AMC Theatres Is Trying to Save the Multiplex

AMC Empire 25 theater in New York City is pictured in the New York City borough of Manhattan, NY

These are tough times to be a film exhibitor. Movie theater operators in this country sold 1.26 billion tickets last year, and that's the lowest box office tally since 1995. That compares to the 1.34 billion guests that the industry entertained a year earlier, and even that was a problematic performance.

The industry peaked in 2002 when it sold 1.58 billion admissions. There are plenty of possible explanations for the malaise that multiplex chains are experiencing today. Home theaters have improved dramatically with the rollout of high-def, 3-D and now 4K televisions. Patrons have tired of escalating ticket prices and costly concessions. Some will also argue that the quality of the product has also deteriorated.

One way or another, the industry is going to have to find a way to elevate its game. Folks aren't coming, and AMC Entertainment's (AMC) quarterly report on Tuesday shows that even the leaders that are seen as innovators are struggling. However, AMC Entertainment is also getting a lot of things right, and shareholders are enjoying the feature presentation.

Extreme Makeover: Multiplex Edition

Shares of AMC Entertainment hit new highs this week after the parent company of the AMC Theatres chain posted better-than-expected results. The headline of its earnings release touts its "record" results, but the actual performance isn't as rosy as that -- or its bubbly stock chart -- would seem to suggest.

%VIRTUAL-WSSCourseInline-630%Revenue actually declined slightly, dropping to $712.2 million during the holiday quarter. It scored $713 million in revenue a year earlier. Admission revenue declined 4.5 percent to $460.3 million. That's not good, but it was nearly offset by its busier concessions stand activity. AMC saw its food and beverage revenue climb 8.8 percent to $215.3 million. That particular feat is made even more impressive when one factors in the drop in actual traffic. Concessions per patron soared 13.5 percent to a record $4.46. That's a lot of popcorn tubs and Junior Mints boxes sliding across the glass display case.

Other bragging points include earnings from continuing operations improving to 30 cents a share if you back out a one-time gain from a year earlier. Analysts were only holding out for a profit of 22 cents a share. This is the third quarter in a row that finds AMC landing well ahead of Wall Street's profit target.

AMC has done a lot to improve its customer experience, and installing self-serve soda fountains and making it easier to request free refills on large popcorns and soft drinks have clearly helped in getting guests to pay up once they trek out to the local multiplex. It's also been opening bars in some of its theaters, giving patrons something to do before or after the movie. The challenge remains to get them there in the first place.

Lights! Camera! Action!

AMC's empire watches over 348 locations with 4,960 screens. It isn't afraid to take on the challenge of remaining relevant in an age of streaming high-def content being piped directly into living rooms.

Beyond improving its food and beverage offerings, AMC is also in the process of updating its actual theaters. It has been gutting old screening rooms, installing cozier recliner seats at dozens of its theaters. That's paying off as screens with the new recliner seats are posting double-digit gains in attendance at a time when the industry in general and most of AMC's own theaters are going the other way.

AMC has always been at the forefront of innovation. It was an early partner with Imax (IMAX), and even after introducing its own knock-off AMC ETX platform it remains Imax's largest player. It just began testing monthly passes in Denver and Boston, offering unlimited showings for as little as $35 a month. It said during Tuesday night's conference call that the test is going well, and it will have more to say about widening the test later this year.

It still needs to do more, especially if it wants to earn this week's new stock highs. It's great to see margins, cash flow, and adjusted earnings on the rise, but that can only take you so far if overall revenue doesn't eventually turn higher.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of IMAX. Try any of our Foolish newsletter services free for 30 days. Is your portfolio ready for a change? Check out our free report on one great stock to buy for 2015 and beyond.​