Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: orion on August 27, 2013, 05:05:03 AM

Title: RICK - RCI Hospitality
Post by: orion on August 27, 2013, 05:05:03 AM
I´ve just started to look into this, but I found this comment from the CEO in their latest Conference Call quite interesting. Maybe another possible jockey stock?

Quote
This brings me to a very important thing that I think needs to be said: I own a very large portion of the company. Not in terms of, you know, 50% or anything, but my 12.4% holding is still over 90% of my personal net worth. My personal net worth is basically tied to the success of Rick’s and what Rick’s does.  I’ve continued to buy stock.  I’ve never been a net seller of Rick’s stock, and I will continue to buy additional stock, because I believe it’s the best investment I can make, especially at the current price levels.
Title: Re: RICK - RCI Hospitality
Post by: dcollon on August 27, 2013, 06:17:50 AM
I would suggest that the Corner of BRK & FFH take a bus tour to do some on sight due diligence. 
Title: Re: RICK - RCI Hospitality
Post by: giofranchi on August 27, 2013, 06:35:24 AM
I would suggest that the Corner of BRK & FFH take a bus tour to do some on sight due diligence.

I don't think one day will be enough... At least one day and one night... Hard work!!!! ;D ;D ;D

giofranchi
Title: Re: RICK - RCI Hospitality
Post by: Palantir on August 27, 2013, 06:49:23 AM
Yes, it is important to closely study their assets, prior to taking a long position.
Title: Re: RICK - RCI Hospitality
Post by: ASTA on August 27, 2013, 07:40:38 AM
I am already long but might need another injection off inspiration to get 100% long 8)
Title: Re: RICK - RCI Hospitality
Post by: krazeenyc on August 27, 2013, 08:31:27 AM
Lukai on VIC wrote a pretty decent writeup. I remember the criticism being that maybe everything wasn't completely on the up and up (don't hold me to this -- this is just from my memory).
Title: Re: RICK - RCI Hospitality
Post by: Libs on August 27, 2013, 10:01:07 AM
I've looked at this one for a while. I can't remember where I read it, but I recall
commments about management being sleazy. 'Sampling the goods', etc.

Totally unsubstantiated, but hard to dismiss in this  'industry.'



Title: Re: RICK - RCI Hospitality
Post by: Palantir on August 27, 2013, 10:47:07 AM
If anything, I have heard the opposite, management is serious and ethical, but they're playing in an industry where others aren't. AKA their competitors offer things like prostitution and etc. and they do not.

I don't see much of an economic moat on this, growth is nothing great....
Title: Re: RICK - RCI Hospitality
Post by: Parsad on August 27, 2013, 02:53:45 PM
I would suggest that the Corner of BRK & FFH take a bus tour to do some on sight due diligence.

No thanks!  I lose too much money at those places when I go to Vegas with friends.  I'd rather stay home and read a 10-K!  Cheers!
Title: Re: RICK - RCI Hospitality
Post by: Drokos on August 28, 2013, 06:02:45 PM
Tremendous potential in this business, however it is uninvestable until it gets a new CFO and/or CEO. Great cash flow, but some of the worst capital allocation decisions you'll come across. And that's ignoring the plethora of litigation issues (some of their fault, others just industry issues).
Title: Re: RICK - RCI Hospitality
Post by: TedKord on August 26, 2016, 10:21:10 AM
Has anyone else looked at RCI Hospitality (RICK). 20% free cash flow margins, buying back stock, paying dividend and trading around 10x earnings. RCI owns 38 strip clubs, primarily under the Rick’s brand name. They also own 5 casual-service restaurants under the brand name Bombshells. At 10.75, the market cap is 105m and they are guiding to 19-21m FCF this year (16.7m is already in the bank). The CEO seems to be very concerned with capital allocation rather than empire building. They put their capital allocation strategy on page 5 of their 3Q Conference call presentation. There is too much long term debt for my taste, 101m, but 70m is secured by real estate and the average weighted interest rate is 7.53%. OpInc covers interest exp 3x, and frankly, how much wear and tear is there on a strip club? Adding back D&A gets you close to 4x coverage. I’m also not wild about their geographic mix. About half of the clubs are in Texas, but they seem to be trying to grow in other states. There may also be some risk due to the independent contractor status of the dancers.  I really don’t have an opinion if they are forced to recognize dancers as employees; maybe someone on the board knows more about this issue. The negative current ratio doesn’t bother me. It isn’t uncommon in the restaurant business. But it is a real risk factor, given their relatively heavy debt.

Sales growth is also an issue. Sales are only up 1.5% yoy and same store sales have just turned very slightly positive this quarter up 0.1%. In the MD&A of the latest 10-Q, management blames “soft big ticket/VIP spending.”

Dave & Buster’s (PLAY) may be the most relevant comp, in that people go to the restaurant for something other than food. PLAY has an EBITDA margin of 23% compared to 24% at RICK. But TEV is 10x EBITDA vs. RICK at 6x and P/E of 25x vs. 10x. It should be noted that PLAY is substantially less levered.

