RCI Hospitality Q1 Earnings Call Highlights

Key Points

• Revenue was nearly flat at $70.8 million versus $71.5 million a year ago, but RCI swung to a GAAP loss of $0.57 per share from earnings of $1.01 per share. Adjusted EBITDA held steady at $15.7 million even as operating cash flow and free cash flow declined.
• Nightclubs remain the core business, with revenue up slightly to $62.3 million and management continuing to focus on improving same-store sales, rebranding or divesting weaker clubs, and optimizing a portfolio that generates most income from a small share of locations.
• Bombshells continued to struggle, posting an operating loss as revenue fell to $8.4 million, though management said a Houston test improved sales and it plans to roll out the concept more broadly while ultimately seeking to sell the chain when market conditions improve.

RCI Hospitality NASDAQ: RICK reported slightly lower fiscal first-quarter revenue and a GAAP loss, while management said the company continued to focus on nightclub operations, share repurchases and plans to divest underperforming or non-income-producing assets.

The company said it filed its Form 10-Q and announced results for the quarter ended Dec. 31. Interim President and CEO Travis Reese said nightclub revenue was stable, with contributions from newer venues offsetting same-store performance and the closure of underperforming locations. He also said higher-margin club service revenue increased 6.7% from the prior year, despite “consumer uncertainty” tied to the U.S. government shutdown in October and November.

Reese said newer Bombshells locations offset most of that segment’s same-store sales decline, with much of the year-over-year difference in total sales tied to the prior-year divestiture or closure of five underperforming locations. He said the decline in net income primarily reflected pre-tax operating and non-operating items, most of which were non-cash.

Revenue Holds Nearly Flat as GAAP Results Swing to Loss

Interim CFO Albert Molina said consolidated revenue totaled $70.8 million, compared with $71.5 million a year earlier. The $0.7 million decline primarily reflected five fewer Bombshells-related locations, partially offset by new nightclub locations.

Pre-tax income fell by $14 million. Molina said the decline was largely attributable to $1.2 million in impairments in the quarter versus none a year earlier, combined gains on sales of businesses and assets and insurance gains of $2.4 million in the prior-year quarter, and a $9.9 million non-operating charge in the latest quarter compared with a $1 million non-operating gain a year earlier.

GAAP loss per share was $0.57, compared with earnings of $1.01 per share in the prior-year quarter. On a non-GAAP basis, profit was $0.74 per share, compared with $0.80 per share. Net cash provided by operating activities was $7.8 million, down from $13.3 million, which Molina attributed largely to payments of calendar year-end bills, including legal fees, increased fees tied to delayed filings and insurance costs. Free cash flow was $6.7 million, compared with $12.1 million, while adjusted EBITDA was flat at $15.7 million.

Nightclubs Remain Core Focus

Nightclub revenue totaled $62.3 million, up $0.6 million from the prior year. Molina said the segment included $4.9 million from five newly acquired and reopened clubs, $56.9 million from 52 same-store clubs and contributions from two small Texas clubs closed during the quarter.

By revenue type, service revenue increased 6.7%, food and merchandise increased 1.8%, and liquor, beer and wine revenue declined 4.6%. Molina highlighted several clubs that “stood out,” including Mavis Dance Abilene, PT’s Showclub Indianapolis, Rick’s Cabaret in Minneapolis, Hoops Sports Bar and Cabaret in New York City, and Jaguars Club in Phoenix.

Nightclub operating income was $18.7 million, compared with $20.9 million, and segment operating margin was 30%, down from 33.8%. Non-GAAP operating income was $19.5 million, compared with $20.6 million, with non-GAAP margin of 31.3% versus 33.4% a year earlier.

Reese said management is reviewing every club regularly to improve same-store sales, adding that underperforming clubs may be rebranded, reformatted or divested. He said about 70% of the company’s income is currently generated by 20% of its clubs, creating what management views as an opportunity to optimize the portfolio.

