It was Loews Cineplex’s day in the box Monday. Investors pummeled the stock from the opening of trading because of bad news delivered just before the weekend — the movie circuit revealed that it expects lower second-quarter revenue and that it is seeking a waiver from certain loan covenants.
Shares closed down 94¢, or 32%, at $2. The stock has dropped 45% since June 7, when it closed at a 52-week high of $3.63.
Loews’ stock plunge is just the latest tale of woe in the ailing exhibition business, which has delivered almost daily doses of bad news to Wall Street over the past few weeks.
Columbus, Ga.-based Carmike Cinemas Inc. and privately held Edwards Theatre Circuit Inc. of Newport Beach both filed for Chapter 11 bankruptcy protection earlier this month. Trading in shares of Carmike was halted for several sessions after the filing, but the stock already had slid so much in the past that its 12¢ uptick to a closing share price of 81¢ on Monday represented an 18% improvement.
Privately held United Artists Theatre Co., headquartered in Denver, is expected to file for Chapter 11 protection after Labor Day. In an anticipated deal, Denver billionaire Phillip Anschutz would take control of the chain as part of a bankruptcy reorganization of UA.
PaineWebber analyst Christopher Dixon, in a report to investors following Loews’ downbeat pronouncements, suggests that the entire exhibition industry is in for tough times until at least one circuit turns things around — probably by paring scores of movie screens.
“We see no reason at this time to invest in the sector, pending at least one successful restructuring,” Dixon wrote. “With an estimated 37,000 screens in North America, we still believe the industry must trim down to a more reasonable 25,000 to 28,000 screens before individual operators can generate attractive equity returns.”
The filing for bankruptcy reorganization proceedings is considered a step in that direction, as the affected circuits could be freed from some current lease constraints in the process.
“You can’t get rid of these money-losers because of leases,” Morgan Stanley Dean Witter analyst David Allen noted. “(So) a lot of companies in the industry find the best way to get out of a lease is by declaring bankruptcy.”
Nonetheless, Allen predicted 2% to 4% net screen growth in 2000, but agreed there would be no turnaround in the industry until screen growth diminished.
(Dow Jones contributed to this report.)