So, Rick’s is hardly a perfect company, and it certainly doesn’t have a moat, but it sure isn’t very expensive. It’s the industry leader trading at 10x P/E If it weren’t for the nature of the business this would seem to be an obvious Berkshire-style company. There doesn’t appear to be any catalyst in the near term, for those who care about that.
Title: Re: RICK - RCI Hospitality
Post by: Gordon Gecko on August 26, 2016, 01:19:51 PM
What % of the business is the clubs vs. their fast food chain? More interested in the clubs. Less competition.
Title: Re: RICK - RCI Hospitality
Post by: benjamin1978 on August 26, 2016, 03:02:35 PM
Saying a strip club is an "obvious Berkshire-style company except the nature of the business" is like saying this man is alive except he is obviously dead...
Title: Re: RICK - RCI Hospitality
Post by: Picasso on August 26, 2016, 03:28:27 PM
I have high hopes for this thread.

Meanwhile I need to go do some deep due diligence on these "clubs."
Title: Re: RICK - RCI Hospitality
Post by: Jurgis on August 26, 2016, 03:31:08 PM
Let's rephrase this: It's an obvious Biglari-style company.

Now, just bring this to Sardar's attention. Preferably by launching a proxy contest and doing a photo shoot in one of the clubs.
Title: Re: RICK - RCI Hospitality
Post by: TedKord on August 27, 2016, 04:10:03 AM
The business currently is overwhelmingly clubs. They only have five restaurants. They are sort of like Hooters. They hope to franchise the concept eventually, but right now it's fairly small.
Title: Re: RICK - RCI Hospitality
Post by: JayGatsby on August 27, 2016, 07:09:42 AM
I may or may not hold a decent allocation of this...

What I like about it are exactly the things you pointed out. The cash flow yield is unmatched and they have about the most disciplined capital allocation strategy I've seen. Apparently they've made mistakes in the past but since I've been following (1-2 years) they've been very disciplined. They bought an energy drink business in that time frame that hasn't worked out, but when they bought it the said they were basically just prepaying for energy drinks with an option on growth. They were also talking about a REIT ~2 years ago but they shelved it when they got access to bank financing (historically they'd had to use expensive private debt/converts, but as the CEO said people are happier to stretch their morals than stretch for yield). At the time they said there was ~$40M of equity in the real estate if I remember right. The access to bank financing is a huge help to them because they can refinance existing debt and buy new clubs with cheap real estate loans. There's a slide in their investor pres on their occupancy costs and they've continued to chip away at it. They recently bought the real estate for a club in Miami and have been actively refinancing. All excess cash flow now is going toward repurchasing stock unless they have an opportunity that exceeds 2x the yield of buying back shares.

The moat is the licenses. I don't know much about it but there's limited licenses for new clubs. It's not as tough as a casino license I don't think but the license does give you some protection.

They have had some issues with independent contractors / employees. They now require everyone to sign something saying they won't be part of a class action. I don't know how much weight that actually holds.

Potential upsides:
1. Opening a new club in NY in October. The exact figure is on the last call but they're guiding to $1M+ of EBITDA.
2. Hiring someone to help sell franchises for Bombshells (their Hooters type restaurant). So far their franchising efforts seem to have fallen.
3. Repurchasing shares. They've bought back ~6% of shares YTD i believe
4. Cheaper debt. I think they still have some pieces they want to refinance, and the access to cheap debt makes acquisitions much more attractive.

Potential downsides:
1. It's discretionary spending with a concentration in Texas. They weren't hurt too badly in '09 but Texas rode through that relatively well.
2. Seems like there's a steady stream of legal issues. They sorted out the texas patron tax (by agreeing to pay the tax) and settled a new york class action, so hopefully that's it but who knows.
3. Debt load is somewhat high. The offset is a lot of the debt is real estate backed with longer terms secured at the property level (i think).

Title: Re: RICK - RCI Hospitality
Post by: Drokos on August 27, 2016, 10:27:20 AM
Steer clear. Never come across a more disfunctional and clueless public company.
Title: Re: RICK - RCI Hospitality
Post by: Foreign Tuffett on August 27, 2016, 01:31:55 PM
Steer clear. Never come across a more disfunctional and clueless public company.

Could you expand on this?

It looks like management has made some non core type acquisitions in the past (energy drink, etc). However they seem to be committed to cleaning up their capital allocation.
Title: Re: RICK - RCI Hospitality
Post by: johnny on August 27, 2016, 02:04:34 PM
I have followed this company (and shamefully traded it) for a few years.

All I'll say is this: the CEO has relationships with former dancers, and has been arrested at least once for assault against his wife. If your model template has a row to handle that combination of risks, go for it.
Title: Re: RICK - RCI Hospitality
Post by: TedKord on August 28, 2016, 06:49:29 AM
I hadn't seen that Langan had been arrested. I just did a quick Google search and couldn't find it. On the other hand, I'm not shocked he's had relationships with dancers. His third wife was a dancer. This slightly older story goes over some of his background.

http://www.forbes.com/forbes/2008/1027/142.html

His personal life is not something I'd want to emulate or even approve of. I think the stock trades cheap because people don't want to be associated with he business, and I doubt that will ever change. On the positive side, that will make it easy for Langan to do buy backs at below intrinsic value.
Title: Re: RICK - RCI Hospitality
Post by: arcube on August 28, 2016, 10:13:21 AM
If your model template has a row to handle that combination of risks, go for it.

Johnny - you crack me up.
Title: Re: RICK - RCI Hospitality
Post by: johnny on August 28, 2016, 09:23:40 PM
I hadn't seen that Langan had been arrested.

yeah, they didn't file an 8-k. it was also such a non-surprise for me that i didn't bother bookmarking or saving the site.
Title: Re: RICK - RCI Hospitality
Post by: johnny on August 28, 2016, 09:37:54 PM
If you do a modest amount of work you can find references to it in legal documents. Specifically, documents about the divorce from Jante, who was a former dancer and is now an attorney (ruh roh!).

