If you are a clubber in Texas, New York, California, Florida, Arizona, North Carolina, Indiana or Minnesota, you may have visited Rick's Cabaret, Jaguars Club, Club Onyx, Tootsie's Cabaret, Temptations Cabaret, Downtown Cabaret, Cabaret North, Cabaret East or one of the many other properties owned by Rick's Cabaret (RICK, Financial).
Yet the nightclub operator also has an online presence, with over 25 industry websites. The company has gotten the attention of investors through its buybacks, increasing sales and consistently strong quarterly performances. But just how good was this entertainment company?
Amazing Free Cash Flow
In recent months, analysts have given the stock a 50% potential upside. Management has confidently raised expectations for acquisitions, increasing free cash flow and increasing EPS year over year double digits. Yet the stock has been rewarding to investors, rising 31% over the six months.
Rick's third quarter performance helped solidify its track record. Operating margins, revenue, same-store sales and high margin service revenues all increased. Earnings per share and free cash flow is also growing as well, with free cash flow reaching managements latest target. Free cash flow is now up 50% for the year, while management has bought back over $5.8 million in stock.
A Tightly Run Ship
A closer look at Rick's business shows the tight ship that management has created. Occupancy costs are decreasing as revenues grow, EBITDA is increasing and management is keeping $6 to $10 million on the balance sheet. Branding has also been strong, with the latest menu design and menu items winning awards from Printing Industries of America award for graphic excellence. The Rick Cabaret New York real-estate acquisition has also resulted in fixed costs decreasing. Big spenders have not left Rick's clubs and the decline in oil has not affected the club as much as investors think.
While management is buying back more stock than ever before, the board is still issuing dividends. But more importantly, management is not buying back stock sloppily, announcing on the earnings call that they want to offer tax yield to free cash flow of 16% to 18% when buying back shares.
Management has taken a ruthless approach to cutting costs and improving efficiency. The company has not been shy about closing and eliminating properties that are not performing to their standards, while at the same time renovating and remodeling others. The clubs are also benefiting from cheaper gas prices. While focusing on efficiency and discipline, Rick's is going a step farther by putting together franchise marketing sales team to grow even more.
In the Rick's earnings report, investors witnessed CEO Eric Langan's discipline, focus and slow and steady approach. Langan knows Rick's must take a strategic approach for the company to grow even more.
Disclosure: No position in the stock mentioned.
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