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RCI Hospitality Holdings, Inc. RICK has completed the acquisition of Flight Club, a prominent gentlemen's club, located near Detroit Metro Airport.
The total purchase price was $11 million, including $3 million in cash, $5 million in seller financing at 8% and $3 million in cash for the associated real estate.
Benefits of the Acquisition
The strategic acquisition aligns with the company’s portfolio of high-end clubs with restaurants in key cities. It marks the first club purchase since the launch of RICK’s 5-Year 'Back to Basics' Capital Allocation Plan. This acquisition is expected to contribute approximately $2 million in annualized adjusted EBITDA.
The 10,000-square-foot property in Inkster, MI, has been recently renovated and offers upscale entertainment. The business is well-established and is expected to benefit from RICK’s marketing, purchasing and systems expertise.
RICK’s Focus on Back to Basics & Capital Allocation Strategies
The company’s Back-to-Basics approach aims to improve business conditions in response to economic challenges. RICK focuses on enhancing the efficiency and profitability of its locations. This initiative emphasizes increasing same-store sales, improving margins and rebranding underperforming locations for better results.
During fourth-quarter 2024 earnings call, the company highlighted significant progress with the Back-to-Basics plan. This includes continuing to buy back more shares in the first quarter of 2025. The company also divested four underperforming Bombshells locations, closed the Denver food hall, reduced Bombshells-related debt and stopped franchising.
Looking ahead, the company plans to focus on its core nightclub businesses and pursue new acquisitions. For Bombshells, the company aims to improve the performance of existing locations and complete the remaining three units under construction.
Regarding capital allocation, the company expects to generate more than $250 million in free cash flow in the next five years. Half of this will be used for club acquisitions and debt repayment, while the other half will be directed toward share buybacks and dividends.
RICK Stock Price Performance
Image Source: Zacks Investment Research
Shares of the company have gained 25.1% in the past three months compared with the Zacks Leisure and Recreation Services industry’s 7.4% growth. The company is benefiting from consistent progress with its Back-to-Basics approach and a strong capital allocation strategy. These efforts are driving operational improvements and enhancing its shareholder value. Also, the focus on enhancing the company’s existing portfolio bodes well for its growth prospects.