Here are some quotes that should get you started:

Quote
However, after being arrested following a domestic dispute with Jante, Eric again filed for divorce on August 2, 2011. Eric was eventually charged with certain criminal offenses stemming from the dispute.

Quote
While she did not do so in the trial court, Jante contends here that there are several different methods for determining how to value stock options during a divorce, including the “intrinsic value method” and the “Black/Scholes method.” Jante complains that, instead of using a recognized valuation methodology, the trial court simply accepted as true Eric’s unreliable testimony that the stock options were worth $300 or nothing.

At least he hangs out with the smarter dancers!
Title: Re: RICK - RCI Hospitality
Post by: johnny on August 28, 2016, 09:57:50 PM
Due diligence update: I have friend requested Jante' (the court documents omitted the apostrophe). I'll let you know when she accepts.
Title: Re: RICK - RCI Hospitality
Post by: rawraw on August 29, 2016, 02:52:06 AM
^That is dedication
Title: Re: RICK - RCI Hospitality
Post by: jawn619 on August 29, 2016, 06:18:00 AM
the business is in secular decline.
Title: Re: RICK - RCI Hospitality
Post by: Jurgis on August 29, 2016, 08:08:13 AM
the business is in secular decline.

Baby boomers can't get elections even with Viagra?
Title: Re: RICK - RCI Hospitality
Post by: DTEJD1997 on August 29, 2016, 10:40:45 AM
the business is in secular decline.

An attorney I work with is quite a "party" guy.  A week ago or so he went into a crazy, ranting, diatribe on the state of strip clubs in/around Detroit.  Evidently, they have hit rock bottom.  There is a severe problem getting good looking dancers.

As he put it...."I go to a strip club to escape reality, to look at hot women that I don't see in real life"...."I don't want to see everyday, broken down, busted, tatted up, overweight women.  I am just not going to pay money for it.  I go to a strip club for a smiley face, not a frowny face!" 

Of course, I am paraphrasing a bit for public consumption.

This goof admits that he can spend $200, $300 or maybe even more...but lately he says he spends $50 or much less.

I asked what he thinks the problem is.  He replied that heroin is a ravage.  He also was bemoaning that society is getting "too fat".  Also that quality women can get on "web cams" and make similar $ and not have to meet degenerates in person.

So I don't know if this is a problem limited to just Detroit, or is it nationwide?

If this is nationwide, then yes, I could very much see MOST clubs being in decline, shutting down.  Who wants to pay big $$$$ to see ugly, overweight, tatted up women?

Maybe it is like malls?  All but the highest end are collapsing, partly from competition on the interwebs?
Title: Re: RICK - RCI Hospitality
Post by: johnny on August 30, 2016, 04:16:06 PM
Maybe it is like malls?  All but the highest end are collapsing, partly from competition on the interwebs?

This is the sense I've gotten from people with decades of experience in the industry. Clubs that were printing presses in the 80s and 90s are now doing numbers that makes them indistinguishable from "normal" businesses of their size. On the other hand, maybe everybody has just leveled up their tax evasion practices.
Title: Re: RICK - RCI Hospitality
Post by: Amitsham on August 31, 2016, 07:08:04 AM
RICK reports very strong quarter. The Company reduced debt, reduced the number of shares and gave a better forecast of FCF.

FY16 FCF target revised upward to $19-$21M (RCI's fiscal year end in September)
Shares outstanding 9.833M (07/31)
FCF per share $1.93 - $2.14

Stock price = $11
5.5x multiple of FCF per share

I believe the Company is worth at least $16 per share.

If they do these things, the Company will be worth at least $20 per share:
1) Buyback more shares at this price
2) Close or sell Robust
3) Refinancing and pay off debt

Bouns:
1) Bombshells' franchising
2) Real estate sales


Title: Re: RICK - RCI Hospitality
Post by: johnny on August 31, 2016, 12:09:19 PM
I don't think sale-leasebacks really work for Rick's.

A tremendous amount of the earnings power of the club can be attributed to the specific zoning of the property, and the liquor license attached to the property. -If- they have some clubs doing very good ROAs (corp ROA is mediocre, no?), the moat is entirely contained in the property.

With this business, if you sell the property, you're giving somebody else a tremendous amount of leverage...way more than the average REIT bulk-buying Olive Gardens or whatever.

Either the sale is done at a very high price and very high contracted rent, in which case the property buyer is caught pants-down if the business has trouble, or the rent is underpriced, in which case the property buyer can always think about contriving to the club shut down so that he can set up his own operation.

Ultimately I think this was probably what they realized when they looked into the REIT stuff a year or two ago. They were getting cap-rate offers that were substantially higher than straight RE loans. And whoever is letting them finance individual properties at 5% is really clueless about how dangerously they're living.

I should mention I just dumped the last of my RICK stock, so I'm officially now talking my book instead of being a self-loathing degenerate.
Title: Re: RICK - RCI Hospitality
Post by: benjamin1978 on September 08, 2016, 11:40:44 AM
http://www.bbc.co.uk/newsbeat/article/37057814/is-virtual-reality-the-future-of-online-pornography



Title: Re: RICK - RCI Hospitality
Post by: Foreign Tuffett on September 15, 2016, 01:10:07 AM
the business is in secular decline.

An attorney I work with is quite a "party" guy.  A week ago or so he went into a crazy, ranting, diatribe on the state of strip clubs in/around Detroit.  Evidently, they have hit rock bottom.  There is a severe problem getting good looking dancers.

