RCI Hospitality’s Earnings Call: Mixed Results and Strategic Moves

RCI Hospitality ((RICK)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call for RCI Hospitality presented a mixed bag of results, with both positive strides and notable challenges. The company reported successful acquisitions and improvements in net income and impairments, yet faced significant revenue declines, particularly in its Bombshells segment, due to divestitures and adverse weather conditions impacting same-store sales.

Acquisition and Rebranding Success

RCI Hospitality made strategic moves by acquiring two upscale adult nightclubs: Flight Club in Detroit and Platinum West in South Carolina. These acquisitions align with their capital allocation strategy. Additionally, the company expanded its Bombshells chain by opening a new location in Denver and rebranding Chicas Locas in El Paso.

Improvement in Net Income

The company reported a notable increase in net income attributable to common shareholders, reaching $3.2 million, a significant rise from the previous year’s $0.8 million. This improvement was reflected in the GAAP EPS, which climbed to $0.36 per share from $0.08 per share.

Decrease in Impairments

RCI Hospitality successfully reduced impairments and other charges to $2.1 million, down from $8.2 million. This reduction highlights improved management within the nightclub segment, contributing positively to the company’s financial health.

Capital Allocation Strategy

The company repurchased 56,875 common shares for $2.9 million and is committed to allocating 40% of free cash flow to club acquisitions, with the remaining 60% directed towards share buybacks, debt reduction, and dividends. This strategy aims to grow free cash flow per share by 10% to 15% annually.

Revenue Decline

RCI Hospitality faced a decline in total revenues, which fell to $65.9 million, a decrease of $6.4 million from the previous year. This drop was attributed to closures, divestitures of nonperforming Bombshells locations, and severe weather impacts.

Bombshells Segment Loss

The Bombshells segment experienced a significant revenue drop of 35.6% year-over-year, falling to $8.2 million. This resulted in a segment operating loss of $227,000, compared to an income of $699,000 previously.

Challenges in Same-Store Sales

Same-store sales presented challenges, with nightclub sales declining by 3.5% and Bombshells sales by 13.4%, negatively affecting the overall performance.

Weather-Related Impacts

Severe weather conditions led to temporary closures and reduced business at 18 locations, contributing to lower sales and increased operational challenges.

Forward-Looking Guidance

Looking ahead, RCI Hospitality aims to overcome recent challenges by leveraging improving trends observed in March and contributions from new and rebranded locations. The company plans to grow free cash flow per share by 10% to 15% annually through strategic capital allocation, focusing on club acquisitions and share buybacks. RCI has set a five-year target to generate over $250 million in free cash flow and repurchase a significant amount of shares.

In summary, RCI Hospitality’s earnings call revealed a blend of achievements and hurdles. While the company has made progress in acquisitions and financial management, it continues to face revenue challenges, particularly in the Bombshells segment. The forward-looking guidance suggests a strategic focus on growth and capital allocation to enhance shareholder value.