, due to the aforementioned Stars Wars comps and industry-wide softness in Europe. AMC was able to make up much of the difference with its concession business, as food and beverage sales of $435 million increased nearly 5% compared to the prior-year quarter. Other revenue of $115.9 million grew 11% year over year, the result of higher online ticket revenue and an accounting change (ASC 606 for your accounting buffs).
Spending discipline played a big role during the quarter, as total operating expenses of $1.33 billion declined more than 1.5% year over year, down in nearly every category. This resulted in operating income of $87.3 million, up 24% year over year.
Net income of $170.6 million easily outpaced the loss of $276 million in the prior-year quarter. It wasn't all good news as the results included $166 million from an asset revaluation and a $310 million tax benefit. Adjusted EBITDA of $264.1 million was down 8.4% year over year, or 6.8% in constant currency.
A 5.3% increase in attendance at U.S. theaters was partially offset by a 5% decline in international markets, resulting in consolidated attendance that climbed 1.9%.
The elephant in the room
AMC announced this week that the top tier of its loyalty program -- Stub A-List -- had topped 700,000 subscribers, adding 100,000 members over the past two months alone and far exceeding the company's initial expectations. Members pay $19.95 per month for the opportunity to watch up to three movies per week at any theater and in any format, including IMAX and Dolby. Since the debut of the program last June, A-List member attendance has totaled 14 million, including additional full-priced tickets purchased for guests.
On the conference call to discuss the results, AMC CEO Adam Aron said that Stubs now has 18.6 million member households, representing about 40 million Americans. In fact, AMC reported that about 45% of its entire U.S. clientele are members of Stubs. One of the most underappreciated benefits from Stubs is the large -- and increasingly valuable -- consumer database. AMC plans to send out 1.5 billion emails and texts to Stubs members about movies that would interest them, based on the films they have seen.
A-List is expected to generate more than $150 million in annual recurring revenue for the theater operator and more than $300 million including concessions and full-price tickets bought by friends and family members. AMC believes that shifting a portion of its revenue to a recurring subscription model will help reduce the peaks and valleys that come with ticket sales and begin adding to the bottom line this year, a full year earlier than expected.
A transitional year
AMC has been working to entice customers back into the theater with Stubs A-List, premium food and beverage concessions, reclining chairs, and the addition of more premium large-format screens. While it's still early in the company's turnaround, the strategy appears to be producing better-than-expected early results.