HOUSTON, Oct. 14, 2016 /PRNewswire/ -- To further its
Capital Allocation Strategy, RCI Hospitality Holdings, Inc.
(Nasdaq: RICK) last night announced actions to increase returns on
its portfolio of clubs, restaurants and other businesses, in order
to enhance the growth of revenues, margins and free cash flow.
In a conference call presentation with investors, RCI said it
has implemented the following steps in 4Q16, which ended
September 30, 2016:
- Sold two clubs, one that was unprofitable and one just over
breakeven.
- Decided to move and reformat two clubs to increase revenues and
margins.
- Closed the only Bombshells restaurant that was not
profitable.
- Initiated plans for two new Bombshells, using bank financing to
increase return potential.
- Sold the majority of its interest in the US distribution of
Robust energy drink.
- Refinanced $14.2 million at lower
average rates, moving all non-realty balloon payments to 2021.
- And since June 30, 2016, RCI has
paid off the last convertible debentures that had warrants,
eliminating the potential share dilution.
RCI also announced continued share repurchases in 4Q16 and the
settlement of the last of the most serious cases remaining from the
insolvency of its prior insurer.
Some of the actions are expected to result in gains and some in
non-cash charges when RCI announces its final 4Q16 results, which
are expected to be reported December 14,
2016.
CEO Comment
Eric Langan, President and CEO,
explained, "A year ago we formally launched our Capital Allocation
Strategy. As part of that strategy, we calculated the risk free
return of using our free cash flow to repurchase our own
shares.
"We also began using this yield as a baseline to guide our
investment decisions. Since then, we have evolved this strategy
into a philosophy that we are applying to all of our assets,
including existing properties and businesses.
"This led to the actions we announced last night. The results
should be materially beneficial going forward."
Sold Two Clubs
Cabaret North of Fort Worth,
TX, was sold for $4.5 million,
which is expected to generate a $300,000 gain. The unit lost approximately
$200,000 in FY16 due to nearby
freeway construction blocking traffic, with little resolution
expected in the near term.
Separately, Rick's Cabaret Indianapolis was sold for
$1.8 million, which is expected to
yield a $300,000 deferred gain. The
unit performed slightly better than break even in FY16 and was too
far from other units to be managed effectively.
Move & Reformat Two Clubs
RCI is moving Club Onyx Dallas into the smaller Club Dulce
location a half mile away. This will result in better space
utilization than its previous site which should expand operating
margins in FY17.
In turn, RCI is converting the former Club Onyx Dallas location
into a Foxy's Cabaret. With 28,000 square feet, this will create
the largest BYOB club in Texas.
The Foxy's concept has proved highly profitable in Austin.
Closed Bombshells in Webster
RCI closed its Bombshells unit in Webster, TX, just outside of Houston. The company's smallest unit,
Webster was located at a "B"
destination location and opened in 2014. Since then, RCI has
demonstrated with its four other Bombshells that "A" locations near
highways, shopping areas and other restaurants perform much
better.
The company anticipates a non-cash write off of leasehold
improvements in 4Q16, elimination of Webster's $400,000 annual operating loss, and using the
equipment to reduce the cost of new Bombshells locations expected
to open in FY17.
New Bombshells
RCI reported that it is about to start construction on a fifth
Bombshells, on Highway 290 in Houston. It also has obtained bank financing
to acquire the property and build the next two units, on Interstate
10 in Houston and just south of
Houston in Pearland, TX.
Bank financing will reduce the cash outlay on these new units,
resulting in greater returns than leasing and adapting second
generation sites. The first generation sites are also expected to
maximize revenues and margins per unit and create showpiece
prototypes to enhance franchise sales.
Robust & Insurance
RCI sold the majority of its interest in Robust for a
$2.0 million promissory note, which
is expected to result in a non-cash loss on sale and impairment
charge totaling $2.5 million.
RCI also reported it is down to eight active cases out of an
original 62 after its prior insurer declared insolvency. During
4Q16, it settled the most serious of the remaining cases for a
total of $1.2 million.
Debt Actions
RCI refinanced a $6.2 million
realty balloon due in 2017 with a lower rate $9.0 million loan, enabling the company to
convert $2.7 million in equity in the
related properties to cash. The company also refinanced an
$8.0 million high cost, non-realty
balloon due in 2018 at a lower rate with a 15 year amortization and
2021 balloon.
RCI also paid off $1.15 million in
convertible debentures, eliminating the last of the outstanding
warrants.
4Q16 Share Repurchases
RCI bought back 140,086 shares, at an average price of
$10.92, spending approximately
$1.5 million, in 4Q16.
This brought the total FY16 share buyback to 747,081, at an
average price of $9.79, for a cost of
approximately $7.3 million, and
reduced shares outstanding by approximately 5% at September 30, 2016 from a year ago.
About RCI Hospitality Holdings, Inc. (Nasdaq: RICK)
With 40 units, RCI Hospitality Holdings, Inc., through its
subsidiaries, is the country's leading company in gentlemen clubs
and sports bars/restaurants. Clubs in New
York City, Miami,
Philadelphia, Charlotte, Dallas/Ft. Worth, Houston, Minneapolis, and other cities operate under
brand names, such as "Rick's Cabaret," "XTC," "Club Onyx," "Vivid
Cabaret," "Jaguars" and "Tootsie's Cabaret." Sports
bars/restaurants operate under the brand name "Bombshells." Please
visit http://www.rcihospitality.com/
Forward-Looking Statements
This press release may contain forward-looking statements that
involve a number of risks and uncertainties that could cause the
company's actual results to differ materially from those indicated
in this press release, including the risks and uncertainties
associated with operating and managing an adult business, the
business climates in cities where it operates, the success or lack
thereof in launching and building the company's businesses, risks
and uncertainties related to cybersecurity, conditions relevant to
real estate transactions, and numerous other factors such as laws
governing the operation of adult entertainment businesses,
competition and dependence on key personnel. The company has no
obligation to update or revise the forward-looking statements to
reflect the occurrence of future events or circumstances.
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SOURCE RCI Hospitality Holdings, Inc.