Rick's Cabaret CEO won't bare all on REIT plans

By David Levine

RCI Holdings, formerly Rick's Cabaret, (RICK) is one of my top holdings in the Aspect Large Cap Value Fund. The company is the leading publicly traded "adult entertainment" stock and has more than 40 clubs nationally.

The chain's recent quarterly report was interesting. In my opinion, management may be preparing the company for either a major restructuring or perhaps taking the company private. You're either growing or you're shrinking, as they say. And based on CEO Eric Langan's comments, I can't help but think that RICK is looking at all of its options.

For the past several years, if you overlooked the fact that RICK is in a controversial "sin" type of business, the stock has become dirt cheap. Even with the new guidance of 15% to 20% growth, RICK is trading at something like 10x earnings.

In order to unlock value in the shares, management has been exploring the creation of a REIT which will unlock the value of the real estate that RICK owns, potentially benefiting shareholders to the tune of $30 million to $40 million.

For a company with essentially 10 million shares outstanding, that could be significant, perhaps $3 to $4 per share. Eric Langan also recently stated that he would be a buyer of shares up to $15, a pretty bold statement considering that the shares are currently trading around $11.60.

Here's the thing: The company has been talking about this for almost a year now, and there were many people who thought that we would be getting a lot more detail on the REIT by now. On the recent conference call, Langan seemed to push the REIT off at least another six months while also stating that there are no additional acquisitions in the pipeline right now.

He also stated that they would be buying back stock and paying down debt opportunistically. To me, this seems like someone who is not willing to take a lot of short term execution risk, but for those of you familiar with Eric Langan, it seems out of character.

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