The recall and staying power of a film, which certainly drives incremental value to studios, filmmakers, and audiences, and incentivizes them to lean in further, so we certainly feel optimistic about where we're at.
And maybe touching on a point that you just made on the cadence, right, and the supply side of the equation, the volume of films coming to theaters has certainly ramped here in in the second half post-strike. Could you share what are your expectations for the number of wide releases of films coming to theaters in 2025 and beyond, and maybe parse out what you think is coming from traditional studios versus new entrants such as Apple and Amazon? And then just highlight just what gives you some of the optimism that the volume of films gets back to or exceeds pre-pandemic levels.
Coming out of the pandemic, we had originally anticipated that we would start to see volume more normalized around kind of the 2025 timeframe. Now, with six months of work stoppage due to the Hollywood strikes last year, we now believe that we'll start to get to more normalized volume levels in maybe 2026 or slightly beyond that. As we think about 2025 in particular, it's still a bit early to have full visibility into the slate, but we do believe that volume will land somewhere between what we saw in 2023, which was 110 wide releases, and pre-pandemic averages, which were around 130 titles. So we're certainly optimistic, though, based on what's been dated thus far for 2025 and, frankly, even into 2026. I think an important callout to make, though, is it's not just about the volume of films that drives box office performance.
It's also going to be the quality of the films released, so that does play an important factor, and as we have seen, there have been periods where there's been volume at below pre-pandemic levels, but we've seen really strong performance, and then as to your question around Apple and Amazon, so they have been pursuing theatrical distribution. Say Amazon is expanding their slate, whereas on the Apple side, they're still in that kind of test and learn mode, but based on our conversations with both companies, we do believe that they see the opportunity that theatrical releases can provide to drive more significant impact of their films on their streaming platforms. It really helps amplify, give that quality stamp, amplifies consumer interest as well, and drives retention.
And then you mentioned, I guess, the final point is just on optimism and what gives us optimism about volume being able to essentially return to those pre-pandemic levels. There's a couple key factors, the first one being that sustained consumer enthusiasm for moviegoing that we talked about. In addition to that, stated intentions by traditional studio partners about their production plans, also Amazon getting into the game more meaningfully. And then the other point I would call out is just continued growth of those non-traditional titles.
That's very helpful. So it sounds like as the industry gets back to a more normalized environment, there is potential optimism that even we could get back to above pre-pandemic levels.
Yes, on the volume side, we certainly do believe that's a possibility.
That's very helpful, and maybe switching over to average ticket pricing, and you guys have seen growth of about 5% over the past couple of years. How should we think about growth for this KPI going forward, especially with tougher year-over-year comps and some concerns in consumer spending?
From an average ticket price standpoint, I guess what I would start off with is overarchingly, our strategy is to maximize attendance and box office, and we're leveraging data and analytics to find that optimal price point that, that does just that. As we look going forward, as the potential to grow our average ticket prices, we do believe that we have the ability to continue to modestly grow average prices, average ticket prices, again, leveraging data to do so. That's on the domestic side. On the international side, the one point that I would call out there is that we have seen some pressure within the Latin American market, particularly in Argentina, with FX devaluation that has impacted our ticket prices. We would expect that to continue in in the near term with some offset from inflationary impacts in the region.
The other point just to mention on average ticket prices is that those ticket prices will vary depending upon film mix, and we'll see that in the fourth quarter as we lap the Taylor Swift concert film from last year.
Another key driver of obviously average ticket pricing is the outperformance of your premium large format screens and in your case your in-house XD proprietary technology. Could you discuss the contributions from PLF to Cinemark's overall box office and what opportunities do you see to grow the number of PLF screens across your circuit?
Yeah, so on the premium side, we've seen a nice uptick from consumers trading into premium amenities and in premium large formats. Cinemark actually has the largest and the number one private label premium large format in our XD offering, and we have over 300 auditoriums across the U.S. and Latin America feature XD. One of the key stats there is that while XD represents about 5% of our screens globally, it represents around 13% of our box office. So it over-indexes on the box office side, and we've seen that increase over 300 basis points since the pandemic. So we've seen a nice shift into premium large format and are well positioned there. I think the other part that's important to call out is it's not solely consumers trading up into our XD format. They're also making choices. You're seeing that reflected in their seating choices.
