Tour of Colorado Shows a Promising Growth Opportunity; Maintaining Estimates
We recently traveled to Colorado to see RCI's new properties. As background, following the purchase of five clubs in the Denver market in late 2021, RCI is planning on investing between $50 million and $80 million in the next two years in Denver and the surrounding areas of Colorado. As a result, Colorado is expected to be RCI's third-largest market, behind Texas and Florida. As such, we traveled to Colorado to see the company's up-and-coming new projects, which include a new Rick's Cabaret Steakhouse & Casino in Central City, the acquisition of the Grange Food Hall in Greenwood Village, and two Bombshells locations in the early stages of development. Key takeaways include: (1) Colorado represents a significant opportunity for revenue and cash flow growth; (2) given attractive purchase prices for "A" locations, RCI should generate significant returns; (3) Denver and the surrounding areas offer a compelling demographic profile that fits well with RCI's millennial customer base; and (4) RCI will be able to leverage its existing infrastructure (given a five-club base) as it expands into gaming and organically grows Bombshells. Maintain estimates and outlook ahead of the print on May 10. Given management's recent release of sales and our site visits/observations, we maintain our projections ahead of the company's earnings release date on May 10. For 2QFY23 ended March, we forecast total revenues of $71.2 million (+11.8% Y/Y), adjusted EBITDA of $20.1 million, and EPS of $1.15.RCI Hospitality Holdings is a holding company. Through its subsidiaries, the company is engaged in the hospitality and related businesses. The company's reportable segments include: Nightclubs, which owns and/or operates adult nightclubs serving primarily businessmen and personnel, and also owns and operates a Studio 80 dance club; and Bombshells, which owns and operates restaurants and sports bars under the brand name Bombshells Restaurant & Bar. The company's subsidiaries own a media division, including the trade magazine serving the adult nightclubs industry and the adult retail products industry. The company also owns an industry trade show, an industry trade publication and various industry and social media websites.
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