RCI Hospitality Holdings Inc (RICK) 2013 Q1 法說會逐字稿

Greetings and welcome to the Rick's Cabaret first quarter 2013 earnings conference call and webcast. At this time, all participants are in a listen-only mode. A brief 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, Mr. Allan Priaulx. Thank you, sir. You may begin.

Thank you, Jen.

I just want to remind everybody that our Safe Harbor Statement is posted at the beginning of our presentation. It's also there to remind you that you may hear or see forward-looking statements that involve a number of risks and uncertainties. I won't go into the entire statement on this call, but I do urge you to read it, as well as the explanations of other measurements we use that are included at the bottom of the presentation. The presentation is posted along with our press release and other information at our Investor website www.ricksinvestor.com; as well as it's available in the presentation itself.

Finally, I'd like to remind everyone in the New York City area to stop by Rick's Cabaret on West 33rd Street this evening between 6.00 PM and 8.00 PM for our Due Diligence Ball. It's a great opportunity to visit with our Management and to get a look behind the scenes look at our flagship club.

Now it's my pleasure to present to you our President and CEO, Eric Langan. Eric?

Thank you, Allan.

Thank you everyone for taking the time this afternoon to review our quarter with us. I'll begin the call with a quick overview of what we're going to discuss today. It's basically a summary of our first quarter of fiscal 2013. The chief drivers are revenue, earnings, and EBITDA, cash flow. I'll bring you up to date on all of our new projects. We'll discuss some of the strategies we are currently investigating to unlock shareholder value and help move our stock prices along and look at an outlook for the remainder of 2013; and end the call, as customary, with a question-and-answer session. So anything we don't cover, you guys are more than welcome to ask and we will get into.

Quick snapshot. Consolidated revenue, up 23.3% to $27.1 million. We are very happy with our total revenue for this quarter; and hopefully in the next quarter, we'll continue to see that to grow as the Jaguar's acquisition comes online a little more for us. We've now integrated it and we will discuss some of that here with you in a little bit. Q1 '13 net income rose 21.1% to $2.6 million. Clubs acquired in 2011 and 2012 contributed $4.7 million in revenues; and our Q1 '13 operating margin improved to 21.9% from 19.8% last year.

We will discuss some of the things we've done to improve those margins, like cutting out some of the discounting we've done in the past to just put bodies in the seats now that we seem to be returning to a more normal trend of spending by our customers.

Our adjusted EBITDA for the quarter was $7.3 million, up 32.2%. A portion of that is, of course, due to the new acquisition of Jaguar's then, and an increase in income from operations from our existing same-store sales. Our cash flow was up to $6.2 million, up 19.3%. And something we want to touch on as we took on a considerable amount of debt, we got some concern on the Jaguar's acquisition. So we wanted to do some comparisons against other metrics.

What we used was a rent metric for most retailers; and most retailers are running between 10% and 15% on a rent expense. Our rent expense, because we own most of our property, is just 2.1%. Our interest expense, another 6.1%. If you add those together and say, all of our debt versus all of our other rental, and took that as a constant, rent expense would be 8.2% of total revenue, still well below where a lot of retailers look to be. So we're not -- another metric to show you our leverage in addition to being less than 3 times our EBITDA, which is another metric we use to judge where we are on our interest expense.

Q1 '13 legal was down to 2.4% of revenues. Probably remain flat in this January through March quarter, but hopefully see even a little lower as we move through the summer and get to a different stage of some of the cases that we have working right now. Positive working capital of $1.1 million excluding the disputed Patron Tax liability. If you look at our current liabilities, they look high compared to a normal balance sheet because we include the Texas Patron Tax as that current liability at this time. However, we dispute that amount being owed and we dispute that we'll ever pay that amount, but under GAAP, we must expense that on a quarterly basis, so we do. And this is where we show it, but we wanted to give you an idea of the working capital without that disputed Patron Tax.