We are well positioned there. We have the highest penetration of D-BOX motion seats as well as recliners out of the major players. In fact, when we look at our D-BOX performance, box office generated from D-BOX motion seats has grown 75% since pre-pandemic timeframe, and our reclined theaters are recovering faster than our non-reclined theaters. As we look forward in terms of growth catalysts, premium amenities, whether it be XD, D-BOX motion seats, or other formats, are an avenue for growth.
And with this shift in premiumization of the business, do you continue to see that trend happening? Is it just the film mix or is it just like consumer demand for just sort of more premium experience?
Yeah, I would say we've seen it across the board when we look at, and one of the questions you had mentioned earlier on just consumer habits, right? Despite the current environment, we are seeing consumers continue to trade up in premium amenities, and it's, it's not just XD and D-BOX, it's also consuming more on food and beverage. So we're seeing that thematically be be a consumer preference as they're going out of their home to experience the movies. They're really indulging.
That makes sense. And maybe as we switch over to per caps, I think the theme remains the same, right? Like your growth has remained, I think, at above 7% over the past few years. How should we think about this growth going forward on per caps and what are some of the biggest areas of opportunity there?
So on the concession per caps side, we've been really pleased with the growth that we've been able to deliver. Our per cap domestically is up more than 40% since the 2019 timeframe. And what we're really pleased about there is that the majority of that growth is driven by higher incidence rates and then to a lesser extent pricing. And when you think about what, what's driving that, it's a combination of core concessions, so mainly Coke and popcorn, as well as expanded offerings that we've introduced and execution of our strategic initiatives. And then on the pricing side, we've cautiously increased prices given inflationary pressures on concessions, leveraging data to do so. As we look forward, we do still believe that we can moderately grow our concession per caps, and we have various initiatives in place to grow our incidence rates and as well as optimize our pricing.
So we're certainly looking, or we're certainly kind of moving in that direction and have a lot of initiatives in flight.
So given some of the initiatives that you're talking about, how much room do you think you still have there? Specifically, I think you mentioned one of the key drivers is the incidence rate, because I think that's just more important than just the inflationary like, you know, pricing. So how much room do you think there's still for growth there? Are you kind of fully almost done there or just?
Yeah, so incidence rate is a key focus, and we believe we still have opportunity. We have many initiatives in place that are underway, and just to highlight a few of those, we've been really pleased with our investments in queue lines, and we continue to lean in there. We're focused on optimizing our concession offerings in each theater to make sure that they're in line with consumer preferences in those theaters. We're also leaning into mobile ordering and self-serve capabilities, third-party delivery, online merchandise sales. We also have opportunity to expand our hot food offerings. So that's just to name a few, but just a flavor of some of the key areas that we think will all add up to be meaningful growth catalysts for us.
Maybe touching on that, I think you talked about some of the strategic initiatives. Is it the goal to just maximize dollars or is there a margin benefit? How should we think about just the impact on sort of some of the key expense items from that?
From a concession standpoint, yeah. As we think about our concessions, we take a similar approach to how we think about our attendance and our ticket pricings. At the end of the day, what we're trying to do on the concession side is to maximize incidence rates. Ultimately, that's how we're going to best monetize. Now, we want to balance the price and incidence rates, but we're very focused on making sure that we're at the right price points where consumers will continue purchasing concessions, and we want them at the end of the day to walk away from their experience feeling like they got the value from that experience.
And staying on the cost side, can you touch on some of the puts and takes, some of the underlying trends of some of your key expenses, both domestic and internationally? I think you talked about some inflationary pressures in LATAM, and just maybe give us a little bit of a, bit of an overview on some of the inflationary pressures that you're seeing and what you see ahead.
Yep, so from a cost perspective, I think just starting off overall, as we move into 2025 and 2026 and expect the industry attendance and box office to continue to rebound, we do expect to gain more leverage over our fixed costs. As it relates to the variable expense side, which that represents really our film rental rates, concession COGS, salary, and wages, as well as in the case of international, our facility lease expense, we expect those expenses to scale as attendance and box office scales, albeit not necessarily at the same rate. When I think about kind of key points and takeaways to keep in mind, the first one that I would start with would be on the film rental side. As we move forward, we do expect to have a higher concentration of blockbusters again.
