Author Topic: RICK - RCI Hospitality  (Read 14161 times)

awindenberger

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Re: RICK - RCI Hospitality
« Reply #50 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.


Drokos

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Re: RICK - RCI Hospitality
« Reply #51 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.

Foreign Tuffett

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Re: RICK - RCI Hospitality
« Reply #52 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.

Jurgis

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Re: RICK - RCI Hospitality
« Reply #53 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.
"Before you can be rich, you must be poor." - Nef Anyo

Drokos

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Re: RICK - RCI Hospitality
« Reply #54 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.


johnny

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Re: RICK - RCI Hospitality
« Reply #55 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).


Gregmal

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Re: RICK - RCI Hospitality
« Reply #56 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.

Drokos

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Re: RICK - RCI Hospitality
« Reply #57 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.

johnny

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Re: RICK - RCI Hospitality
« Reply #58 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.