Long-term debt rose to $70.1 million, of which $35.9 million is real estate debt. The remaining debt is pretty specific debt -- $7.2 million still against the Tootsie's property; $21.7 million against the Jags property; and then other assorted debt that we have. But the majority is against the Tootsie's and the Jags' debt there.

Interest expense for the quarter was $1.6 million, or just 6% of revenues, as I discussed earlier. The additional principal payments have reduced Tootsie's debt down to $7.2 million. We continue to pay an accelerated amortization by adding additional principal there because that is 14% debt, which is our highest debt. So we use our best use of cash, whether to buy back stock or pay down that debt, if we don't have additional acquisitions and cash flow we can invest our cash in.

Our puts are now at 0. As of January, we have paid off all of our put options. To give you an idea, in 2012 we paid out $2.9 million buying back stock under our put options. We paid out about $0.25 million this year and there will be no further payments on a go-forward basis. So that will free up $2 million in cash flow for 2013 as well.

Moving on to our new projects -- we opened the Vee Lounge very successfully; we had Havana Brown out. She was fantastic. The crowd was really overwhelming that night, which was fantastic for our nightclub. That's what you want -- you want to be packed and shoulder to shoulder. The food service there -- we are getting a lot of people ranting about great food. We are very happy with the beginning of this location. Obviously, it takes time to see it come to fruition. It's very new, but we're very excited about the start of it so far.

The Bombshells location is now complete. All the permits are in. We are ready to open location; we'll open in matter of days, I believe with a nice soft opening on February 17. Then we'll bring in some bands starting, I think, around the 21st and do a grand opening during the St. Patrick's Day weekend. We expect that location to do very well for us; the location is phenomenal and the place came out very nice.

The Ricky Bobby Sports Saloon in Fort Worth, we're hoping to open in the June quarter. We're still in preliminary construction there. The foundation is in. Most of the plumbing and electrical stuff is in. We are getting ready to put the walls up and get that one moving forward as well. We expect to close on our second New York City location very shortly, and we plan to open sometime around September. We should have more information on that later this week.

Construction is almost near complete our joint venture on the Rick's Cabaret in Los Angeles, and hopefully we will get some new news out on that here in the next few weeks as well. We've also got a property in Odessa that we're waiting on some licensing stuff. When it comes through, then we will be working on getting that property open as well.

Going forward to our growth strategy, we are going to continue emphasis on organic growth and cash generation, watching our margins, trying to limit discounting as much as possible when we can, especially as the economy recovers, moving into a more stable margins. We're going to work to assure that we smoothly launch our new concepts and that we're putting our focus, keeping our focus on those concepts until we are sure that they are matured and can operate on their own. We're going to also continue to explore accretive acquisitions that build our shareholder value as we have done in the past.

One of the other things I want to look over and talk about is what we're going to do with our free cash flow going forward. Especially use for cash in -- we are going to continue to pay down our debt, especially our high-interest debt; or buy back our stock if we think our stock is a better use of that cash. We're also going to continue to get out there and look to buy more cash flow so we can keep the cash flow numbers growing.

We're focused on our goal of 30% growth rate over the next three years. We want to continue to grow that. We want to be at around $200 million of revenues over the next three years. We'll continue to leverage our strong cash flows and our favorable debt-to-EBITDA ratios to do that. If it means we have to continue to do leveraged buyouts because our stock is underperforming, then we will continue to do those leveraged buyouts, taking on additional debt and using the cash flow of the new operations to pay off that debt.

Just to give everyone an idea on the Jaguar's acquisition and how well it's working out for us. In the quarter, we did $3.6 million in revenues from the Jaguar's acquisition, putting $1.364 million in EBITDA from that $3.6 million. Deducting $327 million in principal and $661 million in interest expense that we paid out gave us a cash flow of $375,000, plus an approximate $200,000 in Patron Tax that we expensed out. So for our $4 million investment, we basically got $575,000 worth of that back in the October to December quarter.

