Wow time flies.

It’s seems like just yesterday, or was that last year, that we listened to Rick’s CEO Eric Langan stumble through his last conference call almost at a loss to explain the steep decline in the company’s sales and earnings, and the rapidly deteriorating marketplace that saw same-club sales at certain locations, namely Las Vegas, plummet to incredible depths.

Well, it’s time to check in on our favorite provider of adult entertainment and exotic dancing as Rick’s Cabaret (NASDAQ: RICK) will be posting their Q1/2009 earnings and hosting their analyst conference call after the market closes on February 17th.

In this post I’ll go over the important aspects that we need to be aware of before Rick’s announces earnings and then break them down into the following parameters:

• What went right in the quarter: What were some of the positive developments that occurred within the company in the last 3 months.
• What went wrong in the quarter: What were some of the negative developments that occurred within the company in the last 3 months.
• What I want to see: All things considered, what I realistically want to see from the company as it relates to their business.
• What we need to see: At the minimum, what we need to see for our investing thesis to still hold and an investment in this company to be prudent.
• What we’ll probably see: After weighing what’s been going on for the last 3 months, what we can realistically expect when they do announce their earnings.
• Bottom Line: What it all means, and what you should do.

New to the Rick’s story?

Rick’s Cabaret International, Inc., owns and operates upscale adult nightclubs serving primarily businessmen and professionals.

Rick’s differentiates themselves by providing an atmosphere where they can offer a unique quality entertainment environment that includes highly experienced and well screened entertainers, high quality managers hired from within the adult entertainment industry, and finally, providing an atmosphere and ambiance Incorporatedluding exclusive VIP rooms, that appeal to upscale clientele.

Rick’s also owns and operates several online and offline media properties that produce adult websites as well as cater to owners and operators of intimate apparel and adult retail stores.

Rick’s nightclubs offer live adult entertainment, restaurant, and bar operations in Houston, Austin, San Antonio, Minneapolis, Minnesota, New York, Dallas Fort Worth, Charlotte, and other cities under the names Rick’s Cabaret, XTC, and Club Onyx.

As of September 30, 2008, Rick’s operated 19 adult nightclubs.

Want more?

• Read my last company update here.
• OR: Read my initial company buy recommendation here.

Q1 Results Likely to Be Poor

Focus will be on outlook, stabilization of underperforming clubs

We know from the last conference call and earnings announcement that the beginning of Q1 was already looking relatively weak and that same-club sales were declining at the poorest performing locations.

This was reaffirmed when Rick’s warned on January 12th, that although sales were up year over year, mostly because of acquisitions, same-club sales were lower and margins were being squeezed as was expected.

What remains to be seen is how bad the numbers really were and what management sees going forward.

Let’s take a look at the quarter that was, and what I expect in Rick’s next earnings announcement.

What Went Right In the Quarter

Some restructuring and club improvements

There was certainly not much that went right in the quarter for Rick’s.

Continuous economic headwinds and declining traffic levels at some of their most expensive locations (Las Vegas), is proving to be a higher burden than Rick’s expected when these clubs were purchased, and even at clubs that were previously profitable in better times.

The good news of sorts was that Rick’s did preannounce that sales were up 57% from a year ago period, almost entirely due however, to acquisitions.

In that same announcement, Rick’s stated that same-club sales were essentially flat vs. a year ago, which in aggregate is an amazing number considering the poor performance at some of Rick’s clubs, as well as the precipitous decline of the U.S. economy, and the U.S. consumer in particular.

Rick’s also talked about rebranding and/or closing some of their underperforming locations, which can be taken as sort of good news for a struggling company and investors wanting management to act now not later to try and salvage what they can.

Part of that plan involved reopening their XTC Cabaret, at a staggering 25,000 square feet, which is now the largest all-nude bar in the state of Texas.

I guess everything IS bigger in Texas.

In addition, Rick’s club in Philadelphia was rebranded as a Club Onyx.

What Went Wrong in the Quarter

The good news is also the bad news

The bad news is that most of the offsetting of the same-club sales came from Rick’s heavily trafficked and profitable New York City location, which had record sales.

Taken further, the quarter also saw Rick’s begin to acknowledge that they have a big problem with the failing economy, and saw the company rebrand a couple of their nightclubs (as stated above), and consider closing others if they continued to underperform.

That’s a direct slap in the face to investors as Rick’s just went on a wild buying spree the last 2 years or so increasing their foothold and square footage in much better economic times.

There was also no update on the previously touched-on subject of a dancer that was working at a Rick’s being arrested on murder charges for killing a man on the side of the road while she was driving home under the influence.

You can read my whole write-up on the situation here.

Now let’s take a look at what I expect out of Rick’s on this earnings call…

View original at: PeakStocks.com

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