Cineplex (TSX:CGX) Has a Massive 95% Drop in Revenue

The Cineplex stock got one of the worst beatings in the 2020 market crash. COVID-19 dealt Canada’s leading entertainment and media a massive blow with its 95% drop in revenue.

| More on:

Will lenders relax financial covenants with Cineplex (TSX:CGX) reporting a 95% drop in total revenue? In Q2 2020 (quarter ended June 30, 2020), the top tier Canadian brand posted a total revenue of only $22 million versus $438.9 million in Q2 2019. Its net loss for the quarter was a staggering $98.9 million.

Massive downfall

Since March 16, 2020, families, moviegoers, and frequent visitors were nowhere near the circuit of theatres and location-based entertainment (LBE) venues of Cineplex. All of them were closed due to COVID-19. Employees and investors were not spared from the impact of shutdowns and lockdowns.

Management implemented temporary layoffs of all part-time and full-time hourly employees. Other full-time employees chose the same option rather than accept pay cuts. Aside from these drastic measures, Cineplex deferred capital spending and suspended dividend payments.

Material decreases in revenues (film entertainment, media, and amusement segments) and drying cash flows were inevitable. For Q2 2020, Cineplex’s monthly cash burn was $18 million. Other ongoing concerns include negotiations with landlords (for rent relief) and major suppliers (for contractual payments).

Dramatic showdown

In June 2020, Cineworld Group, the world’s second-largest cinema group, cancelled the deal to take over the Canadian icon. The reason cited by the London-based company was a breach of contract. Cineplex has filed a suit against the retreating buyer and seeking billions in damages. The tentative trial date is September 2021.

The $2.8 billion transaction would have given birth to the biggest operator of movie theatres in North America. Instead of a merger, two movie exhibition giants will engage in a legal battle.

Open for business

Cineplex is ready to welcome guests back and is the first major film exhibitor to reopen its entire theatre chain. As of August 21, 2020, all 164 theatres and 1,687 screens across Canada, including 22 VIP Cinemas locations, are open.

Cineplex CEO Ellis Jacob said that Cineplex is unlikely to hit break-even in Q3 2020, although he’s confident next year will be a strong one. Management is implementing a slew of marketing and pricing strategies to draw loyal customers.

Cineplex assures customers that the safety precautions in place across all businesses are in partnership with public health officials and infectious disease experts. Thus far, many theatres, under physical distancing rules, are reaching capacity. Attendance should increase with new movie releases like The SpongeBob Movie: Sponge on the Run, Unhinged, and Tenet.

From great to worst

Cineplex shares delivered a total return of 42.7% in 2019 and one of the year’s dividend kings. On March 16, 2020, when the business shut down, the stock sunk 54.28% to $9.33. It recovered in late April as it climbed 78.35% to $16.64. When news of the scrapped deal with Cineworld came out, the price sunk deeper to $7.91.

As of this writing, Cineplex is one of the worst-performing stocks in 2020. At $9.18 per share, the year-to-date loss is 72.75%. The company said Cineworld has no legal basis to back out from the deal. Their agreement explicitly excludes “outbreaks of illness or other acts of God.” Cineplex’s business suffered for those reasons.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

More on Investing

cloud computing
Tech Stocks

Best Stock to Buy Right Now: Manulife vs CIBC

Want the best stocks? These two are certainly the best options. But which is the better buy?

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Earn $2,000 in Passive Income in 2025 With Less Than $51,000 in Savings

You can invest in Canadian high yield stocks via the Vanguard FTSE Canadian High Yield Dividend ETF (TSX:VDY).

Read more »

Asset Management
Investing

Where Will Restaurant Brands International Stock Be in 1/3/5 Years?

Let's dive into where Restaurant Brands (TSX:QSR) could be headed over the near to medium term, shall we?

Read more »

profit rises over time
Tech Stocks

4 Reasons to Buy Constellation Software Stock Like There’s No Tomorrow

Constellation Software stock continued its climb upwards after recent earnings, and this only adds to its appeal.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Is Enbridge Stock a Good Buy?

Enbridge provides a 6.5% dividend yield right now.

Read more »

calculate and analyze stock
Bank Stocks

Is National Bank of Canada Stock a Buy for its 3.3% Dividend Yield?

While National Bank stock might seem to have a lower dividend yield, its upside could offer a valuable way to…

Read more »

An investor uses a tablet
Investing

4 Value Stocks That Are Must Buys for Canadians in November

Whether you want to add growth or defence to your portfolio, these four stocks are some of the best Canadian…

Read more »

Oil industry worker works in oilfield
Energy Stocks

Is Suncor Stock a Buy, Sell, or Hold for 2025?

Suncor stock looks undervalued as the company continues to increases cash flows, earnings, and shareholder returns.

Read more »