Problems at RCI Hospitality Holdings (RICK)
Problems at RCI Hospitality Holdings (RICK)
RCI Hospitality Holdings (NASDAQ: RICK — $570 million) owns dozens of gentleman’s clubs throughout the U.S., is developing a new restaurant chain called Bombshells, produces the annual gentlemen’s club owners expo, is launching an OnlyFans competitor, and is preparing to drop a collection of NFTs under the moniker “Tip-N-Strip.” RICK is up ~500% off pandemic lows as vocal investors believe the company has room to grow and huge upside optionality with its new ventures. The Bear Cave is doubtful.
An investigation by The Bear Cave finds that RICK’s new ventures may be more bark than bite and the company’s main business faces allegations of illegal behavior. Despite 150+ press releases in the last five years and a social media heavy investor relations playbook, RICK has seen lackluster concrete progress in expanding beyond gentleman’s clubs. In addition, the SEC has previously charged the company with accounting improprieties, including corporate donations to a private school affiliated with the CEO, and the company continues to have accounting concerns. With shares near all-time highs, this story may not have a happy ending.
Since going public in 1995, RICK has grown through acquisitions into one of the largest owners of gentleman’s clubs in the U.S. including brands like Rick’s Cabaret, Tootsie’s Cabaret, XTC Cabaret, Scarlett’s Cabaret, Foxy’s Cabaret, Vivid Cabaret, Downtown Cabaret, Cabaret East, and Kappa Men’s Club. The company has been led since 1999 by its 53-year-old CEO, Eric Langan, who owns ~8% of the company and is one of its biggest enthusiasts on Twitter under the heading “RicksCEO.eth”
Among many ventures, one that has RICK investors particularly excited is Bombshells, a military-themed “next generation sports bar” that mixes burgers, beer, Americana, and attractive waitresses. In an April 2022 presentation at the Noble conference, RICK predicted fast growth for Bombshells with a target of 80-100 locations over the next 5+ years. The Bear Cave is skeptical.
Five years ago, in May 2017, CEO Langan also gave an interview with SNN Live and projected rapid growth:
“We hope to sign up three franchising groups this year and then about three franchising groups in a year... In 2018 we hope to open three company-owned and three franchised [locations]. In 2019 we would open up three company-owned and six franchised… We hope to get that going which would put at 80-100 units in the next five to ten years.”
In its most recent 10-K, the company disclosed no active open franchised locations but added “we have one Bombshells franchised location that is under construction.” The company also added that it signed a franchise development agreement with an investor group to begin construction on more franchised locations. Only one of the six investors in that announcement was named.
Even the limited franchise rollout of Bombshells may be less than meets the eye.
Four weeks ago, RICK announced its second franchise development agreement “signed with a newly formed entity established by hospitality entrepreneur Jerry Westlund.”
The press release leaves out that Mr. Westlund has previously been indicted for embezzling “$380,000 from [a] casino and its campaign committees, and [using] the money to buy low-rent apartment houses.” Mr. Westlund was also later found guilty of tax evasion.