Regal Cinemas, the nation’s largest movie theater chain, on Tuesday reported that net losses plunged to $29.4 million in the second quarter from $7.4 million the year before and said it’s talking with senior bank lenders in hopes of renegotiating the terms of its loan obligations by the end of September.
Revenue nosed up to $269 million from $262 million. Cash flow sank to $27 million from $52 million. Chairman-CEO Michael Campbell said the well-documented ills of the exhibition industry were compounded by a dip in national box office results in the last three weeks of June. Attendance, he said, fell 2.9% in the quarter from the 1999 period.
“Theater operators continue to suffer through a very difficult period due to the overcapacity created by the rapid growth of screens over the past several years,” he noted. He’s referring to an expensive race to across the country to build new multiplexes with stadium seating and other amenities, while closing down older theaters. Exhibs borrowed heavily to fund the expansion and interest expense soared.
The old theaters are expensive to close and many exhibs have had trouble getting out of costly leases. As another struggling exhibitor, United Artists, found out, the threat of Chapter 11 helps spur landlords to the bargaining table.
Regal has been blamed by its competitors for fueling the overbuilding, but Campbell has insisted that its expansion has been proportional to the others’ given the size of the circuit, which owns a whopping 4,148 screens.
Regal added eight new theaters with 132 screens during the quarter, added 15 screens to additional theaters and closed nine theaters with 44 screens. Regal also closed on $20 million in equipment financing and completed $20 million in funding as part of a $45 million sale leaseback transaction.
And the company said that it remains in compliance with its covenant obligations, but is now talking with bankers “to seek relief from certain financial covenant obligations” as of the end of the third quarter. “There can be no assurance the company will successfully reach an agreement,” Regal added.