That was with the growing pains that we suffered through in October and November, adding 11 locations and trying to integrate those into our operations, training their staff on our POS systems, our cash handling systems, getting used to the camera systems, the security and the operations, the way we operate. We lost a few managers that worked for their company. We had to bring in some new management team. We had to promote some new managers and create regional managers in areas where they were lacking oversight of management. We believe that we've successfully integrated that.

December was a fantastic month and January has been a great month for that as well. So I think those numbers in the next quarter will look even better for us on a go-forward basis. We are very happy with that acquisition and the way we're able to leverage our brand and our reputation. We are paying our bills on time through other club owners, through acquisitions that we have done in the past that allowed us to make that acquisition.

That will end the formal part of our presentation, and I'll be happy to take any questions anyone has at this time.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session.

(Operator Instructions)

One moment please while we poll for questions. Richard Keim with Kensington Management.

Now there is a recent ruling in Kansas concerning exotic dancers and that they are not -- they are employed -- they are employees, not independent contractors. What's your thinking there?

Well, it's a state court ruling. There is some federal court rulings out of Arkansas. There is a -- basically right now, we're -- the rulings are about 50-50 depending on where you are and how they were interpreted and how the cases were presented. The reality of it is, at this point, it doesn't really affect us in New York at all. It's basically particular to Kansas state law. So we're watching that case. We've read it. We're looking at some of the decision the judges made and, obviously, we disagree with some of them, as does the club owner in that state. So we're watching -- continue our battle in New York and see where it takes us.

But this could -- I'm just worried that this might spread countrywide, not just New York.

Well, Like I said, this is specifically under state -- that's under state law. It's not under the Fair Labor Standard Acts claim, which most of our -- the majority of our major claim is under federal law. So this is a state law. There's two claims, of course, against us. One in state court. They're both in federal court, but one under state law; One under federal law.

So there's -- basically it's going to be two different determinations at some point, we believe. So we're just going to have to continue to go forward with it and see where we go. We think we have a very good case. Our attorneys think we have a very good case. If you look at the Arkansas case where the entertainers were ruled and federal courts ruled independent contractors based on where it's received, we have less controls, less of the factors then that case had as positives for us. So it's just way too early to tell. I think this is still a couple years down the road before what we're going to know anything in this New York case.

Have you ever run them through the -- on a balance sheet -- or on a P&L to say -- if you had to pay a minimum wage --

Well, we have counterclaims against right to offset against all of the dance dollars. There's just, at this point, there's no other way to do it. We know that if everybody was to make -- if every club was to make the entertainers employees, we have done that in our -- in one club in Minnesota. So we're familiar with it. We've got a formula for it. It's very successful for us in Minnesota and we believe that it would be -- if we were to carry that nationwide, that we -- you wouldn't see much change in the way we do business.

Okay. You had -- I'm surprised that legal fees haven't come down more rapidly.

Well, we filed a bunch of summary judgments. We have some summary judgments and some other things that we filed in this New York case. So the New York case is still running. Plus we had two new cases that were filed in Texas that we're dealing with, with the Jaguars acquisition, which added a little bit of fees in the last quarter, in the October to December quarter, so --

What do you predict going forward?

I think this quarter will probably be similar. As a percentage, it's down. We were at 3.2% of revenues. We are down to about 2.4% of revenue. I would like to see it under that, of course. I would like to see it under 2% of revenue. We will have to watch as it goes forward and continue to grow our revenues so that, number one, that the fees as a percentage of revenues continue to drop.

But also hopefully, these cases will get moved along here over the next few quarters and, basically, we're filing summary judgment motions and whatnot in the New York case. So it should be a matter of time, probably end of March, I think. Most of those have to be filed by then. Then it's just a sit and wait for the judge type deal over the summer.

Okay.

Probably be pretty light over the summer is what we're guessing. And then we just have to wait to see how the judge rules on some of the stuff and figure out on a go-forward basis how that's going to --

Now, you don't have a -- you don't have anything in New Orleans, right?

No. We don't. We have no clubs for Super Bowl this year. In fact, it's the first year in awhile we had no clubs for Super Bowl.

