RCI Hospitality Holdings, Inc. (RICK) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call revealed mixed results: strong operating income improvements in nightclubs and Bombshells, but a decline in Bombshells revenue and increased corporate expenses. The Q&A highlighted concerns about self-insurance reserves and vague management responses, indicating potential risks. Despite some positive developments, such as share buybacks and debt reduction, the overall sentiment remains neutral due to uncertainties and mixed financial performance.
Key Financial Performance
Total Revenues $71.1 million compared to $76.2 million, a decrease of $5 million. This primarily reflected the sale and divestiture of underperforming Bombshells locations late in fiscal '24 and early fiscal '25.
Impairments and Other Charges $2.3 million compared to $18.3 million, a decrease of approximately $16 million. This was due to the absence of impairment charges.
Net Income Attributable to RCIHH Common Shareholders $4.1 million compared to a loss of $5.2 million, an increase of $9.3 million. This improvement was due to the absence of impairment charges and other factors.
Net Cash Provided by Operating Activities $13.8 million compared to $15.8 million, a decrease of $2 million. Reasons for the decrease were not specified.
Free Cash Flow $13.3 million compared to $13.8 million, approximately level year-over-year.
Adjusted EBITDA $15.3 million compared to $20.1 million, a decrease. The decline was attributed to slightly lower margins in Nightclubs, lower margins in Bombshells, higher noncash expenses related to the self-insurance program, and higher taxes.
Nightclubs Revenue $62.3 million, down less than 1% year-over-year. Key factors included a 3.7% decline in same-store sales and the absence of Baby Dolls Fort Worth due to a fire, mostly offset by $2.6 million from newly acquired or rebranded nightclubs.
Bombshells Revenue $8.6 million, a decrease of $4.5 million. This was due to the sale and divestiture of 5 underperforming locations and a 13.5% decline in same-store sales, partially offset by 2 new locations.
Operating Income (Nightclubs) $17.8 million compared to $13.6 million, with the margin at 28.5% of revenues versus 21.7%. This reflected the decline in other net charges, same-store sales, acquisitions not yet fully optimized, and Central City preopening costs.
Operating Income (Bombshells) $87,000 compared to a loss of $8.9 million, with the margin at 1% of segment revenues versus a negative 68%. This improvement was due to the decline in impairments, sales from open locations, and Lubbock's preopening costs.
Corporate Expenses (GAAP) $8.7 million, an increase of $1.5 million. This was due to an estimated noncash self-insurance actuarial reserve for the quarter.
Cash and Cash Equivalents $29.3 million at the end of the third quarter. During the quarter, $5.25 million was used for acquisitions and $3 million for share buybacks.
Debt Declined slightly by $201,000 from the March 31 quarter. The average weighted interest rate was 6.68% compared to 6.74% in the year-ago quarter.
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Operating Highlights
Rick's Cabaret and Steakhouse: Opened in Central City, Colorado.
Bombshells location: Opened in Lubbock, Texas, performing well.
Nightclub acquisitions: Acquired two upscale nightclubs: Platinum West in South Carolina and Platinum Plus in Allentown, Pennsylvania.
Revenue performance: Nightclub revenues nearly level despite economic uncertainties. Bombshells revenue increased sequentially after divesting underperforming locations.
Profitability: Consolidated profitability improved due to absence of impairment charges.
Cash flow: Free cash flow margin increased from 11% in Q2 to 19% in Q3.
Capital allocation strategy: 40% of free cash allocated to club acquisitions, 60% to share buybacks, debt reduction, and dividends. Targeting 10%-15% annual growth in free cash flow per share.
Long-term goals: Aiming for $400 million in revenue, $75 million in free cash flow, and 7.5 million shares outstanding by fiscal 2029.
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Risk or Challenges
Economic uncertainty: Nightclub revenues were nearly level despite economic uncertainty related to tariffs and the tax bill, which affected the customer base.
Underperforming locations: Bombshells revenue reflected the sale and divestiture of 5 underperforming locations, impacting revenues by $3.8 million and contributing to a 13.5% decline in same-store sales.