As he put it...."I go to a strip club to escape reality, to look at hot women that I don't see in real life"...."I don't want to see everyday, broken down, busted, tatted up, overweight women.  I am just not going to pay money for it.  I go to a strip club for a smiley face, not a frowny face!" 

Of course, I am paraphrasing a bit for public consumption.

This goof admits that he can spend $200, $300 or maybe even more...but lately he says he spends $50 or much less.

I asked what he thinks the problem is.  He replied that heroin is a ravage.  He also was bemoaning that society is getting "too fat".  Also that quality women can get on "web cams" and make similar $ and not have to meet degenerates in person.

So I don't know if this is a problem limited to just Detroit, or is it nationwide?

If this is nationwide, then yes, I could very much see MOST clubs being in decline, shutting down.  Who wants to pay big $$$$ to see ugly, overweight, tatted up women?

Maybe it is like malls?  All but the highest end are collapsing, partly from competition on the interwebs?

I think part of the problem is that some of the women who would be working at strip clubs are now working as nude internet cam girls. Unlike regular pornography -- but similar to strip clubs -- male customers can perceive that they have a "relationship" with a cam girl.

I don't see pornography per se as a replacement for strip clubs as, at least in its current form, there's no real interaction between the porn stars and the customer. Video pornography has been around for decades and strip clubs have thrived during that time.
 
Title: Re: RICK - RCI Hospitality
Post by: TedKord on September 15, 2016, 02:29:41 PM
I am absolutely unconcerned about technology/cams as a risk factor. There have been dirty movies as long as I've been alive. I also don't think RICK will ever trade at a premium valuation. There are always going to be investors who wouldn't want to own this sort of business at any price.  I think the risk factors are the amount of debt that RICK's carries and their capital allocation. RICK is too levered. The overwhelming amount of their debt is secured by properties, but one doesn't tend to situate strip clubs in the best parts of town, though I must admit a big location two blocks from Madison Square Garden must have some alternative use value. As to the capital allocation, I have my fingers crossed. They talk the talk in their presentations and conference calls, but they just announced the opening of a sports bar gentlemen's club in Manhattan. "Key attractions will include a bevy of beautiful ladies dressed in sexy sports themed jerseys and cheerleading outfits." I'd rather have seen them buy back shares.
Title: Re: RICK - RCI Hospitality
Post by: JayGatsby on September 15, 2016, 08:20:47 PM
to the capital allocation, I have my fingers crossed. They talk the talk in their presentations and conference calls, but they just announced the opening of a sports bar gentlemen's club in Manhattan. "Key attractions will include a bevy of beautiful ladies dressed in sexy sports themed jerseys and cheerleading outfits." I'd rather have seen them buy back shares.
They gave the projected numbers for this earlier in the year to explain why it fit within their strategy. Projected returns were something like 100% IRR assuming it all goes at least as well as planned.
Title: Re: RICK - RCI Hospitality
Post by: TedKord on September 16, 2016, 02:45:17 AM
Oh no, I get it. And I've heard the calls. I will feel more comfortable when I see it.
Title: Re: RICK - RCI Hospitality
Post by: DTEJD1997 on September 16, 2016, 05:56:30 AM
I am absolutely unconcerned about technology/cams as a risk factor. There have been dirty movies as long as I've been alive. I also don't think RICK will ever trade at a premium valuation. There are always going to be investors who wouldn't want to own this sort of business at any price.  I think the risk factors are the amount of debt that RICK's carries and their capital allocation. RICK is too levered. The overwhelming amount of their debt is secured by properties, but one doesn't tend to situate strip clubs in the best parts of town, though I must admit a big location two blocks from Madison Square Garden must have some alternative use value. As to the capital allocation, I have my fingers crossed. They talk the talk in their presentations and conference calls, but they just announced the opening of a sports bar gentlemen's club in Manhattan. "Key attractions will include a bevy of beautiful ladies dressed in sexy sports themed jerseys and cheerleading outfits." I'd rather have seen them buy back shares.

The more I think about it, the more I think cams/interweb COULD be a real problem for RICK.

Apparently, all the good looking women in the Detroit have vanished?  Have they vanished, or are they just on the interweb?  I might have to do some investing on this...

If I were a hot woman, why would I go to a smoky, sleazy strip club?  I could get $ on the interweb without meeting sleazy dudes in person.  Plus, when you are working in a club, you've got to leave the house, take a shower, do your hair & makeup...not required with a web cam.
Title: Re: RICK - RCI Hospitality
Post by: BTShine on September 16, 2016, 07:19:34 AM

Will webcams and FaceTime make it less appealing for regular people to go out to dinner or nightclubs/bars?

If it's cheaper to eat at home and chat online with friends will that hurt the restaurant/bar industry?

There might be similarities between SOBs and Bars/Nightclubs
Title: Re: RICK - RCI Hospitality
Post by: Foreign Tuffett on September 30, 2016, 08:42:06 AM
I think the below is germane to the discussion:

http://www.tennessean.com/story/money/2016/02/14/strip-clubs-fade-booming-nashville/80295468/ (http://www.tennessean.com/story/money/2016/02/14/strip-clubs-fade-booming-nashville/80295468/)

Title: Re: RICK - RCI Hospitality
Post by: DTEJD1997 on October 02, 2016, 06:55:31 AM
Hey everybody!