Let me ask you. Is -- someone mentioned that they might have seen one of your planes down in New Orleans. Is that --

One of our planes in New Orleans for Super Bowl?

Yes.

Yes. We were at Super Bowl.

With the planes?

With a plane, yes. We took a couple of our lawyers and Director of Operations and went down for that Sunday. We just flew in that morning.

What -- you have two planes?

Yes. One's just a little single-engine Cessna.

Yes.

And then the other is a Citation Mustang; very fuel efficient, lightweight, VLJ business jet.

Yes.

And then travel for myself are the pilots, so we don't have to pay -- it's not like we pay employees, additional employees to fly the planes.

How do you determine what's personal and what's corporate?

There is a Company -- there is a Company guidelines that we have to follow under the Federal IRS guideline.

Do you think it's logical for a Company your size to have two planes? Or even --

Well, it depends on the planes, obviously.

No. Allan, don't cut me off.

Obviously, it depends on the planes. There's arguments for both sides of the equation. I was flying about 200,000 miles on United. I was spending all of my time in airports. Now I spend a whole lot less time at airports and a whole lot more time getting stuff done. Are the expenses different? Yes. It's actually cheaper when I fly my little single-engine Cessna. It burns about 16 gallons an hour of av gas.

It's a little more expensive than a first class ticket when I fly in the Mustang. So you can look at your price per mile on the Mustang. But I can take up to six passengers with us, so, if we take other people, then it gets cheaper. So it really depends how many people are on each flight, the lengths of the flights. Those types of things all affect, obviously, the cost of jets.

With the tax consequences of a business jet right now, we bought the jet new. We got accelerated and bonus depreciation. We actually made about $200,000 we would have paid to the federal government over the payments and the costs and use of the jet in the last fiscal year. So it varies. Will it always be that case? Maybe not. When we look at the tax consequences of jet ownership without the benefits, it probably wouldn't be -- for a small Company like ours, no, it probably wouldn't be advantageous for us to own the jet. But with the tax benefits, we currently believe it is.

Thank you. David Kaczorowski, a Private Investor.

Well, first of all, congratulations on hitting your guidance for 20% to 30% growth. I hoped you could. That's good. To drill down on the top line a little bit, it looks like service revenue was a best performer, 28%. Can you get a little bit more granular on that? What areas of service performed better than others?

Well, with the Jaguars acquisition allowed the clubs where BYOB. So there's no liquor in those clubs. So that skews the percentage a little bit on the service revenue growth. So most of that service revenue growth is from the Jaguars acquisition.

Okay. So the same-store sales were in the teens. Your guidance from floor was 30%. And obviously for this quarter, you made up the remainder through, as you said, the new properties and new ventures. Going forward, can we expect the same stores to be in about the teens and have the --

Well, you are looking at the income growth from the same-store sales. I think income growth will hopefully stay around the same because we stopped a lot of the discounting which is helping us earn more money on the customers that we have. Actual same-store revenue growth was only about 4%, I think, or 3%. What was -- yes, about 4%. Yes. Sorry. Had to check it. Had it right in front of me. I don't want to give you a wrong number.

So you are really going to be relying on new projects in a steady stream to get to that 30%, is that right?

A firm -- yes. That has always been the plan. We grow -- most of our major growth is through acquisitions. Our revenue growth, not necessarily our income growth, but our revenue growth, yes.

Right. Okay. In the New York club, I know it's early, but any effects from Nemo that you want to share?

There was none. The New York City itself didn't really get hit that hard. I'd say they scared a few people out of town that would have come in that Friday night. But other than that, I don't think we had any effect at all in New York. I've been in New York since last Wednesday, so --.

Good thing you don't have any properties in Boston.

Yes, now Boston hit -- they got hit a little harder. Up a little north, I think they got hit a little harder, too. But the city itself, other than Long Island, I think fared pretty well.

Thank you. Bill Brown, a Private Investor.