And we saw kind of the impacts in the first half of the year as well as Q4 of last year where we didn't have that high concentration and our film rental rates were lower. As we move forward, we would expect film rental rates to normalize as content mix shifts into more of the blockbusters. The other couple of items that I would mention on the concession cost side, that is an area where in particular we have faced inflationary pressure over the last few years. We do expect some pressure to continue, particularly on transportation as well as within certain commodities, namely cocoa and palm oil, which are key candy ingredients.
The other part, or the other callout that I would just say to keep in mind is that as we pursue our strategic initiatives to continue to grow our merchandise sales, expand our hot food offerings, as well as scale third-party delivery, those do have a lower margin than our core concession offerings do. And then on the salaries and wages side, I would just highlight there that we did see on the wage rate side, we've seen inflation, which was amplified really in the 2021-2022 timeframe due to tight labor market conditions. We started to see that subside now, but average hourly wage rates are growing more in line with pre-pandemic, which is around 5%-6% annually. So we'd expect that to continue.
And then a function of our labor costs are also certainly our labor hours, which will continue to flex up and down based on attendance levels that we're seeing. At one point in international, I would just call out, is that we have seen some outsized inflationary pressure within Argentina that's impacted our LATAM wage rates offset somewhat by FX devaluation. And then as we move forward into 2025 and we start to increase attendance, attendance levels and staff accordingly, we do have less flexibility in Latin America given local labor laws. So you might see some impacts there as we scale up. Those are some of the key, but net net, we're always focused on how can we maximize our productivity, profitability, and EBITDA margins.
Maybe staying on that point, I think one of the key drivers of your outperformance from a margin perspective has been your ability to sort of drive operational efficiencies. I think that's been very clear coming out of the pandemic. You kind of took some of the learnings from that period and kind of applied it across the board, especially in staff management and other areas. Can you touch on, are there still more opportunities there to continue to drive execution and sort of improve the business?
Yes. So we've had some nice successes in streamlining our operations, driving efficiencies, mitigating costs, as you mentioned. We've also built tools and processes that allow us to flex and scale our business up and down depending upon box office levels, which bode well as we move, move forward. Now, as we think about further opportunities, so labor was one of the areas that we've seen the most success from a productivity standpoint, which has been overshadowed to some extent by the wage rate increases that we've talked about. But we do continue to see opportunities to drive efficiencies, specifically continuing to optimize our operating hours, our show times, and also further streamlining our operations to reduce our labor hours, and in some cases, repurpose staff time towards more revenue-generating activities.
So while we do expect to realize more productivity and more efficiencies, particularly on the labor side, I think the one point just to keep in notice as, as we scale, those efficiencies might not come at the same rate that we've seen in the past when we were operating at kind of closer to minimum staffing levels, but we still do see productivity opportunities.
That's very fair. And I mean, you're approaching pre-pandemic margin levels of 20% while attendance remains roughly 30% below pre-pandemic levels, and overall box office still 24% below 2019. How should we think about Cinemark's margin structure going forward as box office potentially recovers to above $10 billion, and how much opportunity do you see to drive margins higher, potentially even into the mid-20s% over time?
So while we have many revenue-generating and cost-mitigating initiatives in place, the single biggest driver of our margins is attendance. And as we look forward, given the anticipated rebound in attendance and box office, we do expect our margins to benefit from increased operating leverage over our fixed costs, though that may be offset to some extent by lower market share as we start to run into seating capacity constraints as the box office scales. Other key elements of our margin structure will continue to be our ability to grow our average ticket prices and concession per cap, capture additional value from our strategic initiatives, and then mitigate any additional inflationary pressures that come down.
I think you just touched on one of my next questions. I just wanted maybe to get a little bit deeper into it, just the market share, which has been a huge driver of the performance of the business, right? I mean, it's really a testament to the job that you guys have been doing just to maintain the circuit as a whole and continue to drive product innovation. Just how confident are you that Cinemark can maintain some of those gains? I think you just touched on some of the constraints to continue to expand market share, but just can you elaborate a little bit more there?
