Rick's Announces Higher Revenue than Expected

Rick’s Cabaret International, Inc., (RICK) owns and operates upscale adult nightclubs serving primarily businessmen and professionals.

Rick’s differentiates themselves by providing an atmosphere where they can offer a unique quality entertainment environment that includes highly experienced and well screened entertainers, high quality managers hired from within the adult entertainment industry, and finally, providing an atmosphere and ambiance, including exclusive VIP rooms, that appeal to upscale clientele.

Rick’s also owns and operates several online and offline media properties that produce adult websites as well as cater to owners and operators of intimate apparel and adult retail stores.

Rick’s nightclubs offer live adult entertainment, restaurant, and bar operations in Houston, Austin, San Antonio, Minneapolis, Minnesota, New York, Dallas Fort Worth, Charlotte, and other cities under the names Rick’s Cabaret, XTC, and Club Onyx.

As of September 30, 2008, Rick’s operated 19 adult nightclubs.

Rick’s Announces Higher Revenue Than Expected

Same-club sales decline

On Thursday April 9th, Rick’s Cabaret pre-announced their Q2/2009 sales in a press release while simultaneously announcing that their same-club sales declined.

First the good news: revenue from Rick’s upscale gentlemen’s clubs climbed 18.2% to $18.07 million in the quarter ending March 31, 2009.

Analysts were projecting $17.46 million.

The company said the increase was due to contributions from its midtown Manhattan Rick’s Cabaret and as a result of branding conversions of clubs in Philadelphia and Dallas.

Now for the bad new: Same-club sales declined by 7.6% to $14.05 million.

The decline in same-club sales was not entirely expected, as Rick’s was facing an uphill battle at several of their highest profile clubs, especially the location in Las Vegas, that were going to drag down results utilizing this metric.

What’s not clear to me however, and I’ll have to do a little digging around to find out, is if these results include the Las Vegas location.

If they do not, you can rest assured that same-club sales will decline markedly in the coming months when these numbers are wrapped into the overall results.

During the quarter the company converted the Rick’s Cabaret in Philadelphia to a Club Onyx format catering to African-American gentlemen; converted the Rick’s Cabaret in Dallas to its XTC Cabaret all-nude format serving a younger and more blue-collar clientele; and began new marketing initiatives for the Rick’s Cabaret/Las Vegas that have resulted in increased market share.

CEO Langan said in a statement:

“Despite the tough economic environment we continue to make gains at our key Rick’s Cabaret/New York City club where we had a solid quarter and a particularly strong March.”

“While we have seen slippage in some other markets we are pleased with the results of our club rebranding in Dallas and Philadelphia, and our aggressive new marketing program in Las Vegas.”

Bottom Line

The top line beat is a pleasant surprise, even though it is only by about 3.5% over expectations, but it’s better than 3.5% below expectations.

In addition, to anyone who’s been paying attention, Rick’s stock has been rocketing up from a low of about $2.50 to now being in the $5-6 range in a little over a month.

This is a critical level for the stock price as $5 per share is often a cut off point for many funds and money managers as far as the price level that their fund is able to own a stock.

I think we’ve seen the lows in Rick’s stock price for now, and are seeing slight signs of a bounce in the overall economic picture, at least as it pertains to Rick’s rebranding efforts and efficiencies.

There was no mention of profit, margins, etc., which we already know means that they are going to come in woefully low.

Rick’s underperforming clubs are really pulling things down overall, but I am encouraged by the rebranding efforts at their lagging clubs, and the quick turnaround which they have seen.

From what I have been reading, these efforts are paying immediate dividends for Rick’s.

It’s one thing to struggle in a down economy, it’s another to do nothing about it.

Rick’s management has taken a very active route towards rebranding underperforming clubs, tightening up operations by laying off some workers, and implementing other cost controls.

Let’s see how these play out when Rick’s officially announces their Q2/09 earnings in the next few weeks.

New to the Rick’s story?

• Read my update on the company’s last earnings release and conference call here.
• OR: Read my initial company buy recommendation here.

Comments

[Zee4Money:]

Good update - very balance and informative. Buying on the earnings release may be a good move as the stock might drop with the news of the woeful earnings.

Apr 14 11:05 AM

[RicksVegasS...:]

The following is a description of story currently gaining momentum in Las Vegas. Local media have been covering this story off and off again for years, but it has a substantial new twist. It is the story of cab and limo drivers diverting tourists to Strip Clubs for huge payoffs. National Strip Club chain Rick's Cabaret has recently taken the practice to a whole new level ($100 per person). This practice has resulted in massive losses for shareholders at the whim of Rick's CEO, Eric Langan. Mr. Langan has made everyone in Las Vegas aware that he will pay the most to divert, which is against Nevada state law. He says he will claim it as a Marketing expense. It is doubtful this unlawful practice will be viewed by the IRS the same way. Rick's PR Department has conveniently neglected to inform shareholders of this practice, instead claiming to have increased market share by initiating an innovative new Marketing strategy. This club has done nothing more than lose millions of dollars since it was first acquired for more than $18 million last September. This is the AIG of Adult Entertainment. This is the same type of abuse suffered by shareholders of AIG and other reckless companies playing with public money. These claims can be substantiated by simply reading the following links. This is why the stock price is so low, as opposed to when they purchased Scores Las Vegas.

I am a shareholder who can see through the BS.

Nov. 14, 2008
Copyright © Las Vegas Review-Journal
JOHN L. SMITH: Cabaret owner doesn't seem fazed by new club manager's connections
www.lvrj.com/news/3445...

Apr. 01, 2009
Copyright © Las Vegas Review-Journal
JOHN L. SMITH: Las Vegas strip clubs waging high-stakes cash-for-customers war
www.lvrj.com/news/4225...

Apr. 03, 2009
Copyright © Las Vegas Review-Journal
JOHN L. SMITH: Topless clubs take the gloves off to fight for business during recession
www.lvrj.com/news/4237...

Apr. 10, 2009
Copyright © Las Vegas Review-Journal
JOHN L. SMITH: Attorney spearheads movement to stop kickbacks for strip club clientele
www.lvrj.com/news/4279...

Apr. 14, 2009
Copyright © Las Vegas Review-Journal
JOHN L. SMITH: Tax-free kickbacks for strip club rides bring bustle and hustle
www.lvrj.com/news/4294...

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December 23, 2008
DeGori v. Rick's Cabaret International, Inc.
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Apr 15 04:35 AM