Two questions. First of all, just in terms of earnings per share, what should we -- when you say in terms of 20% to 30%. So what do you -- should we be looking for this year, do you expect?

Well, we like -- Brean Capital analysts put out new guidance on us and have us at $1.20 a year. We are very comfortable -- $1.20 for this year, and we're very comfortable with the guidance that they put out. So I would say we're not really giving guidance at this point. But we're very comfortable with the numbers that Brean has out on us now. So if you take a look at the numbers that they've put out on a quarterly basis, I think it gives you a good idea what we think we're at, too.

Thank you. The second question is, I just want to understand -- you talked the last couple of quarters and have, in fact, been doing a good job of paying down debt. I'm -- you made a point this time on the call earlier of talking about how making actually additional principal payments on the Tootsie's in terms of trying to pay down the higher cost debt. So, but I'm just -- I wasn't sure how to interpret the recent $3 million raise and in terms of -- because that just seems to be --

Well, the reason we raised that money was for the -- main purpose of that is for the New York acquisition, to add the second New York club. So if that's -- if, A, if when we close on that transaction and as we move forward, the stock moves up, another 300,000 shares isn't going to kill our earnings per share because the new New York club will more than cover for that.

Second, we just -- we didn't want our cash to get too tight where we had to manipulate or change some other things like paying the additional 14% debt if our stock stays cheap, being able to buy that stock back. Then plus, continue on with the other projects that we already have in the works. So that was the main focus of -- and main reason for raising that $3 million.

I see. Got it.

We have $1.5 million down payment. We're estimating that it's going to be about $3.8 million or so to -- for the build-out. So that gives about $1.5 million to get all the build-out started and the rest we will just pay out of cash flow.

Thank you. Peter Keane with Keane Capital Management.

A couple questions. First, can you walk me through the metrics that you use as you try to determine your best use of cash? You've got a share repurchase authorization. You've got a priority to pay down debt. You've got acquisitions and new concepts to fund. You've got New York. You've got the build-out of New York. It seems to be a fairly complicated multi-regression analysis.

It is. It is very challenging, to say the least. It's this -- we sit down and we go -- okay, this is going on. Obviously, our stock price affects that as the stock gets closer to $8, or under $8, of course, but we put a little more emphasis on the stock buyback. The 14% debt is always on our mind because it's such a high-interest rate debt, that it sets precedent when people look at our debt and they go -- you're paying this guy 14%. I should be able to get 14%. So we want to eliminate that as quickly as we can so we go -- look, our highest debt is 10%, or 9.5%. We want to do better than that.

So it's just a delicate balance. Like I said, it's very challenging. Sometimes we have to sit and look and go -- okay, well, if we do all these projects and we do all of this and we want to continue to accelerate this debt. Yes, we can stop accelerating the payment on the debt and that would freeze up $0.5 million a quarter here, we could do these things well. We figured out that's why we raised the $3 million. We said -- well, if we keep doing everything we do, what's our cash shortage going to be?

How much do we have to raise to go ahead and continue with everything we're doing as we've got planned here right now and do this New York project? The magic number was $3 million. So that's what we raised. We probably could have raised more. We probably could have raised less. But that was the best number for us to raise, so --.

Well, as a shareholder, I vote for a debt paydown over share repurchase. Just one man's opinion. Now, changing the subject. On the New York -- on the new location in New York, you answered one of my questions just a moment ago, which is what the build-out expenses are expected to be. I think you said $3.8 million.

Yes, that's what we spent on the last location. So we are guessing this location will probably be similar. It could be a little less because construction has actually come down a little bit, believe it or not.

Can you walk us through a little bit about -- and you may not be able to get very specific, but what the -- your expectations are in terms of economics? I think your other New York location -- I forget -- correct me if I'm wrong, but next to Tootsie's, perhaps your most profitable location is your --

Exactly. We believe that over a 36-month period, that this club will grow to very similar numbers to what our current New York City location is doing. We believe it starts out in the $6 million to $8 million range first year, then grows to $8 million to $10 million, and then grows to $10 million to $12 million. Very similar growth pattern to our existing location. Our existing location now is doing about $14.8 million in annualized revenues so maybe give you an idea of what our target is (multiple speakers) --

What EBITDA margins, do you think?

