Carmike slumps

Like Loew's, exhib warns of weak numbers

NEW YORK — Carmike Cinemas, the latest theater operator to warn Wall Street of weak numbers ahead, said Friday it will swing to a loss for the fourth quarter ending in December from a profit of 15¢ a share last year, well below analysts’ 18¢ estimate.

Revenues for the Columbus, Ga., operator will be up only slightly from the 1998 period. They grew a meager 1.5% for the first nine months of the year.

The nation’s third largest exhibitor attributed the hefty shortfall to higher operating costs, depreciation and interest expenses related to new theater openings. Carmike chief financial officer Mike Durant cited a slow start to the quarter up through Thanksgiving, when strong turnout wasn’t enough to offset the initial dip.

But, he added, “We are very encouraged by the results posted by Carmike’s new theaters over the Thanksgiving weekend and believe they will continue to perform at increasing levels as they mature.” Carmike operates 2,761 screens at 451 locations in 36 states.

Wall Street wasn’t encouraged.

Downgrade

The announcement sent Carmike stock down by nearly 17% to close at $9.44. Analyst Jeff Logsdon at Seidler Cos. downgraded the stock to “sell” from “buy.” He said Carmike’s operating results have not kept up with an outstanding box office and the company appears unable “to capitalize in an investor-friendly fashion on its internal expansion.”

Investors have had some indication that exhibs were hurting. Earlier last week, giant Loew’s Cineplex Entertainment announced that its upcoming financial results would also disappoint. The New York-based company, which cited weakness at its Canadian operation as well as at its older theaters, said its net loss would widen on flat revenue. It saw its stock plunge as well.

By now, movie theater chains are getting used to being clobbered by the market. Shares of Carmike, Loews Cineplex and AMC Entertainment, three of the groups that are publicly traded, are down more than 50% for the year. Others, like Regal and United Artists, would look even worse if their stock, too, was publicly traded.

Expensive transformation

A big part of the problem is that the industry is in the midst of a transformation as it spends significant cash to close down older theaters and even more cash to build new, state-of-the-art multi- and megaplexes with features like stadium seating and digital surround sound. Most exhibs have borrowed heavily, which is why interest expenses are ballooning.

Buyout firms such as Kolberg Kravis Roberts and Hicks, Muse, Tate & Furst, which have invested in the business, as well as banks that have lent it money, are trying to keep the theater chains afloat and recoup their investments. Whether all will do so is still an open question.

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