I was recently working late and drove down 8-Mile road to get home.  It was a Friday night.  My car accidentally pulled into the "Penthouse" club.  This is allegedly the premier Detroit strip club.  The time of night was around 10 PM.  The valet parking charge was $8.  Cover was $15.

I figured I would go in and see what was going on.  The club was crowded but not excessively so.   Lots of the patrons looked kind of grungy.  However, a lot of the strippers looked even more so.  Most of the people didn't look like they were having a good time, same thing with the strippers.  Most of the strippers had more than one tattoo.  A couple had shaved heads.  Several were dangerously thin, looking strung out on drugs.  Most of them did not look appealing at all.  They looked even more dangerous than the patrons.

A waitress did not ask me if I wanted a drink.  I stayed for maybe 15-20 minutes.  A total waste of time & money.  I guess my compatriot at work is right.

If this is the premier club in Detroit, I shudder to think what the others are like.  Perhaps this is problem limited to Detroit?  Or if not, a problem with the industry?

All I know is that I wasted 20 minutes of my time and $23.  I won't be back.  I would not recommend it to friends...
Title: Re: RICK - RCI Hospitality
Post by: TedKord on October 11, 2016, 06:21:16 AM
RICK will be holding a 4Q & FY16 conf call on 10/13 instead of waiting for their regularly scheduled 12/14 call. They claim that they want to share exciting developments now rather than wait and they are appearing at a couple conferences and want to be able to speak freely. RICK doesn't trade with the kind of volume that magnifies short term news, but this sounds like a positive development.
Title: Re: RICK - RCI Hospitality
Post by: Foreign Tuffett on October 15, 2016, 12:28:04 AM
My overall take on the conference call was mildly positive. It is good to hear that they're moving away from Robust, refinancing debt, and continuing the share buybacks. Ditto for selling two under performing clubs. I am somewhat neutral on opening more company owned Bombshells. It would have been great to hear of a contract being signed with a Bombshells franchisee.

Title: Re: RICK - RCI Hospitality
Post by: TedKord on November 09, 2016, 11:41:49 AM
For all the noise generated today on coal, steel, pharma or hospitals, I think RICK could be one of the real losers. Any short term actions to stem the flow of immigrants will negatively affect RICK. I don't know what percent of RICK's independent contractors are here on various visas, but I'll bet it's pretty high. I think I'm going to trim my position.
Title: Re: RICK - RCI Hospitality
Post by: DooDiligence on November 09, 2016, 06:51:08 PM
For all the noise generated today on coal, steel, pharma or hospitals, I think RICK could be one of the real losers. Any short term actions to stem the flow of immigrants will negatively affect RICK. I don't know what percent of RICK's independent contractors are here on various visas, but I'll bet it's pretty high. I think I'm going to trim my position.

What's your position on trim?

(sorry couldn't resist - our new president says it's OK)
Title: Re: RICK - RCI Hospitality
Post by: TedKord on November 10, 2016, 04:26:34 AM
10k, sold 2k yesterday
Title: Re: RICK - RCI Hospitality
Post by: TedKord on November 10, 2016, 04:29:12 AM
There's a lot I like about the stock: low P/E, good capital allocation, decent margins. It is a strip club. There's only so much money you can invest in a company like this.
Title: Re: RICK - RCI Hospitality
Post by: JayGatsby on February 13, 2017, 03:50:55 PM
Bit from their call yesterday I thought people might find interesting:

Quote
Darren McCammon

Fantastic okay good. Okay. So I have a little bit of an off-base question here. I also would like to congratulate you on your focus and management's focus on capital allocation and free cash flow. You've been doing a great job. I wonder -- I heard that to book the Outsiders, had something to do with your -- I don't know change in views. Is that true?

Eric Langan

Certainly. I've read the books a couple of times. I even have an audio -- an audio book in my phone. I guess the big thing was -- I'm from the strip club business. I'll be honest. I started out as a manager of strip clubs, and we went public and we built into this company and we've kind of grown and grown. And so we have financial advisors that were telling us you have to have the growth, you need to get the top-line growing keep this going. And so we are focused on those things. And I think we did well with what our focus was. And the difference in that book has really taught us that the top-line is really not important. What's important as how much cash can we generate? And how are we reallocating that cash? How are we either returning to shareholders or creating more value for the shareholders with that cash? And what it really taught it me, we were always told, our paper is cheap, you can write stock checks all day long. Well of course, the investment banks love that, because they’re making fees. And we were learning as I start looking at it -- wait a minute, this is the most expensive money and outsiders look really taught me how expensive those stock checks were.

And so now we use the formula and it really turned every decision into simple math. We know what our return is buying our own assets. So why would we pay more and I looked at some of deal we’ve done. Some of them were great deals. In 2008 we were making some fantastic deals. And some of the deals in 2011 and 2012 weren't so great, because our stock was so low, but we had gotten caught up in that write those paper checks, write those paper checks, the market will catch-up, the market will catch-up. And that book really kind of brought the thinking around to figuring out, okay, this is why -- that and -- another shareholder out of California, who got involved in the company, that really helped with that a lot, and got us to read the book. So it really helped. It’s made a big difference and basically all of our decision making.

Darren McCammon

Thanks for that color there. That actually helps quite a bit from a long-term point of view?

