The stock market was having a pretty strong day on Monday morning as investors seemed quite optimistic about President Trump's recovery from COVID-19, as well as the possibility that a new stimulus deal will be reached. As of 10 a.m. EDT today, all major market averages were in the green, with the S&P 500 higher by 0.9%.
But movie theater stocks were a major underperformer. Leading U.S. movie theater operator AMC Entertainment Holdings (NYSE:AMC) was down by more than 11% for the day on the heels of a large decline in September, and Cinemark Holdings (NYSE:CNK) was lower by 12%. And real estate investment trusts that own movie theater properties were also under pressure. EPR Properties (NYSE:EPR), which derives 45% of its rental income from theaters, was lower by nearly 10%.
The simple answer is that movie theaters are under pressure after Cineworld Group (LSE:CINE), parent company of Regal Cinemas, announced that it plans to suspend operations at all of its U.S. and U.K. movie theaters less than two months after reopening.
Simply put, there aren't very many movies for theaters to show right now. So, while most movie theaters can open, and many have taken precautions to keep customers safe, movie theaters need a product to sell, just like any other business. And most theaters can open, but those in some of the largest markets (particularly New York City and San Francisco) have yet to receive the green light.
Major film releases continue to be pushed well into the future, with the recent announcement that the newest James Bond film, No Time to Die, would be postponed until April 2021 being the last straw for Cineworld. This followed other major delays, such as Wonder Woman 1984 being moved from October to Christmas Day and Walt Disney (NYSE:DIS) delaying its much-anticipated Black Widow by six months. As Cineworld CEO Mooky Greidinger said: "We are like a grocery shop that doesn't have vegetables, fruit, meat. We cannot operate for a long time without product."
To be perfectly clear, AMC and other major theater chains have not announced any plan to close. And it's also worth mentioning that while AMC isn't in the best financial position, the company has taken steps to increase liquidity, including a debt restructuring and a favorable lease restructuring with major landlord EPR Properties (which, by the way, has years of liquidity to ride out the pandemic).
If we've seen the last of the major delays, AMC and other operators should be OK. The Christmas Day release of the new Wonder Woman movie should be a major positive catalyst for the U.S. movie industry if it is released on time. But if widely anticipated titles like those mentioned here continue to be delayed, there's a limited amount of time that theaters can operate with no "product" to sell.