What happened

Shares of AMC Entertainment (NYSE:AMC) were moving higher after the world's largest movie theater operator released a plan for reopening theaters in the U.S. Investors applauded the news, sending the stock up 5.5% as of 10:40 a.m. EDT.

So what

AMC, which is also the biggest theater chain in the U.S., said it would begin opening theaters on July 15 with about 450 locations, and then almost all of the remaining 150 getting back in business by July 24 in time for the release of Walt Disney's Mulan. Warner Brothers' Tenet will follow on July 31. More than half of AMC's approximately 1,000 theaters are in the U.S.

The entrance to an AMC multiplex

Image source: AMC Entertainment.

The company said it had developed a "Safe & Clean" plan in partnership with Clorox and Harvard University's public health team, which includes social distancing rules, enhanced cleaning, and limited capacity in theaters. Capacity will be limited to 30% when theaters first reopen and every other row will be blocked out. In phase two, which will begin in accordance with local regulations, capacity will increase to 40%. By phase three, which is expected around Labor Day, capacity will rise to 50%. The company expects theaters to return to full capacity by Thanksgiving.

Investors sent the stock higher as the reopening represents a step in the right direction for a company teetering on the brink of bankruptcy. But there are plenty of questions about whether the reopening will be successful as customers may not feel comfortable returning to enclosed theaters, especially while coronavirus cases are rising again in some states. 

AMC courted some controversy when CEO Adam Aron told Variety that the company wouldn't require guests to wear masks where local regulations don't require it, saying: "We did not want to be drawn into a political controversy. We thought it might be counterproductive if we forced mask wearing on those people who believe strongly that it is not necessary."

Now what

Just two weeks ago, AMC warned in a filing that it there was "substantial doubt" about its ability to continue as a "going concern" due to the impact of the pandemic and the debt burden the company faces. Therefore, the response to the reopening will be crucial. If moviegoers enthusiastically return to theaters, that should help lift AMC stock and limit its bankruptcy risk. Alternatively, if customers are wary or if there's another round of lockdowns in some areas, the company could be forced into default.

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