Yeah. On the market share side, so we do believe that our share has benefited from our continued investment in our circuit, maintaining, enhancing, whether it be premium amenities or otherwise, as well as our investments in the guest experience and efforts around showtime optimization and marketing, including the success of our loyalty programs. As we look forward, though, we do expect that we'll be able to maintain about 100 basis points of the market share gains that we've seen since pre-pandemic timeframe. So that would mean we would give back a bit of the market share gains that that we've realized. And it really is a function of as box office and attendance levels ramp, we do hit capacity limits. And once we reach those capacity limits, we start to see some of that attendance spill over into other circuits.
While it's a positive that we're fully utilized from an overall share perspective, we do see some of that spill over, which is why we expect to see some pullback as attendance ramps.
I think you just talked about some of the key drivers being the loyalty programs. Specifically, I think Movie Club has been a huge success and now has like over 1.2 million subscribers and generating, I think it's about a quarter of your overall domestic box office. How important is the success of Movie Club in achieving those post-pandemic share gains?
Movie Club is certainly a key driver of our success. We were pleased. We recently achieved 1.3 million Movie Club subscribers, so certainly happy to be there, and what's staggering, and I think a testament to the value proposition of the program, is our member base is now 35% higher than 2019 levels, so we've been pleased with the performance of the program. Our Movie Club members are our most loyal and frequent moviegoers, and not only do they go to the movies more often, they more frequently trade up and indulge in premium amenities. They're also purchasing more on the food and beverage side, and for context, from a frequency standpoint, they're going to the movies three to four times more than the standard moviegoers, so we're certainly pleased with the success that we've seen within the Movie Club program and continue to look to increase our member count.
So pleased with the results there.
Absolutely. And I think when you look at the mix on the per caps, is that reflective of just sort of like do they get discounts as well? Is it just how much of that mix shift has been driven by Movie Club to the per caps?
So from a Movie Club standpoint, consumers, they do receive one movie ticket credit that is shareable with friends and family a month. They also receive 20% off of concessions among other benefits. That has been certainly a key driver of the consumption on the Movie Club side. And as you look at that, value proposition as a whole certainly is a key element.
Maybe let's shift to capital allocation and some of the growth CapEx initiatives that you guys have. Earlier this year, you announced that Cinemark was reactivating its new build pipeline in both domestic and international markets and added a new family entertainment center concept to your array of theaters. And you have plans to add a couple more this year. So could you remind us what's the opportunity set both domestically and internationally for new build growth, and what is the criteria when you're looking at a new location?
As we position ourselves for success in the evolving media and entertainment landscape, we are focused on optimizing our footprint. And that includes growing, recalibrating, strengthening, and new builds are included within that. Over really since the pandemic, you haven't seen as much new build activity happening given the industry's extended recovery. However, we have reactivated our new build pipeline and we're continuously looking for opportunities that are going to deliver for us high confidence ROI as well as strong margin profiles. So really we'll take our kind of cadence with new builds along with the industry's recovery and our CapEx envelopes. But we certainly have reactivated that pipeline and we'll lean in there. You mentioned FECs. We are excited to open our first FEC. It'll be early next year in El Paso, which is a great market for us.
We also have some other new theaters as well as screen expansions that are underway, so net net certainly an important focus.
How should we think about internal priorities between domestic and international for for for that new CapEx growth?
So we apply the same hurdle rates for international as we do domestic. So we're looking for those solid ROIs as well as have to hit our margin profiles. So that same landscape is, or that same lens is applied globally. And then we do also look from an international standpoint. We want to make sure that our countries are self-sufficient there as well from a cash standpoint.
Got it. And more broadly on capital allocation, how does the board think about when looking at returning capital to shareholders? You're still weighing the form of dividends versus share buybacks. Can you just maybe walk us through how you guys think about it?
Yeah. So, I think it's important to first step back on what our capital allocation priorities are. We have three pillars to our capital allocation strategy. The first being strengthening our balance sheet. The second, investing to position the company for long-term success. And the third being returning excess capital to shareholders. And our near-term focus has been on the first two pillars. As we look forward, given the strength of our balance sheet and the progress we've made there, as well as our optimism around the industry's recovery in 2025 and beyond, we are re-evaluating our capital allocation as part of our 2025 budgeting process. And we do expect to provide some more insight on that in our February earnings call. But I can rest assured we're looking. We're taking a comprehensive approach to evaluating capital allocation and management, and the board are focused on driving long-term shareholder value.
