RCI Hospitality (RICK) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Fourth quarter nightclub same-store sales increased for the second consecutive quarter, marking the first time since the first half of fiscal 2023 [7] - Total company sales declined due to hurricane and fire-related closures, resulting in lower EPS [7] - Non-GAAP EPS, net cash provided by operating activities, and free cash flow all increased [7] - The company ended fiscal year 2024 with 8.955 million shares outstanding, a reduction of 4.7% year-over-year [7] - Fourth quarter sales declined by $2 million, largely due to hurricane-related closures and the sale of Bombshell San Antonio [18] - Non-GAAP EPS increased by$ 1.63, net cash provided from operating activities increased by $3.5 million, and free cash flow increased by$ 2 million, while adjusted EBITDA declined by $2.3 million [18] Business Line Performance - Nightclub revenues declined by$ 307,000, primarily due to a 2.2% same-store sales growth, 10 closure days at Houston area clubs due to Hurricane Beryl, and other changes to improve the club lineup [19] - Bombshells revenues declined by $1.643 million, primarily due to a 16.2% same-store sales decline, negatively affected by 26 closure days at Houston area locations due to Hurricane Beryl [21] - Corporate expenses increased modestly by$ 284,000 [22] Market Performance - The company ended the fourth quarter with cash and cash equivalents of $32.4 million [23] - Debt at September 30th declined by$ 7.2 million from June 30th, reflecting eliminations of Bombshell San Antonio debt, early paydown of $1.5 million of the Playmate note, and other scheduled amortized paydowns [24] - The weighted average interest rate was 6.67%, only 3 basis points higher than a year ago [24] Strategy and Industry Competition - The company has officially launched its Back-to-the-Basics five-year plan, focusing on core nightclub businesses and making new acquisitions [8] - The plan includes divesting underperforming Bombshells locations, closing the Denver food hall, reducing Bombshells-related debt, and discontinuing franchising [8] - The company expects to generate more than$ 250 million of free cash flow over the next five years, allocating 50% to club acquisition and 50% to share buybacks and dividends [10] - The fiscal 2029 targets include hitting $400 million in revenue,$ 75 million in free cash flow, and reducing the share count to 7.5 million or less [11] Management Commentary on Operating Environment and Future Outlook - The company is focusing on improving the performance of existing Bombshells locations and finishing the last three units under construction [12] - The company is evaluating every club in its portfolio and will rebrand, reformat, or divest underperforming locations [12] - The company is targeting 15% operating margins for Bombshells with a return to same-store sales growth [12] - The company is planning small dividend increases annually and expects to buy a significant amount of stock if the price is right [13] Other Important Information - The company has seven remaining developments, including Bombshells Denver, Chicas Locas El Paso, Rick's Cabaret in Central City, Bombshells Lubbock, and Bombshells Rowlett [26] - The company is awaiting construction permits for Baby Dolls West Fort Worth and engineering review of plans for Baby Dolls Fort Worth to rebuild the club that burnt down [27] Q&A Session Summary Question: How does the company plan to grow after completing current developments? - The company plans to focus strictly on acquisitions for growth and does not anticipate building anything else in the near future [34] Question: What excites the company about the future of the business model with the new five-year plan? - The company is excited about getting back to its core business, focusing on clubs, and evaluating real estate offerings to determine the best use of capital [37] Question: How is Bitcoin integration looking at the company's locations? - The company is processing Bitcoin at some locations, converting it to US dollars at the point of transaction, and expects to see more Bitcoin transactions with the current high prices [40] Question: What is the M&A environment like for the company? - The company is working on three potential acquisitions and is focusing on smaller acquisitions between $5 million and$ 15 million purchase price [49] Question: Does the company have insurance for hurricane and fire-related damages? - The company carries insurance for its properties, but payouts depend on the extent of damage and deductibles [56] Question: Will the company consider increasing the dividend under the Back-to-the-Basics plan? - The company plans to continue slowly and gradually raising the dividend annually, with the majority of capital return being done through buybacks [60] Question: What is the purchased real estate value of the closed Bombshells in Denver food hall? - The Denver food hall was purchased for $5.2 million, and the company is marketing the real estate for sale [61] Question: What are the impairments and how do they affect the company? - Impairments are accelerated write-offs of various assets, primarily due to increasing interest rates, and do not affect the company's operations or free cash flow [64][66] Question: Are there plans to open restaurants in Yuma? - The company has no plans to open new restaurants beyond the current developments and will focus on acquiring existing nightclub operations [70] Question: What is the expected CapEx for 2025? - The company expects maintenance CapEx to return to normal levels, forecasting around$ 6 million for 2025 [86] Question: How does the company view its leverage and debt? - The company aims to keep its debt to EBITDA under three times and is actively working to reduce its debt load [92] Question: What are the current business trends? - November was strong with five weekends, and December started slow but picked up, with the company expecting a strong March Madness [102]