Eric Langan

I mean, we’ve always been consistent with our philosophy. We just had to change the philosophy. That was the problem. We had our own philosophy I think there for a long time when we were just looking for that top-line growth. I mean, if you look -- I laugh you know, [indiscernible] I said this is the first year that we had top-line growth was negative $500,000, and our stock's performing better than it’s ever performed. So it’s like okay hold on a second. Just don’t approve that focus on the cash and as they say, cash is king. And I think it's going to open up a lot of opportunities for us. There is a lot of acquisitions out there, that are available to us right now, and we’re negotiating and slowly and surely, we're teaching owners that this is what the market's going to pay you. You can either keep operating your club, or you can sell to us.
http://seekingalpha.com/article/4044636-rci-hospitality-holdings-rick-ceo-eric-langan-q1-2017-results-earnings-call-transcript?part=single
Title: Re: RICK - RCI Hospitality
Post by: Gregmal on February 13, 2017, 04:04:13 PM
Bit from their call yesterday I thought people might find interesting:

Quote
Darren McCammon

Fantastic okay good. Okay. So I have a little bit of an off-base question here. I also would like to congratulate you on your focus and management's focus on capital allocation and free cash flow. You've been doing a great job. I wonder -- I heard that to book the Outsiders, had something to do with your -- I don't know change in views. Is that true?

Eric Langan

Certainly. I've read the books a couple of times. I even have an audio -- an audio book in my phone. I guess the big thing was -- I'm from the strip club business. I'll be honest. I started out as a manager of strip clubs, and we went public and we built into this company and we've kind of grown and grown. And so we have financial advisors that were telling us you have to have the growth, you need to get the top-line growing keep this going. And so we are focused on those things. And I think we did well with what our focus was. And the difference in that book has really taught us that the top-line is really not important. What's important as how much cash can we generate? And how are we reallocating that cash? How are we either returning to shareholders or creating more value for the shareholders with that cash? And what it really taught it me, we were always told, our paper is cheap, you can write stock checks all day long. Well of course, the investment banks love that, because they’re making fees. And we were learning as I start looking at it -- wait a minute, this is the most expensive money and outsiders look really taught me how expensive those stock checks were.

And so now we use the formula and it really turned every decision into simple math. We know what our return is buying our own assets. So why would we pay more and I looked at some of deal we’ve done. Some of them were great deals. In 2008 we were making some fantastic deals. And some of the deals in 2011 and 2012 weren't so great, because our stock was so low, but we had gotten caught up in that write those paper checks, write those paper checks, the market will catch-up, the market will catch-up. And that book really kind of brought the thinking around to figuring out, okay, this is why -- that and -- another shareholder out of California, who got involved in the company, that really helped with that a lot, and got us to read the book. So it really helped. It’s made a big difference and basically all of our decision making.

Darren McCammon

Thanks for that color there. That actually helps quite a bit from a long-term point of view?

Eric Langan

I mean, we’ve always been consistent with our philosophy. We just had to change the philosophy. That was the problem. We had our own philosophy I think there for a long time when we were just looking for that top-line growth. I mean, if you look -- I laugh you know, [indiscernible] I said this is the first year that we had top-line growth was negative $500,000, and our stock's performing better than it’s ever performed. So it’s like okay hold on a second. Just don’t approve that focus on the cash and as they say, cash is king. And I think it's going to open up a lot of opportunities for us. There is a lot of acquisitions out there, that are available to us right now, and we’re negotiating and slowly and surely, we're teaching owners that this is what the market's going to pay you. You can either keep operating your club, or you can sell to us.
http://seekingalpha.com/article/4044636-rci-hospitality-holdings-rick-ceo-eric-langan-q1-2017-results-earnings-call-transcript?part=single

What an awesome and honest answer. This was one of my best performing positions last year. Was actually a little disappointed exiting the position because everything was saying "this time its different" although history says this is a dud at these levels. Hearing this guy talk like that really reinforces what an open minded, shareholder friendly management can do. Kudos to him for that.
Title: Re: RICK - RCI Hospitality
Post by: BTShine on February 13, 2017, 06:41:44 PM
Thanks to their proper capital allocation it's been a fantastic investment.  Current FCF yield to equity is around 11%. 
Title: Re: RICK - RCI Hospitality
Post by: awindenberger on February 14, 2017, 09:23:43 AM
I remember looking at this one and being semi interested at $11, but wasn't clear on how serious the CEO was. Well, this blurb clears things up. It's so refreshing to see that many CEOs could be more shareholder friendly if they simply learned how to do it properly.

I wonder if theres and chance the stock falls back a bit.
Title: Re: RICK - RCI Hospitality
Post by: Drokos on June 12, 2018, 04:47:10 PM
Bombshells location shut down after 100+ arrests, shootings, DUIs, etc. I guess this kills the Bombshells growth story:

https://bigrickinvest.blogspot.com/2018/06/bombshells-crime-factory-shut-down-by.html


“Harris County District Attorney Kim Ogg calls Bombshells a “crime factory.”
“This is one of the worst offenders in Harris County,” said Sean Teare, chief of the vehicular crimes unit. “Anything that you can think of in the past 3 1/2 years has occurred here.
“We are talking about a person being shot to death in the parking lot. We’re talking about a number of other shootings that have occurred here. Aggravated robbery… aggravated assaults… sexual assaults.”
The DA’s office had been monitoring the Bombshells at the I-45 near Fuqua location for several weeks after investigators noticed several DUIs, assaults and injuries were traced back to the restaurant.
“We have documented well over 100 arrests and that’s not even close to the number of calls that the Houston Police Department has received about this establishment,” Teare explained.
Title: Re: RICK - RCI Hospitality
Post by: Foreign Tuffett on June 13, 2018, 04:29:31 AM
Bombshells location shut down after 100+ arrests, shootings, DUIs, etc. I guess this kills the Bombshells growth story:

https://bigrickinvest.blogspot.com/2018/06/bombshells-crime-factory-shut-down-by.html


