• Total Sales: $71.5 million for the fourth quarter.
• Net Income: $9.0 million attributed to RCIHH common shareholders.
• EPS: $1.01 GAAP and $0.80 non-GAAP.
• Net Cash Provided by Operating Activities: $13.3 million.
• Free Cash Flow: $12.1 million.
• Adjusted EBITDA: $15.7 million.
• Nightclubs Revenue Increase: $0.7 million or 1.1%.
• Nightclubs Same-Store Sales Increase: 3.7%.
• Bombshells Revenue Decline: $3.1 million or 24.7%.
• Bombshells Same-Store Sales Decline: 7.5%.
• Operating Income: $20.9 million with a margin of 33.8% of revenues.
• Cash and Cash Equivalents: $34.7 million at the end of the first quarter.
• Debt Reduction: $2.7 million decline in debt as of December 31.
• Share Repurchase: 66,000 shares for $3.2 million.
• New Acquisition: Flight Club in Detroit for $8 million plus $3 million for real estate.

• Warning! GuruFocus has detected 3 Warning Signs with PETS.

Release Date: February 10, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• RCI Hospitality Holdings Inc (NASDAQ:RICK) reported an increase in total sales and same-store sales in the Nightclubs segment.
• The company improved GAAP and non-GAAP operating profit and margins in the Bombshells segment despite a decline in total sales.
• RCI Hospitality Holdings Inc (NASDAQ:RICK) repurchased 66,000 shares for $3.2 million, indicating a commitment to returning value to shareholders.
• The acquisition of the Flight Club in Detroit is expected to generate approximately $2 million in annually adjusted EBITDA.
• RCI Hospitality Holdings Inc (NASDAQ:RICK) has a strategic capital allocation plan aiming to grow free cash flow per share by 10% to 15% annually over the next five years.

Negative Points

• Total sales in the Bombshells segment declined by 24.7% due to the sale and closure of underperforming locations.
• Corporate expenses increased by $1.7 million due to the establishment of an insurance reserve.
• The company faced weather-related closures in the second quarter, impacting operations.
• RCI Hospitality Holdings Inc (NASDAQ:RICK) is involved in a lawsuit with a landlord over closed Bombshells locations.
• The company has significant non-income producing assets valued between $23 million and $28 million that need to be addressed.

Q & A Highlights

Q: Bradley, regarding the $1.7 million to establish the self-insurance reserve, is that a non-cash or cash expense, and is it one-time in nature? A: Eric Langan, CEO: It's a one-time, non-cash expense. We decided to self-insure starting October due to high insurance costs. Until our captive is set up, we must follow GAAP rules for potential liabilities. The reserve is non-cash and will cover claims or defense costs during this period.

Q: Did you add the insurance reserve back into your adjusted EBITDA number? A: Eric Langan, CEO: No, we did not add it back in because the rules don't allow for that.

Q: Can you discuss the potential for improving EBITDA margins at the Detroit club you acquired? A: Eric Langan, CEO: It's too early to tell, as we've only had it for a few weeks. The cold weather in Detroit has impacted operations, but we believe we can improve performance as we settle into the market.

Q: Are there any residual cash outlays for the Bombshells locations that were closed? A: Eric Langan, CEO: Not at this point. We have a landlord suing us, but we believe our defenses are strong. The parent company did not guarantee the lease, and we don't expect significant liabilities under Texas contract law.

Q: Can you provide an overview of the operating environment, especially for the club side, in early 2025? A: Eric Langan, CEO: Our largest contributors were down, but mid-sized clubs were up. We're focusing on increasing customer quantity and have pricing power to maintain margins. We aim for 3% same-store sales growth and are working on monetizing non-income producing assets.

Q: How many clubs are you currently looking to divest, and what is the estimated fair market value of your real estate? A: Eric Langan, CEO: We're looking to divest two clubs in the same area. As for real estate, it's hard to estimate without recent appraisals, but I would guess it's in the $250 million to $280 million range.

Q: With the reopening of El Paso and other new locations, what are your sales expectations? A: Eric Langan, CEO: The old El Paso club generated about $600,000 EBITDA. With upgrades, we hope to exceed that, but it's uncertain without a liquor license. For Central City, we're aiming for $1 million to $2 million EBITDA annually.

Q: Are there any plans for new acquisitions or builds in the near future? A: Eric Langan, CEO: We're risk-off until current projects are completed. Our focus is on optimizing existing assets and adhering to our capital allocation strategy. We may adjust stock buybacks or acquisitions based on market conditions, but no new builds are planned.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.