Please ensure Javascript is enabled for purposes of website accessibility

Regal Cinemas: A Leading Outlet for America's Greatest Product

By Michael Lewis - Feb 22, 2014 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The just-ended quarter may not have impressed the Street, but the long-term outlook remains favorable for one the nation's leading theater chains.

The major film studios have found success recently through rising box office revenue, but one big miss is all it takes to sink a studio for months. The box office itself is a steadier business. Regal Cinemas (NYSE: RGC), one of the industry giants, is finding success in nearly everything it does -- from concessions to expansions. Considering the organic growth, along with value-added acquisitions and investments, Regal's growth prospects are quite appealing despite it being in a very mature market. For two full years in a row, the company has   hit record revenue and EBITDA. Here's what investors need to know.

Smash hits
Aided by 3-D and IMAX films such as Gravity and latest Hunger Games installment, as well as standard-format hits like The Wolf of Wall Street, Regal Cinemas saw strength across many segments of its business. However, some of the financial figures -- adjusted EBITDA and net income -- took a hit in the recently ended quarter due to an industrywide decline in attendance and higher costs. Investors should note that box office results can vary greatly from quarter to quarter, but longer-term trends have shown consistent attendance. Movies are still America's greatest product.

In the company's fiscal fourth quarter, revenue rose to $740 million from $721.4 million in the year-ago quarter. Adjusted EBITDA came in at $126 million, which was nearly $25 million less than 2012's fourth quarter.

Regal is seeing healthy ticket price growth and concession sales growth, with the latter posting a 3.5%per-person bump in the just-ended quarter. Concessions in general are the shining star of the theater business due to the ridiculous margins -- Regal enjoyed an 86.7% concession margin. This marks the 10th quarter in a row that the company has delivered 2.5% or higher growth in concession sales.

A sequel?
Regal may not have had the best headline numbers for its latest quarter, but investors can expect the long-term outlook to play better. For one thing, the company is on top of the concessions trends, adding services such as full food and drink menus, sometimes delivered right to your seat. While this heightened level of service may impact the tremendous margins typically associated with popcorn and soda (think 500% or more), it nonetheless increases sales for the segment and has the potential to drive more people into the theaters.

With tremendous funding and a national blueprint for expansion, Regal is able to grow organically and via acquisition. Last year, the company tacked on 500 screens from Hollywood theaters.

This year sports a huge slate of movies and has already been buoyed with hits such as Disney's Frozen. The spring and summer release schedule is chock-full of superhero films, of which people apparently are not yet fatigued. The 3-D and IMAX films will continue to generate substantial, growing box office revenue. Couple that with concessions and Regal's ever-expanding screen count, and you have a company set to achieve steady, reliable growth. At 14.7 times forward earnings estimates and a recently increased 4.6% dividend, Regal Cinemas offers investors the potential for capital appreciation along with steady income.

Michael Lewis has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
402%
 
S&P 500 Returns
129%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.