Rick's Cabaret International, Inc. (RICK)

F3Q2010 Earnings Call Transcript

August 16, 2010 4:30 pm ET

Executives

Allan Priaulx – IR Officer & Corporate Communications

Eric Langan – Chairman, CEO & President

Phil Marshall – CFO

Analysts

Eric Wold – Merriman Curhan Ford

Jennifer [ph] – Brean Murray

Steven Gart – John Locke Capital

Greg Finny [ph]

William Stepaker [ph]

Presentation

Operator

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Greetings and welcome to Rick's Cabaret International, Inc. third quarter earnings conference call and webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder this conference is being recorded. It is now my pleasure to introduce your host Allan Priaulx, IR for Rick's Cabaret International, Inc. Thank you. Mr. Priaulx, you may begin.

Allan Priaulx

Thanks, Doug. Good afternoon and welcome to our third quarter 2010 conference call and webcast. In a moment I'll turn the call over to Eric Langan and Phil Marshall, who will present our third quarter results and then answer any questions you might have.

Before we begin I'd like to call your attention to our Safe Harbor Statement, which is included on slide two of our PowerPoint presentation, which is available on our website www.ricksinvestor.com and at precisionir.com. Please take a good look at this statement as this conference call may contain forward-looking information, within the meaning of Section 21E of the Securities and Exchange Act of 1934.

I'd also like to remind you that Rick's Cabaret files reports and other documents with the SEC and all of them are available on our IR website, www.ricksinvestor.com, which is the new discreet investor relations web address for our investors. You can also get all kinds of information about Rick's Cabaret International on our regular website, ricks.com.

I want to invite anybody who is in the New York City area today to attend our due diligence event at the Rick's Cabaret in Manhattan tonight starting at 6 pm. You will get a chance to meet Eric Langan and to get a guided tour of the club and see how we conduct our business at the club level.

And now I turn the conference call over to Eric Langan.

Eric Langan

Thank you, Allan. And thanks for your time this afternoon. I’ll begin the conference call with a quick overview of our third quarter for 2010; we’ll be reviewing our third quarter performance. We will be discussing the impact of the non-cash event on the earnings per share and talk about our strong cash flow, update you on our balance sheet, talk about the outlook for the remainder of this year and then conclude a question-and-answer session.

Total third quarter revenues were $19.9 million versus $21 million in the previous year. Net income was $857,000 versus $1.8 million last year. And earnings per share were $0.09 versus $0.19.

Part of that decline in revenue was same-store sales were off 13.9%. Primary factors of that were the decline in Las Vegas. Las Vegas sales were down about $2.5 million over the previous year due to the difference in marketing expenses and the way we are doing business in Vegas this year versus last year.

Our earnings per share were affected by one-time redemption related cost based on the convertible debenture that we called. There was a fee with raising that money that was originally impaired over a three-year life – expected life of the debenture. Because we were able to call that debenture early and covert it earlier, we had to take an immediate write-off of that fee about $275,000. That fee while it’s booked as interest expense was actually part of the fees related to raising that capital.

We also had a derivative loss. Due to the stock price decline, the Dallas put options were collateralized and created derivative instruments and due to the decline in the stock price we had a derivative loss of about $400,000. We also had New York legal expenses based on the labor law suit that we have here in New York City that affected us by about $900,000 over what they have been averaging throughout the quarters – through the past few quarters.

Like I said, the marketing expenses in Las Vegas have been reduced. Our total marketing expenses reduced to $1.2 million compared to $3.3 million last year. Cash flow from operations continues strong with $4.1 million in the third quarter and $12.2 million in income from operations in the trailing nine months this year.

Our third quarter highlights were: Visits to our clubs remained strong. What we were seeing in April, May, June was the customer spend declined. Where we had seen in January, February, and March that spend level really heat up. That trend ended in March and in April started a down climb all the way and through about the third week of July. We are seeing some decent spending in the last few weeks or last 10 days or so of July and going forward into August so far. So let’s see what happens when schools start that that spend continues and business travel continues, I think we’re back in much better shape.

We are going to remain focused on our bottom line right now and bringing our new clubs up to speed and maximizing revenues and earnings in those new locations. They are starting to contribute significantly. And our cluster [ph] in the Fort Worth market is doing very well for us.

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