Nordstrom’s exit from Canada could present opportunity for Cineplex (CPXGF)

Nordstrom Exit Of Canada creates demand for new mall tenants

In 2015, I questioned on this siteNordstrom (JWN) will be able to enter Canada without incident.I noticed that Nordstrom would compete competes with Canada’s privately held luxury retailer Holt Renfrew, and it must find a way to differentiate itself from Holt Renfrew and other Canadian luxury retailers.

On March 2, 2023, Nordstrom announced leave canada. After investing $775 million (US dollars), the company was never profitable in Canada. (All values ​​in this article are in Canadian dollars unless otherwise stated). As a result, 13 prime retail spaces in Canada occupied by Nordstrom and Nordstrom Rack will soon be empty.

Some analysts believe the space could be occupied by another department store retailer, such as Saks Fifth Avenue.

I disagree. Saks is owned by the privately held Hudson Bay Company, which also owns the Canadian department store the Bay. In Yorkdale, arguably Toronto’s most exclusive mall, The Bay currently closes two hours earlier on weekdays than the rest of the mall.this Mall website Shows that the bay isn’t even open on Mondays. That doesn’t sound like another department store that it needs to successfully occupy traditional anchor spaces and attract customers.

Location-Based Entertainment (aka “LBE”) is an Attractive Alternative to Department Stores

Instead, it is safe to assume that affected mall operators prefer tenants who provide entertainment or services that consistently attract consumers to their malls.In the United States, mall operators can Fill closed Sears “anchor” spaces With Dave & Buster’s (Play) Place.

However, Dave & Buster’s only Two locations in Canada. Which brings me to the topic at the beginning of this article. Is there a well-known Canadian entertainment company that could benefit from some of this space?

Cineplex has a fast-growing location-based entertainment business

I believe cinema (OTCPK:CPXGF) is that company. I’ve written about Cineplex on this site before, noting that in addition to being Canada’s major movie theater chain, it also has a growing location-based entertainment business. Its location-based entertainment business operates under the brands Rec Room, Playdium and newly launched Junxion.

For the most recent quarter ended Dec. 31, 2022, Cineplex reported “record annual revenue of $110.8 million, up $66.1 million, or 147.6%, from the year-ago quarter” for its location-based entertainment segment.

By the end of 2022, Cineplex operate 13 location-based entertainment venues. The company also reported adjusted store-level EBITDAaL (which I will simply refer to as “EBITDAaL”) of $9.3 million in the fourth quarter at these locations.

This equates to an EBITDAaL of $0.715 million per location for the quarter.

EBITDAaL of $9.3 million in Q4 2022 compared to $5.1 million reported pre-pandemic Q4 2019. This represents an increase of 82% from the comparable pre-pandemic quarter, when the company had nine locations, compared to 13 at the end of 2022.

How Much Revenue Can a Few Location-Based Entertainment Stores Increase?

With a number of factors impacting previous quarters, including COVID-19, seasonality, and changes in store count, if I were to guess that Cineplex could lease a portion of Nordstrom’s 5 locations, that could add $3.5 million to EBITDAaL in Q4, This could equate to approximately US$ 14 million per year.

If we also annualize the current location with $9.3 million EBITDAaL, it’s $37.2 million. If we add that to the $14 million estimate above, the annualized EBITDAaL would be over $50 million for location-based entertainment alone.

To put this in perspective, Cineplex reported net income of $113,000 for the year ending December 31, 2022. The positive earnings figure was driven by a $57.8 million decrease in gains on asset disposals.

So a growing location entertainment business that could add $50+ million to EBITDAaL could help keep Cineplex profitable for the full year if all of its other businesses are flat compared to a COVID-impacted 2022. To be clear, I’m just guessing that Cineplex and landlords will consider adding Cineplex to these spaces. With the sudden availability of these spaces, I am sure landlords and other potential companies that may benefit from leasing will carefully evaluate the situation.

That said, Cineplex seems well-suited to pursue some of these spaces in the same way Dave & Buster did at the former Sears store in the US, so this similar move toward entertainment north of the US border doesn’t seem far-fetched to me . Furthermore, even if it doesn’t follow Dave & Buster’s roadmap and instead targets any of these locations, the LBE segment is already growing at a phenomenal rate.

Cineplex has major advantages over Dave & Buster’s

Cineplex already has movie theaters in some affected malls, such as Yorkdale in Toronto. Thus, the mall owner has a relationship with Cineplex, and since the mall’s movie theaters already attract customers to the mall, the mall owner has an incentive to partner with Cineplex for mutual benefit.

Plus, Cineplex has something that Dave & Buster doesn’t have in Canada. First, it has movie theaters that show commercials, which can include commercials for Cineplex’s location-based entertainment venues.

Even better, as part owner of the SCENE+ program with more than 11 million loyal members, Cineplex can use the rewards program to bring theatergoers to its location-based entertainment venues.

Additionally, Cineplex owns Player One Amusement Group, a unit with $165.7 million in 2022 revenue. The company provides gaming consoles, including carnival-like games used in location-based entertainment venues. This type of vertical integration could help counter potential competitors.

What about the movie business and Cineplex stock?

because i have written beforeCineplex’s movie theater business has about 75% market share in Canada.

Since I last wrote about Cineplex, it Obtain distribution rights Lionsgate (LGF.B) in Canadian theaters in 2023.as lionsgate Scheduled post the latest john wick This month’s sequel, which could offer Cineplex an opportunity to earn revenue from competing Canadian movie theater owners.

March 14, 2023, in cinemas Announce Its February 2023 box office results. It took in $37 million at the box office, 88% of what it took in the same month in 2019. International films accounted for five of the top 20 films, the company noted in its press release. The company also noted that “these results, combined with Cineplex’s content expansion strategy, enabled the company to outperform 2019 in February’s North American box office recovery by nearly 13 percent.”

In other words, investors looking at domestic box office numbers (which include Canadian and U.S. sales combined) on sites like Box Office Mojo may have overlooked Cineplex’s press release suggesting that Cineplex is significantly outperforming other North American theaters.

The company previously Report Box office receipts for January 2023 are also 88% of the January 2019 result. After achieving 66% of Q4 2019 results in Q4 2022, these two months are headed in the right direction.

Taken together, the market does not appear to be happy with these results. At the time of writing, the stock was trading just below $8 on the Toronto Stock Exchange. As I’ve mentioned in other articles, this was a $20-plus stock in 2019 before the takeover offer that never closed. I also mentioned that the company has not significantly diluted its stock since 2019, but has increased long-term debt. In the absence of significant dilution and improved box office numbers, the current share price seems surprising to me, perhaps some investors are overlooking the growth of the LBE business.

in conclusion

Despite the poor market sentiment, the company is making progress to return to pre-pandemic box office levels, including showing international films. The company also has a fast-growing location-based entertainment business.I’ll leave it to investors to speculate Where This business is likely to grow in the future. If the lessons learned in the U.S. apply here, some soon-to-be-vacant Nordstrom locations might be worth keeping an eye on for investors in the entertainment space. Even if Cineplex doesn’t expand into any of these areas, investors may want to focus on its growing location-based entertainment business in addition to box office numbers.

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