Proactive Investors - AMC Entertainment's (NYSE:AMC) CEO says the company’s branded popcorn could be a $100 million per year revenue source, a small comfort for investors as the cinema chain struggles with liquidity challenges and significant debt.
CEO Adam Aron told investors during the company’s second quarter earnings call that its new lines of ready-to-eat and microwave popcorn launched in March and April of 2023 are “literally flying off the shelves” at Walmart (NYSE:WMT) stores and on Walmart.com.
AMC is now also planning to introduce a line of branded premium gourmet chocolate, candies and gummies, Aron said.
But it’s going to take a lot of snack sales to make a dent in the company’s long-term debt pile of $4.8 billion as of the end of 2Q.
Meanwhile, liquidity remains a challenge with CEO Aron warning on the earnings call that “in the short term, AMC has some serious liquidity issues to solve.”
It exited the quarter with $435 million in cash and cash equivalents, which is expected to be burned through by 2024 or 2025.
Bankruptcy risk if Hollywood strikes drag on
Analysts at Wedbush believe the cinema chain could face bankruptcy should it lose its ongoing legal battle over its proposed preferred equity unit (APE) share conversion and the Hollywood strikes drag on for months.
The analysts wrote that during the quarter AMC had chipped away at its debt balance but that it may not be able to continue in the third quarter and beyond.
“AMC had $435 million in cash and $4.8 billion in debt at the end of the quarter, for net debt per share of $2.93, versus $496 million in cash and $4.9 billion in debt at the end of the last quarter, for net debt per share of $3.24,” they wrote in a note to clients.
“In the quarter, AMC also negotiated a $42 million repayment to one of its highest-rate loans at a 34% discount. That loan now sits at $1.15 billion.”
They also pointed out that AMC raised $34 million during the quarter by issuing 21 million APE shares, bringing AMC’s total issuance of APE shares to 278 million of its allotted 425 million.
However, they highlighted that AMC said in its earnings release that it has “no APE units available to be issued under the September 2022 ATM equity program.”
“We thought AMC had APE shares as a backstop should its legal case to convert APEs to AMC shares fail, but this no longer appears to be the case,” the analysts wrote.
“Should its legal case fail, AMC could face bankruptcy risk if the current Hollywood labor strikes continue for months longer and cause 4Q titles to be pushed and a release slate hole in 2024.”
There is still currently no end in sight for the dual Hollywood writers and actors strikes even as Writers Guild of America (WGA) leaders met with studio representatives last Friday with the aim of restarting negotiations after a three-month standoff.
The analysts have an ‘Underperform’ rating on AMC stock and a price target of US$2.
AMC shares traded down 3.3% at US$4.92 at noon on Wednesday.