Bombshells Posts Operating Loss, Houston Test Shows Improvement

Bombshells revenue was $8.4 million, down $1.2 million from the prior-year quarter. Molina said the total reflected $1.8 million from two newly opened locations, $6.6 million from nine same-store locations and the absence of $1.2 million from underperforming locations that had been divested or closed.

The segment posted an operating loss of $139,000, compared with operating income of $1.9 million a year earlier. On a non-GAAP basis, Bombshells had an operating loss of $110,000, compared with operating income of $616,000.

Reese said the company is attempting to return Bombshells to its roots as “a great sports bar with great food,” with a goal of driving higher-margin alcohol sales. He said the first implementation at Bombshells 59 in Houston increased sales 3.6% in the second quarter, making it the best-performing same-store location, and that the company has begun rolling out the concept to other locations.

Management said its goals for Bombshells include improving existing locations, targeting 15% operating margins and returning to same-store sales growth. Reese said the company plans to complete one location still under development and would like to sell the chain as a whole, though he said “the market isn’t right at the moment.”

Capital Allocation Plan Emphasizes Buybacks and Debt Reduction

RCI ended the quarter with $28.6 million in cash and cash equivalents, down $5.1 million from Sept. 30. During the quarter, the company used $9.8 million to repurchase shares. Debt increased by $20.6 million from Sept. 30, primarily reflecting $22 million in seller financing from the ADW transaction, partially offset by debt paydowns. The weighted average interest rate was 7.16%, compared with 6.65% in the prior-year quarter.

Reese said the company’s five-year capital allocation plan remains unchanged: approximately 40% of free cash flow is allocated to club acquisitions and 60% to share buybacks, debt reduction and dividends. The company’s goal is to grow free cash flow per share by 10% to 15% annually.

RCI’s acquisition targets remain clubs at 3 to 5 times adjusted EBITDA, real estate at fair market value and a 100% cash-on-cash return within three to five years. Reese said the company aims to add an average of about $6 million of adjusted EBITDA each year through acquisitions.

Since beginning the five-year plan in the first quarter of 2025, Reese said the company has reduced shares outstanding by 14.6%. He also said RCI increased its share repurchase authorization by $20 million earlier this month. Over five years, management said it plans to generate more than $250 million of free cash flow. By fiscal 2029 year-end, the company is targeting $400 million in revenue, $75 million in free cash flow and 7.5 million shares outstanding.

Management Addresses Legal Costs, Asset Sales and Filing Timing

During the Q&A session, Eric Langan, RCI’s founder and head of mergers and acquisitions, said the company believes it has “set aside plenty of money” for legal costs over the next 12 months, while noting the situation remains fluid. Bradley Chhay, RCI’s CFO, said the company could not discuss the New York legal situation beyond reiterating that RCI, the individuals involved and the three clubs have pleaded not guilty to all charges and are taking necessary actions to defend themselves.

Langan also discussed the company’s plan to market $31.7 million of small clubs and real estate associated with about $16.2 million of debt. In response to an investor question, he estimated that if the assets were sold at a discount and related costs and debt were paid, the company could be left with roughly $5 million to $6 million in cash after applying a portion to ADW debt. He said the larger benefit would be eliminating debt and carrying costs such as property taxes, insurance and maintenance on non-income-producing properties.

On filing timing, Langan said he hoped the company could file its next quarterly report quickly and become current, though he said RCI would likely file for an extension if needed.

About RCI Hospitality NASDAQ: RICK

RCI Hospitality Holdings, Inc operates as a diversified hospitality and entertainment company focused on the ownership and operation of adult nightclubs and themed sports bars throughout the United States and select international markets. The company's U.S. Nightclub segment includes venues branded as Rick's Cabaret, Club Onyx and various other upscale adult entertainment clubs, offering private dance experiences, VIP services and live performances. Its Restaurant & Bar segment operates Bombshells, a brunch-themed sports bar chain featuring chef-driven menus, craft cocktails and game-day viewing in a military-inspired setting.

In addition to its brick-and-mortar venues, RCI Hospitality deploys proprietary digital platforms for talent recruitment, training and scheduling, helping to streamline operations and drive customer engagement.

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