“Harris County District Attorney Kim Ogg calls Bombshells a “crime factory.”
“This is one of the worst offenders in Harris County,” said Sean Teare, chief of the vehicular crimes unit. “Anything that you can think of in the past 3 1/2 years has occurred here.
“We are talking about a person being shot to death in the parking lot. We’re talking about a number of other shootings that have occurred here. Aggravated robbery… aggravated assaults… sexual assaults.”
The DA’s office had been monitoring the Bombshells at the I-45 near Fuqua location for several weeks after investigators noticed several DUIs, assaults and injuries were traced back to the restaurant.
“We have documented well over 100 arrests and that’s not even close to the number of calls that the Houston Police Department has received about this establishment,” Teare explained.

This presumably scares potential franchisees away. They have 4 more Houston-area Bombshells in the near-term pipeline. Any thoughts on how (if at all) they will be affected?

I owned this several years and $20 ago and, while I no longer follow it closely, have been impressed by just how far the stock has run. It's almost like investors have forgotten about all the idiosyncratic risks here. The aggressive IR campaign has probably helped.
Title: Re: RICK - RCI Hospitality
Post by: Jurgis on June 13, 2018, 08:46:28 AM
Bombshells location shut down after 100+ arrests, shootings, DUIs, etc. I guess this kills the Bombshells growth story:

https://bigrickinvest.blogspot.com/2018/06/bombshells-crime-factory-shut-down-by.html


“Harris County District Attorney Kim Ogg calls Bombshells a “crime factory.”
“This is one of the worst offenders in Harris County,” said Sean Teare, chief of the vehicular crimes unit. “Anything that you can think of in the past 3 1/2 years has occurred here.
“We are talking about a person being shot to death in the parking lot. We’re talking about a number of other shootings that have occurred here. Aggravated robbery… aggravated assaults… sexual assaults.”
The DA’s office had been monitoring the Bombshells at the I-45 near Fuqua location for several weeks after investigators noticed several DUIs, assaults and injuries were traced back to the restaurant.
“We have documented well over 100 arrests and that’s not even close to the number of calls that the Houston Police Department has received about this establishment,” Teare explained.

They are shutting down US Congress?


...

...

Oh wait, nvm.
Title: Re: RICK - RCI Hospitality
Post by: Drokos on June 13, 2018, 05:44:52 PM
Short report. With this plus the Bombshells news, I'd say its uninvestable and I'd be curious to hear if some of those praising the CEO will change their mind: http://bitly.com/2JsWCNC

RCI Hospitality (RICK): Overvalued Roll Up with Hidden Related Party Transactions, Conflicts of Interest, SEC Violations, and 50%+ Downside

Executive Summary: Retail investors enamored with RCI’s new capital allocation strategy have driven shares up over 300% to extremely overvalued levels and shares now trade at more than double their historic multiples. RCI’s roll up strategy uses new acquisitions to hide the fact that its base business is declining. Analysis of actual results from all 45 announced transactions since 2005 shows the average multiple paid is ~8x EBITDA, not the 3-4x that management claims. In addition, newly discovered related party transactions, SEC violations, conflicts of interest, and hidden purchases call into question the leadership of management and the board. Shares would need to fall more than 50% to trade in-line with historic multiples, even before a discount for mismanagement and poor stewardship.

Numerous governance red flags have been uncovered, including management’s use of the company as a personal piggy bank: RCI has been known for poor corporate governance due to its fleet of corporate jets and excessive car allowances, but numerous new egregious actions have been uncovered, including:
•   RCI made loans to its CEO that were not disclosed in SEC filings.
•   CEO funneled RCI corporate business to a lawyer that he was personally indebted to.
•   One of RCI’s Independent Directors is the brother of a senior executive, a violation of SEC requirements for independent director.
•   One of RCI’s Independent Directors frequently takes on legal work for RCI, but RCI has never disclosed the related party transaction.
•   CEO was arrested for domestic assault.
•   CEO’s relative defaulted on a loan received from RCI.
•   RCI’s failed Los Angeles club was partnered with a convicted criminal who had partied with RCI’s CEO at the Super Bowl & Mardi Gras in months ahead of the formation of the JV.  RCI’s partner was already behind on rent before RCI joined the JV & the club was shut down within a year of opening.
•   RCI inexplicably owns 3 residential houses in Houston
•   RCI sent donations to CEO’s children’s private school through a shell company.
•   RCI owned (and may still own) a 338-acre ranch in Texas.
•   RCI Board allowed the CEO’s employment contract to lapse until his divorce was finalized.

Business Analysis: RCI’s roll up strategy masks its declining base business, and actual acquisition multiples are double management’s claims.
•   Valuation – Shares are worth $13-17 and have 50%+ downside. The stock is currently trading at more than double its long-term historic average on a P/S, P/E, & P/B ratio.
•   M&A Strategy – A detailed analysis of all transactions since 2005 shows that RCI’s pretax return on investment is less than 13%, no where near the 25-33% that management claims.
•   Bombshells –Management has previously attempted 10 non-strip club ventures. All have ended in failure. After 3 years Bombshells has yet to land a single franchisee, Head of Franchising left after one year, & food sales are already declining.
•   History Repeats – Last time RCI drew this much retail attention the shares crashed from $28 to less than $4 within a year.