Fire incident: Absence of Baby Dolls Fort Worth due to a fire negatively impacted nightclub revenues.
Preopening costs: Preopening costs for new locations, such as Central City and Lubbock, affected operating income and margins.
Debt and interest rates: Debt to trailing 12-month adjusted EBITDA increased to 3.82x, and while debt maturities are manageable, the company faces an average weighted interest rate of 6.68%.
Self-insurance expenses: Higher noncash expenses related to the self-insurance program increased corporate expenses.
Decline in same-store sales: Nightclubs experienced a 3.7% decline in same-store sales, and Bombshells saw a 13.5% decline in same-store sales.
Regulatory and permitting delays: Awaiting construction permits for Baby Dolls West Fort Worth and engineering/zoning plans for the Baby Dolls Fort Worth that burned down last year.
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Guidance & Outlook
Revenue Growth Targets: The company aims to achieve $400 million in revenue by fiscal year 2029.
Free Cash Flow Projections: The company targets $75 million in free cash flow by fiscal year 2029, with a goal to double free cash flow per share to approximately $10 per share compared to fiscal year 2024.
Share Buyback Strategy: Plans to repurchase a significant amount of shares, targeting 7.5 million shares outstanding by fiscal year 2029. The company has already reduced shares outstanding by 15.5% over the past decade.
Nightclub Acquisitions: The company plans to acquire an average of $6 million in adjusted EBITDA per year through acquisitions, focusing on high-performing clubs with a target of 3 to 5x adjusted EBITDA for the club and fair market value for the real estate.
Bombshells Segment Goals: The company aims to improve performance at existing Bombshells locations, targeting 15% operating margins and a return to same-store sales growth. Additionally, it plans to complete the one remaining location under development.
Debt and Occupancy Cost Management: The company expects occupancy costs and debt metrics to improve as new locations generate revenue and EBITDA. Debt maturities are expected to remain reasonable and manageable.
Dividend Strategy: The company anticipates modest annual dividend increases over the next five years.
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Shareholder Return Plan
Dividend Plan: The company anticipates modest annual dividend increases as part of its capital allocation strategy.
Share Buyback Program: The company purchased more than 75,000 shares of common stock for $3 million during the quarter. Over the past 10 years, the company has reduced its outstanding shares by 15.5%, from 10.3 million to approximately 8.7 million shares. The company plans to continue regularly buying back stock, especially when it considers the price to be undervalued.
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Key Q&A
Q:How much in real estate do you have that you think you could sell off that's nonperforming or just holding in general?
A:The estimated value is about $28 million. Some contracts are in place, and negotiations are ongoing. Closings are expected to start by the first quarter of fiscal '26, with more offers likely if the Fed cuts rates or the economy improves.
Q:If you were to liquidate all $28 million in real estate, how much would go to pay back debt, and what would be left over?
A:Less than 60% would go to debt, as original loans were 60%-65% of loan-to-value based on older appraisals. Around 40%-45% would go to cash, except for a few pieces worth considerably more, where 60%-65% would go to cash and 30%-35% to debt.
Q:How much should we model for self-insurance reserves going forward?
A:Year-to-date reserves are $9.4 million, but the number is constantly changing based on actuarials, claims, and settlements. The reserve could grow significantly over time. A captive insurance program is being initiated to set fixed prices, which will provide more clarity once operational.
Q:Is self-insurance a start-up cost-heavy process that tapers down to a run rate?
A:The costs are unpredictable and vary by quarter due to claims and actuarial adjustments. The process involves guesswork, and the math is constantly changing based on claims and settlements.
Q:Who are you competing with when bidding on acquisitions?
A:Competitors include other operators, LBOs, and local market players. The company is often the acquirer of choice due to its cash availability, track record, and ability to create annuities for sellers.
Q:Are you seeing an uptick in activity due to tax policy changes?
