RCI Hospitality: Doubling Their FCF By 2029

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RCI Hospitality: Doubling Their FCF By 2029

RCI Hospitality (RICK) is the only publicly listed company that specializes in the ownership of adult night clubs such as the Tootsie's in Miami:

In case you are not familiar with the company, we recommend that you start by reading our full investment thesis before going into today's update.

You can click here to read it.

In today's update, I want to share some highlights from the company's recent Q1 earnings call.

Here are my main takeaways:In today's update, I want to share some highlights from the company's recent Q1 earnings call.

Here are my main takeaways:

• They reaffirmed their "back to basics" plan, which focuses on club acquisitions and share buybacks, all while simplifying operations by selling certain underperforming assets that aren't generating any cash flow for them.

• As part of this "back to basics" plan, they expect to generate $250 million of free cash flow over the next 5 years, and they will use about half of that for share buybacks if the shares remain as cheap as they are today. That's very significant, considering that their current market cap is just $450 million. On the conference call, the management noted that they plan to buy a "significant amount of stock" because it is "really cheap."

• The other half will go towards new club acquisitions. The CEO noted that they are currently looking at "a lot of opportunities." Recently, they acquired a new club that's expected to generate $2 million of annual EBITDA. Their goal is to acquire at least $6 million worth of EBITDA each year, so we can expect more club acquisitions later this year. They have the cash for it. They just need to find the right deals. This is great news because the club acquisitions have been the number one reason behind RICK's strong long-term performance.

• The company reaffirmed its 5-year guidance with added precision by providing more granular details and narrowing its previous estimates. They set the target of doubling their free cash flow per share by 2029. This would result in roughly $10 per share of annual free cash flow. This means that even without any rerating of the stock, we should be well-positioned to earn strong returns going forward as the company returns to growth.

• RICK's biggest shareholder reacted to this by saying that this guidance is likely too conservative. According to his calculations (shared on Twitter), the company could reach $10 of FCF per share already in 2026. I would caution, however, that this particular shareholder has, at times, been too optimistic in the past. Still, he is very familiar with the company, and it is encouraging that he believes that this 5-year target should be easily achievable.