Title: Re: RICK - RCI Hospitality
Post by: johnny on June 13, 2018, 06:25:04 PM
I think there's a seriously lack of understanding, both in retail investor land AND pro investor land, about what the strip club industry actually is like. If "shooting in the parking lot" is something that you've not been factoring into your assessment of business risks, you should zero out your position right now, because it can get about a thousand times worse.

If you're going to be invested in this space, you need 100% absolute confidence in the character and wisdom of the CEO, because it is 100% guaranteed that substantial aspects of the business are going to, out of legal and practical necessity, be substantially mischaracterized in every documentable instance. Again, that's not necessarily a deal-breaker, but I think there's enough smoke here around the person of Langan to make such confidence misplaced (unless you personally know him, and even then, probably still).

Title: Re: RICK - RCI Hospitality
Post by: Gregmal on June 13, 2018, 06:27:21 PM
Short report. With this plus the Bombshells news, I'd say its uninvestable and I'd be curious to hear if some of those praising the CEO will change their mind: http://bitly.com/2JsWCNC

RCI Hospitality (RICK): Overvalued Roll Up with Hidden Related Party Transactions, Conflicts of Interest, SEC Violations, and 50%+ Downside

Executive Summary: Retail investors enamored with RCI’s new capital allocation strategy have driven shares up over 300% to extremely overvalued levels and shares now trade at more than double their historic multiples. RCI’s roll up strategy uses new acquisitions to hide the fact that its base business is declining. Analysis of actual results from all 45 announced transactions since 2005 shows the average multiple paid is ~8x EBITDA, not the 3-4x that management claims. In addition, newly discovered related party transactions, SEC violations, conflicts of interest, and hidden purchases call into question the leadership of management and the board. Shares would need to fall more than 50% to trade in-line with historic multiples, even before a discount for mismanagement and poor stewardship.

Numerous governance red flags have been uncovered, including management’s use of the company as a personal piggy bank: RCI has been known for poor corporate governance due to its fleet of corporate jets and excessive car allowances, but numerous new egregious actions have been uncovered, including:
•   RCI made loans to its CEO that were not disclosed in SEC filings.
•   CEO funneled RCI corporate business to a lawyer that he was personally indebted to.
•   One of RCI’s Independent Directors is the brother of a senior executive, a violation of SEC requirements for independent director.
•   One of RCI’s Independent Directors frequently takes on legal work for RCI, but RCI has never disclosed the related party transaction.
•   CEO was arrested for domestic assault.
•   CEO’s relative defaulted on a loan received from RCI.
•   RCI’s failed Los Angeles club was partnered with a convicted criminal who had partied with RCI’s CEO at the Super Bowl & Mardi Gras in months ahead of the formation of the JV.  RCI’s partner was already behind on rent before RCI joined the JV & the club was shut down within a year of opening.
•   RCI inexplicably owns 3 residential houses in Houston
•   RCI sent donations to CEO’s children’s private school through a shell company.
•   RCI owned (and may still own) a 338-acre ranch in Texas.
•   RCI Board allowed the CEO’s employment contract to lapse until his divorce was finalized.

Business Analysis: RCI’s roll up strategy masks its declining base business, and actual acquisition multiples are double management’s claims.
•   Valuation – Shares are worth $13-17 and have 50%+ downside. The stock is currently trading at more than double its long-term historic average on a P/S, P/E, & P/B ratio.
•   M&A Strategy – A detailed analysis of all transactions since 2005 shows that RCI’s pretax return on investment is less than 13%, no where near the 25-33% that management claims.
•   Bombshells –Management has previously attempted 10 non-strip club ventures. All have ended in failure. After 3 years Bombshells has yet to land a single franchisee, Head of Franchising left after one year, & food sales are already declining.
•   History Repeats – Last time RCI drew this much retail attention the shares crashed from $28 to less than $4 within a year.

This is nice, but I don't think many would be surprised by this type of stuff going on at a company like RICK. I don't own the shares any longer for the simple reason that the valuation is no longer compelling. At $7-$12 a share, you've got little to no downside barring some catastrophe. You'll get buried from all the FCF this business spits off. At $30? Its probably slightly overvalued like pretty much everything else in this market. Which you could argue means it's more overvalued because something like RICK should naturally trade with a bit of a built in discount.
Title: Re: RICK - RCI Hospitality
Post by: Drokos on June 14, 2018, 03:39:46 PM
I think there is a distinct difference between industry risks ("shooting in the parking lot", allegations of over-serving, etc) and shady/unethical management actions such as loaning money to the CEOs relatives, related party transactions, purchasing residential houses, etc. Investors signed up for the first risk, I am not sure they knowingly signed up for the second.
Title: Re: RICK - RCI Hospitality
Post by: johnny on June 14, 2018, 03:49:33 PM
Investors signed up for the first risk, I am not sure they knowingly signed up for the second.

Actually, I think it's the opposite. Even average investors are generally aware that there can be conflicts, related party transactions, and general light embezzlement. Obviously they hope there aren't, but the category is understood. The industry-specific risks are exactly what most investors are completely ignorant about, and there's really no way you could say they "signed up" for any of them.

I really like the work you've done here, but I think you're actually underselling how much category risk exists and how likely it is that it's simply not being incorporated because the finance dorks investing here are patsies that drop a grand for a night of no-contact dances and assume that's what the strip club experience is for everybody.