A:It's early days, but companies are starting to act, especially with the year-end deadline for tax benefits. Capital improvements and new money movement could benefit the company. Service revenues are slightly up, while liquor sales are down 3.9%.
Q:Can you quantify the impact of insurance reserves on EBITDA and future expectations?
A:Insurance reserves are a GAAP charge affecting EPS and adjusted EBITDA but not free cash flow. The normalized run rate is estimated at $10-$12 million annually. Once the captive insurance program is operational, the charges are expected to decrease.
Q:What are the start-up costs for new locations, and how do they impact EBITDA?
A:Start-up costs are typically $200,000 per unit, totaling $400,000-$500,000 per quarter. These include training, wages, and other pre-opening expenses.
Q:What is the status of selling Bombshells real estate and operations?
A:The company is open to selling the real estate and operations as a package for the right price, ideally around $85 million. Current real estate appraisals are $65-$67 million, with $35 million in debt and $45 million in book value.
Q:What is the backlog for M&A in clubs, and are there plans to sell underperforming locations?
A:The company is negotiating to sell underperforming clubs and reinvest in more profitable markets. It has acquired three locations this year and is exploring additional opportunities, including discussions with brokers and private equity groups.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the exact future costs of self-insurance reserves, citing the unpredictability of claims and actuarial adjustments. They also used vague language when discussing the potential impact of the captive insurance program and the timeline for its implementation.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bombshells location
Bradley
Cabaret Steakhouse
Central City
Conference
Debt
Moran
Non
Platinum
Results decline
Slide result
absence
acquisition
charge
comparison revenue
debt
decline store
difference
factor
impairment income
income loss
income margin
level
margin segment
nightclub
noncash self
quarter
revenue Results
sale divestiture
sale location
segment Revenues
segment revenue
self insurance
share cash
underperformer
RICK Transcript
RCI Hospitality Holdings, Inc. (RICK) Q3 2025 Earnings Call Transcript
Unknown8-11
The earnings call revealed mixed results: strong operating income improvements in nightclubs and Bombshells, but a decline in Bombshells revenue and increased corporate expenses. The Q&A highlighted concerns about self-insurance reserves and vague management responses, indicating potential risks. Despite some positive developments, such as share buybacks and debt reduction, the overall sentiment remains neutral due to uncertainties and mixed financial performance.
RCI Hospitality Holdings, Inc. (RICK) Q2 2025 Earnings Call Transcript
Unknown5-13
The earnings call summary presents a mixed picture. Financial performance shows a decline in revenue and free cash flow, but net income and GAAP EPS improved. The Q&A reveals concerns over unclear responses and weather impacts. However, the shareholder return plan, including share buybacks and dividend increases, is positive. The acquisition of the Flight Club and improvements in Bombshells' margins are encouraging. Overall, the sentiment is balanced, with positive shareholder returns offset by financial challenges and uncertainties in future performance.
RCI Hospitality Holdings, Inc. (NASDAQ:RICK) Q1 2025 Earnings Call Transcript
Unknown2-12
The earnings call reveals mixed signals: while there is a strategic plan for growth and share repurchases, challenges such as declining sales in Bombshells, potential regulatory issues, and unclear guidance on new acquisitions temper positive outlooks. The Q&A session highlights management's uncertainty in improving margins and revenue projections. Despite share repurchases, the lack of strong positive catalysts and potential operational risks lead to a neutral sentiment for short-term stock price movement.
RCI Hospitality Holdings, Inc. (RICK) Q4 2024 Earnings Call Transcript
Positive12-17
The earnings call summary highlights a strong shareholder return plan with a significant dividend increase and share buyback program, which are positive catalysts. Although there are some negative aspects, such as declining nightclub and Bombshell revenues, the optimistic guidance for Bombshell's margins and a strategic focus on acquisitions for growth offset these concerns. The Q&A section also suggests a positive outlook with plans for gradual dividend increases and strategic real estate sales. Overall, the positive elements outweigh the negatives, suggesting a positive stock price movement.
RICK Slides
RICK Report
Frequently Asked Questions
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