AMC Sued for Allegedly Mischaracterizing Seasonality of Box Office

AMC Theater - H - 2016

AMC Entertainment was hit with a class action lawsuit on Friday that claims it misled investors about the seasonal nature of box office trends.

AMC is the largest movie exhibitor in the world, in part due to a slew of acquisitions, many of which are companies operating screens outside of the United States. It's those international theaters that have piqued the interest of some investors and their attorneys.

"Our business is highly seasonal, with higher attendance and revenues generally occurring during the summer months and holiday seasons," AMC said in regulatory filings around the time it was acquiring Carmike Cinemas and U.K.-based Odeon & UCI Cinemas more than a year ago.

But the plaintiffs claim the disclosure is "materially inaccurate" because "AMC's newly acquired international operations generally experience lower attendance during the summer months."

The lawsuit was filed in the U.S. District Court in New York by the Hawaii Structural Ironworkers Pension Trust Fund and on behalf of others similarly situated, and it not only names AMC but also several financial institutions, along with CEO Adam Aron, CFO Craig Ramsey, chief accounting officer Chris Cox and a slew of AMC board members.

The lawsuit notes that on an Aug. 4 earnings call, Aron said the second quarter, which includes a portion of summer, "is often the smallest quarter of the year in Europe," which the plaintiffs say contradicts language disclosed in regulatory filings.

The lawsuit says Wall Street analysts told clients that AMC missed its quarterly financial projections during that Aug. 4 earnings release, and one of them blamed its "mismodeling" on weak international results.

At the end of 2016, notes the lawsuit, AMC was operating 8,393 screens in the U.S. and 2,265 screens in the U.K. and Europe.

Beyond the issue of seasonality differences between the U.S. and other countries, the lawsuit contends that AMC misled investors in other ways, such as failing to disclose prior to its acquisition of Carmike that the rival exhibitor was losing market share.

AMC executives also overestimated the number of Carmike customers who would join the AMC Stubs loyalty program and didn't disclose how the shutting down of two of Carmike's largest theaters for about 15 months during renovation would hurt the bottom line, according to the lawsuit.

AMC was not available to comment on the lawsuit. Its shares closed Friday at $14.45, down more than 50 percent in the past year.