During the multi-year odyssey that saw Sears go from an iconic national retailer to a sad shell of its former self, the company had some profitable quarters. Every time that happened the company's former CEO Eddie Lampert would tout the various segments of the business which had improved.
Even though overall sales continued to drop, he would point out that sales for women's socks trended up in the last month of a given quarter or some similar news. He would also endlessly speak about the company's efforts to refresh its clothing lines.
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Lampert was very good at acting as a hype man for his failing company. The problem — and it was a big one — was that Sears was keeping the lights on by selling off its assets. The company, for example, had a profitable quarter when it sold its Craftsman Tools brand.
That's a one-time benefit that can't be duplicated. At some point, the chain had sold off all of its assets, and that cash had simply made its death spiral longer.
Selling assets to free up cash in order to fund a real turnaround plan gives a company a chance at success. Doing the same just to keep the lights on a little longer does not change the end result.
That's what's happening at AMC Entertainment (AMC) -), a struggling movie theater company that relies on selling more stock to keep the lights on. That's something CEO Adam Aron talked about during his company's second-quarter earnings call.
His words were blunt, but he also ignored a key part of the situation his company finds itself in.
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AMC CEO shares a blunt truth
"We've had to adjust our strategy because the movie theater industry has come back slowly, and so our strategy has become survive, then thrive. We have had to take the steps to make sure this company survives. And not all companies in our industry can say that," he said.
Those steps include continually being able to raise capital.
"To make sure we get there, and you've been hearing me say this as a broken record for two years now, but especially in the last year, we must be able to raise capital if we need to. Because the dumbest thing we could ever do as a company is run out of cash," he said,
AMC has been able to raise cash by selling more stock because the company has been a meme stock which has been kept afloat for reasons other than the company's performance. That's not a situation that will go on forever.
AMC faces a cash crisis
AMC closed the second quarter with $643.4 million in available liquidity which includes $208.1 million of undrawn capacity under the company’s revolving credit facility. That number grew by $350 million in September when the theater company sold more stock.
"That lowered the firm’s immediate bankruptcy risk to a degree. However, AMC lost more than $700 million over the past 12 months. It could burn through the new capital rather quickly, given the industry’s poor operating results," wrote Investor Place contributor Ian Bezek.
What Aron has ignored is that while AMC has increased its revenue per ticket sold and has benefitted from some hit movies, its overall industry is contracting in a way that's not likely to change.
From 2009 through 2018, U.S. box office hovered between $10 billion and just under $12 billion. The pandemic devastated that and 2022 came in at $7.3 billion while this year is tracking slightly higher.
The industry has lost a large percentage of its sales and those are not likely to come back. As an industry that has always been hit-driven, the movie business has seen that only certain kinds of films work now.
Family movies, for example, like Walt Disney's (DIS) -) Pixar-branded films are not likely to see a resurgence at the box office. Instead, it's much more likely that companies find ways to monetize content that do not involve theaters.
AMC has bought itself time, and Aron does believe that people will return to theaters.
"Because I've already said in 2024, 2025, it's going to look pretty bright. But if we were to run out of cash before we get to 2024 or 2025, that would be a disaster. And that's a disaster that I simply will do everything in my power to make sure that this company avoids," he said.
