RCI HOSPITALITY HOLDINGS, INC. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Capital Allocation: Officially launched the Back-to-the-Basics five-year plan, including continuing to buy back shares, divesting underperforming Bombshells locations, closing the Denver food hall, reducing Bombshells related debt, and discontinuing franchising.
• Core Business Focus: Nightclubs are the core business with an estimated 35% plus in operating margins. Evaluating every club in the portfolio to rebrand, reformat, or divest underperforming locations.
• Bombshells Targets: Targeting 15% operating margins with a return to same-store sales growth.
• Club Acquisitions: Goal to acquire $6 million of adjusted EBITDA a year, focusing on best clubs, with target metrics of 3 to 5 times adjusted EBITDA for club, business and foreign market value for the real estate, financing deals with cash, bank financing, seller notes, and considering stock if valuation improves.
• Stock Buybacks and Dividends: Anticipate implementing regular buyback programs, flexing up stock buybacks if cheap, and planning small dividend increases annually.

Segment Performance

• Nightclubs: Fourth quarter same-store sales increased for the second quarter in a row, but total company sales declined due to a hurricane and a fire, resulting in lower EPS. However, non-GAAP EPS, net cash provided by operating activities, and free cash flow all increased. Revenue has more than doubled from $135 million to $296 million from fiscal year 2015 to fiscal year 2024, with a CAGR of 9%. Free cash flow has more than tripled from $15 million to $48 million, a CAGR of $14%$, while share count fell by $13%$.
• Bombshells: Fourth quarter revenues declined $1.643 million, primarily due to a 16.2% same-store sales decline and 26 closure days due to Hurricane Beryl in July. Impairment and other charges were $3 million higher. These divestitures and closings are anticipated to improve the segment's performance. Collectively, these five locations accounted for $14.6 million in sales in fiscal 2024, losing $1.1 million collectively excluding impairments and gains.

Guidance

• Five-Year Plan: Expect to generate more than $250 million of free cash flow over the next five years, allocating 50% to club acquisition (including debt repayment) and 50% to share buybacks and dividends.
• Fiscal 2029 Targets: Call for hitting $400 million in revenue, $75 million in free cash flow, and reducing share count to 7.5 million or less, aiming to double free cash flow per share.
• Fiscal 2025 Outlook: Sales growth from locations that have come online and those anticipated to open throughout the year expected to further decline debt to trailing 12-month adjusted EBITDA ratio.

Risks

• Hurricane and Fire Impact: Total company sales declined due to a hurricane and a fire resulting in lower EPS; insurance理赔存在不确定性, including deductibles that need to be reached first.

Question and Answer

Q: Under the Back-to-Basics plan, would the company consider increasing the dividend?

A: The dividend is not tax-efficient but will continue to be slowly and gradually raised on an annual basis along with majority capital return through buybacks.

Q: What was the purchased real estate value of the closed Bombshells in Denver food hall?

A: $5.2 million for the Denver food hall.

Q: Has the company talked about non income-producing real estate to be sold and its impact on EBITDA?

A: Actively pursuing selling considerable real estate, with carrying costs in the hundreds of thousands of dollars, and will see impact on EBITDA as they are sold.

Q: How is the Bitcoin acceptance looking at your locations?

A: Convert to US dollars at point of transaction, need to check specific programs to see amount taken in Bitcoin but suspect more is being taken with high Bitcoin prices.

Q: Will the company consider increasing the dividend?

A: Dividend will continue to be slowly and gradually raised on an annual basis along with majority capital return through buybacks.

Q: What are the current business trends?

A: November was fantastic with strong sales around holidays, December started a bit slow but first weekend strong, with trends up through October, November, December and hoping to continue.