RCI Hospitality Holdings, Inc. (NASDAQ:RICK) Q2 2024 Earnings Call Transcript May 11, 2024

RCI Hospitality Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Eric Langan: Thank you, Mark, and thanks, everyone, for joining us today. Please turn to Slide 6. Despite the uncertain economy, the core strength of our business enabled us to generate $72.3 million in revenue in the second quarter compared to $71.5 million last year. While GAAP EPS of $0.08 primarily reflected noncash impairment, non-GAAP EPS totaled $0.90 near the high end of analyst expectations. The nightclub segment generated $59.4 million in revenue in 2Q '24 compared with $57 million last year. Separately, the effort began in mid-February to improve Bombshells segment, resulting in steady sales and better margins on a sequential quarter basis. Please turn to Slide 7. We also continue to make progress with our new project developments.

These efforts are focused on developing new locations and upgrading existing ones to further grow the company. In doing this, we are committed to following our capital allocation strategy, concentrating on our core nightclub business, evaluating potential acquisitions and buying back stock. To that end, subsequent to the end of the quarter, we increased our cash position $20 million by closing our planned bank loan. Now here is Bradley to go into more details on our results.

Bradley Chhay: Thanks, Eric. Please turn to Slide 8 to review our Nightclubs segment. Second quarter revenues increased $2.4 million year-over-year. This was primarily due to a $7.4 million increase from acquisitions, which partially offset declines of $2.9 million in same-store sales and $2.1 million from clubs in transition. By revenue type, alcoholic beverages increased 16.9% and food, 10.8% and other by 4.3%. However, service declined 8.3%. The sales mix reflected higher alcohol and food sales from newly acquired clubs and same-store sales declined due to lower service revenues. As we mentioned in the second quarter sales call, PT's Centerfold in Lubbock, a new club they're not open until late in the quarter. Baby Dolls Abilene, our reformatted Liquor Club didn't open until early April.

A BYOB club in El Paso temporarily closed during the quarter to start reformatting into a Chicas Locas liquor Club. Although we didn't talk about it on the sales call, severe cold and rainy weather in Texas did have an impact in January as it had for other hospitality companies. We had to palpartially close partially or fully closed clubs and Bombshells for a number of days during that period. Impairment resulted in operating income of $11 million or $18.6 million of revenues compared to $8 million or 31.6%. On a non-GAAP basis, operating income was $19.8 million or 33.4% of revenues compared to $22.4 million or 39.3%. The non-GAAP margin decline primarily reflected lower [surplus] revenues, higher insurance and increase in Texas patron tax and wage inflation.

One of the reasons why insurance is higher is because we received a refund in the year ago quarter. Now please turn to Slide 9. The Duncan Barch acquisition has continued to perform well. We closed on the acquisition in mid-March in 2023 with four clubs open. We finished remodeling and opened the fifth club in mid-June 2023. As of fiscal '24 second quarter, revenues have grown 23.9% from a year ago third quarter, which was the first full quarter post acquisition, and operating margin has expanded 394 basis points. Locations have benefited from increased credit card transactions, reduced management costs and more effective RCI marketing management and purchasing methods, partially offset by the increase in patron tax, which started in September of 2023.

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