Is the recent comeback of Canada’s biggest movie exhibitor sustainable?
Renewed investor enthusiasm in Cineplex Inc. has sent its stock up 14 per cent from its low point earlier this year. Yet there appears to be considerable room for further gains.
At $32, the stock is still trading at a roughly 40 per cent discount to its peak last year. And the upside isn’t entirely pegged to Hollywood’s ability to turn out box-office hits.
Cineplex is gradually succeeding with its strategy of reducing its reliance on the unpredictable appeal of the movie studios’ output. Cineplex now looks to movie exhibition for just under 45 per cent of total sales. The balance is derived from more stable revenue streams.
Cineplex is now one of the world’s largest providers of virtual-reality play centres; online gaming platforms; and digital message boards that it installs and maintains in Canadian, U.S. and non-North American fast-food restaurants, banks and shopping centres.
It’s still the case, though, that blockbuster movies are the most potent factor in moving the profit needle and the stock price. Cineplex’s total annual patron count is likely to recover to the 77 million level of recent years before 2017’s more than 5 per cent dip due to a string of box-office duds.
But for investors concerned that blockbuster Avengers: Infinity Wars alone accounted for 24 per cent of second-quarter exhibition revenues, Cineplex is better insulated than before to inevitable droughts in crowd-pleasing pictures.
The firm’s non-exhibition operations are becoming substantial as standalone businesses, have significant growth potential, and are not vulnerable to competition from online streaming and other box-office rivals.
Perhaps most important, they are under management’s control, in a way that Hollywood’s output is not.
U.S. Big Business vs. Trump
Donald Trump’s opponents have opened a new front against his trade policies.
Americans for Free Trade (AFT), unveiled Sept. 12, is among the largest and most varied groups ever assembled to thwart a U.S. president’s agenda. The coalition counts more than 85 industrial and agriculture associations, and its heavyweight members include Microsoft Corp., Apple Inc., Facebook Inc., Amazon.com Inc., Walmart Inc., Macy’s Inc., Mattel Inc., Barnes & Noble Inc. and scores of other household business names.
The well-funded coalition plans TV and internet ads and grassroots pamphleteering to elect pro-trade politicians to Congress in the Nov. 6 mid-term elections.
The coalition’s members are frustrated that their eight months of lobbying Congress and the White House have failed to curb the Trump administration’s protectionism.
In making common cause against Trump’s “America First” bullying of America’s biggest trading partners, they hope to at least thwart Trump in his threatened $500-billion-plus (U.S.) in proposed tariffs on imported Chinese goods.
They understandably fret over inevitable Beijing retaliation against the Fortune 500’s sprawling operations and investments in China. The tariffs Trump has already imposed have boosted the prices that U.S. industry and agribusiness must pay for essential goods such as industrial machinery and semiconductors, prompting threatened layoffs of U.S. workers.
Abetting the coalition are CEOs flirting with a presidential run in 2020, including sports tycoon Mark Cuban, Starbucks Corp. founder Howard Schultz, and Jamie Dimon, CEO of JPMorgan Chase & Co.
Dimon, America’s top banker, told CNN this month that, “I think I could beat Trump … because I’m as tough as he is, I’m smarter than he is. And by the way, this wealthy New Yorker actually earned his money. It wasn’t a gift from daddy.”
Betting on an HBC comeback?
You’ll need an iron stomach for setbacks.
HBC has been achingly slow to realize profits from its real estate sales – the firm’s raison d’etre under its current U.S. ownership. And HBC’s retail business continues to underperform.
Granted, the firm is making progress with its agreed sale this month of its European albatross, the German department-store retailer Galeria Kaufhof, a deal I speculated on as the only way out for a chronically troubled HBC. (HBC has lost $1.1 billion in its past two fiscal years.)
HBC’s controlling ownership team earlier scored a decent sale price in offloading the flagship New York store of its Lord & Taylor chain.
With those deals, HBC is positioned to cut its corporate-level debt by about 45 per cent, emerging with one of the cleanest balance sheets among major North American department store operators.
But the worry is that real estate sale proceeds might not appear on HBC’s balance sheet for quite some time. For instance, only $100 million (U.S.) has been deposited toward HBC’s $850-million sale of its New York flagship Lord & Taylor property, a deal struck more than a year ago.
Meantime, most of HBC’s retail businesses continue to disappoint, with second quarter same-store sales down 3.8 per cent at HBC’s department store group (Hudson’s Bay and Lord & Taylor), and down 7.6 per cent at its Saks OFF 5th unit.
Only its luxury retailer Saks Fifth Avenue is clicking, with an impressive 6.7 per cent gain in same-store sales.
Investors who’ve pushed HBC stock up by 22 per cent this year (it still trades at less than half its peak 2015 price) should take note of HBC’s execution issues, most recently with a bungled 2017 cost-saving drive.