RCI Hospitality, a prominent player in the restaurant and hospitality industry, is gearing up for expansion and growth. With solid unit economics and a strategic approach, the company aims to boost revenues and cash flow in the coming years.
In terms of unit economics, RCI Hospitality stands out from its peers in the restaurant space. The company’s food and beverage mix is heavily skewed towards higher-margin alcohol, which contributes to its profitability. Their nightclubs, in particular, boast impressive 40% operating margins. Additionally, RCI Hospitality owns the real estate for all its clubs and restaurants, giving them an added advantage.
The company’s focus on mergers and acquisitions (M&A) deals has also proven fruitful, as they consistently earn cash on cash returns ranging from 20% to 33% through these transactions. Furthermore, their Bombshells unit volumes remain attractive, despite a decline in same-store sales numbers.
While RCI Hospitality has been largely insulated from economic downturns and industry challenges, recent figures indicate a weaker performance in same-store sales. This decline, following nine consecutive quarters of positive figures, raises concerns about the company’s future outlook. However, there are levers to pull to offset any short-term softness in results.
During periods of share price weakness, RCI Hospitality has demonstrated strong capital allocation. They have rewarded shareholders with large share buybacks and capitalizing on M&A opportunities, which tend to accelerate during economic downturns. A notable recent example is the company’s acquisition of the 11-club Lowrie, their largest deal to date, which took place in mid-2021 when many operators were struggling.
Looking ahead, RCI Hospitality aims to deploy $200 million per year in the coming years to consolidate the industry and double the company’s EBITDA profile from $100 million to over $200 million. These ambitious plans are expected to enhance the company’s earnings power and lead to a more favorable valuation.
Investors can take comfort in the fact that RCI Hospitality is led by a smart owner-operator who has a significant stake in the company. This aligns their interests with shareholders and underscores their expertise in capital allocation.
Overall, RCI Hospitality’s expansion plans and solid unit economics position them well for future growth. While recent same-store sales declines may raise concerns, the company’s strategic initiatives and commitment to strengthening the business provide optimism for the long term. Shareholders can look forward to potential rewards in the form of strong capital allocation and continued industry consolidation.
