By Ciara Linnane, MarketWatch
Shares of cinema operators tumbled anew Tuesday, as federal agencies and local governments announced further restrictions on the number of people allowed to gather in one place as they work to contain the coronavirus that causes COVID-19.
AMC /zigman2/quotes/200235402/composite AMC +14.73% , the biggest cinema chain in the U.S., said late Monday it is closing all U.S. locations for six to 12 weeks starting Tuesday. The company said members of its Stubs A-List loyalty program will have their accounts paused while theaters are closed.
Regal Theaters, which is part of the U.K.’s Cineworld and is the second-biggest cinema chain in the U.S., made the same decision, saying it will shutter its cinemas for the foreseeable future. Four other chains also announced plans to close on Monday, according to the Hollywood Reporter, namely the Landmark, Harkins Theaters, the Alamo Drafthouse Cinema, Showcase Cinemas and Bow Tie Cinemas.
The move comes after the government urged Americans to restrict any gathering to no more than 10 people. AMC and others had already announced plans to cut ticket availability.
“We are ever so disappointed for our moviegoing guests and for our employee teams that the new CDC guidelines that Americans should not gather in groups larger than 10 people make it impossible to open our theatres,” AMC Chief Executive Adam Aron said in a statement. “Still, the health and wellbeing of AMC guests and employees, and of all Americans, takes precedence above all else.”
Cinemark Holdings Inc. /zigman2/quotes/200040530/composite CNK +5.33% did not respond to a request for comment.
The number of states ordering cinemas to close has grown overnight to include Connecticut, Louisiana, Maryland, Michigan, New Jersey, New York, Ohio, Pennsylvania and Washington, with more expected to follow.
The pandemic is already devastating cinema ticket sales, which fell to their lowest level since 2000 over the weekend as Americans stayed away from enclosed spaces. Receipts totaled about $55.3 million in U.S. and Canada theaters, according to studio estimates Sunday reported by the Associated Press. The last time ticket sales were that low was in 2000, when $54.5 million in tickets were sold on a quiet September weekend, the AP reported, citing data from Comscore.
Bank of America analysts said they are shifting to a more conservative stance on the media and cable sector in light of the spread of the virus, and named AMC as one of the most levered in its coverage universe with a debt to EBITDA ratio of 6.1 times.
“AMC appears to be most challenged, in our view, as the company has no material contractual revenues or business interruption insurance,” analysts led by Jessica Reif Ehrlich wrote in a note to clients.
Bank of America is modeling its forecasts for the sector on the 2001 recession, which came after the dot-com bust and September 11, 2001, attacks, although analysts acknowledge there is no comparable that captures widespread quarantine activity.
“Given the unprecedented nature of the coronavirus and its ramifications with theme parks closed, cruise ships shut down for at least a month, major league and college sports suspended, TV and film production halting, film releases delayed and movie theaters likely to close the financial hit to media companies with exposure to these areas could be substantial,” said the note.
Benchmark analyst Mike Hickey downgraded its rating on AMC to hold from buy on Monday, and noted cinemas are also closed in France and Italy.
“We anticipate that these headwinds are transitory and we expect a growth reset over the medium term, but we’re increasingly concerned that AMC will have enough financial flexibility to cover a longer than anticipated slowdown or the potential for a complete shutdown of its theatrical network,” Hickey wrote in a note.