No, that's very clear. And I think it's a topic that shareholders are very interested in. And maybe if you could expand, it's one mutually exclusive from the other. So if you do dividends, can you guys still do share buybacks?
It's not necessarily. We don't view it as necessarily an either/or situation. It's not mutually exclusive.
Got it. And I think on M&A, you guys talked about it before, but just wanted to get a little bit of an update just in terms of capitalizing and market opportunities and potentially adding new assets as you exit this period of uncertainty and more of a normalized box office environment. What's the outlook out there? So are there any assets potentially coming available as we go through next year and the box office improves? How should we think about the M&A approach?
Yeah. So from an M&A standpoint, that fits into our second capital allocation pillar of positioning the company for long-term success. We certainly evaluate all opportunities that arise on the M&A front. What we're aiming to do is to target high-quality assets that are going to deliver assured and solid returns over time. It's important to note we're not a company that's looking for growth for the sake of growth. We want to make sure that we're making accretive investments that are following our approach of balanced and disciplined mindset when it comes to capital deployment. That approach has served us well historically. So we'll continue to deploy that. But rest assured, we're monitoring the market closely to see if there are any attractive opportunities that may arise.
When you're monitoring the market, what are some key characteristics that you look for and potential targets just from an operating perspective or just, or just the overall profile of the business?
Yeah. So kind of similar to how we think about new builds, so that high confidence ROI and margin profile, we typically are targeting a 20% ROI and at least a 20% Adjusted EBITDA margin is just the financial profile that we typically look at. We also want to make sure we're not overly straining our balance sheet and we're maintaining a target net leverage ratio. Outside of that, just from a market standpoint, we may go deeper in a market than we've been in. We also may take the opportunity to, you know, move into establish a position in a market we haven't been in. But historically, we've gone deeper in in markets that we're present in.
Now, that's very helpful. I think we just kind of the essence of the question is you guys are typically more rural footprint versus the coastal urban environment. I just didn't know if there was any thoughts in terms of changing the footprint from a structural perspective.
No, I would say no kind of structural changes. But at the end of the day, what we're really looking for is high-quality assets that complement our portfolio. And that may mean entering a new market. It may mean going deeper in an existing market. But to your point, we do typically have our footprint skews in the U.S. in more suburban markets. Latin America, conversely, we do have more of a metro market presence.
That's very helpful. And maybe as we close out here, we just got a couple of minutes left. But when you look forward to 2026 and beyond, what gets you optimistic about the opportunity set overall for exhibitors and Cinemark? I think we've been on a recovery path. You've clearly seen a stepped-up movie going here in the back half of the year. Just what's the outlook like for the business just given the potential to return to a more normalized environment here and the opportunity set within the margin performance and the free cash margin?
Yeah. I'll conclude with where I started. Some of the key areas that give us optimism is that sustained consumer enthusiasm for movie going. So that's number one. And then, as I talked about, the power of that momentum building as we get that steady cadence of new releases coming down the pipeline. And we feel really good about where 2025 is shaping out from a volume perspective and what the slate looks like, as well as even what's been dated thus far for 2026. So movie going begets movie going. So getting that momentum and having that steady stream certainly be important. And then, as you look at the studio side, as they've announced their production plans and really leaned in on theatrical, that gives us certainly optimism as well.
And then, as we think about Cinemark, the gains that we've been able to make on the productivity side and kind of transforming our business, as well as the investments we've been making to position ourselves well, whether it be premium amenities or just maintaining a quality circuit, we think position us well. And it certainly leaves us optimistic.
Maybe to close things off here, any movies you're looking forward to in 2025?
Well, Wicked 2. Certainly looking forward to that. Avatar will be another one. Then, certainly, I would say outside of that, just excited about the diverse, diverse slate that's out there for 2025.
A little bit of everything.
Yes, a little bit of everything.
Thank you so much for coming. It was a pleasure having you.
Thank you, Omar.