On the $14.8 million, about 6.7%. So --

6.7% on the $14.8 million? Okay.

Yes. Right. So probably in the first year, you're probably talking at 25% to 30% EBITDA margin. As you usually grow, you're going to push into the 40%s.

Okay.

As you get into the later years.

One last question, Eric. The -- while Nemo didn't impact you, Sandy impacted you, because --

Yes, we were closed two days, a Monday and a Tuesday. So it had a little bit of effect. Of course, we opened Wednesday night, but it wasn't a typical Wednesday night. The Thursday wasn't a typical Thursday. I would say probably off of that location, might have shaved $100,000 in revenue. But it wasn't --

It was a -- we're rounding there in terms of EPS.

Yes. Exactly, as far as to the bottom line, a small effect there. I doubt it was a $0.01. Let's put it that way.

Thank you. Maxwell Ellis, a Private Investor.

I just want to say congratulations on a great quarter. A big fan of the Company and how you're running it. Can you hear me?

Yes. Thank you. Awesome. No, I thought you were going to say something else so I was trying to let you finish. So I didn't want to interrupt you.

I've got two questions. The first is, last quarter you mentioned you were exploring strategic alternatives with the real estate assets through an investment bank. I was wondering if you could comment on which investment bank that was and have you made any progress on how to maximize those real estate assets?

We've talked with Brean. Obviously, we have looked at some type of -- I'm sorry. Hold on. Lost my train of thought there. We're looking at some type of REIT real estate investment trust to spin that real estate into a -- publicly traded real estate investment trusts that we've basically given into to our shareholders. We're reviewing that. It's a very lengthy legal process. As we look forward to next quarter, so hopefully we will have more information on how feasible it is to do that and get that done because we've looked at basically trying to pay a dividend. When we looked at the dividend, they say the easiest way to do a dividend, from a tax -- not the easiest, but the best tax-efficient way for a dividend is through a real estate investment trust. We have so much real estate, it made a lot of sense to us.

Sounds great. Thanks for the update and I appreciate your hard work.

Thank you. Jason [Scher] with Keystone Investments.

Great quarter. Just a quick question. Can you just run down and break down the -- all of the debt and the interest rate on each? You mentioned Tootsie's is 14% and you owe $7.2 million. And then from there in descending order?

It's all in our 10-K. All of our debt is listed in our 10-K. That's probably the easiest way. The new debt that we did on Jaguars is all 9.5% debt. Other than that, I think, everything else is in the 10-K. I think the Jaguar's debt is actually listed in the 10-K because we closed on December 16 -- or September 16, I mean.

Then the other question I had for you is a lot of the stuff with the pricing of the real estate itself, how much -- do you guys have like an idea of what the licenses themselves are worth?

Well, obviously, you have to do an analysis and it's a cash flow base analysis of based on EBITDA. It's (multiple speakers) --

I figure in a lot of the markets, is there a certain amount of licenses in Houston that are available and that's it?

Well, that's why some cities are worth somewhat more than others. Like New York City, where there's grandfathered licenses, it's a license worth much more than in, say, the city of Houston where you really don't have a license any more because the city doesn't have a structure. So you are operating under these crazy lawsuits and different ways that you're -- or you are operating around licensing and those types of things in those markets. So it really depends.

It's market to market based and that's how -- when we go and buy locations, we buy them based on, obviously, barriers to entry, and what we think is the safety net of the current license, and what the likelihood of new zoning or new regulations coming into those markets, and whether that will have an effect on the existing license or not based on either a court settlement or a grandfathering deal. So it's really difficult. That's why you see some licenses have no value at all on them and some licenses have $1 millions of value on them.

Okay. So of the -- is there any way of getting a breakdown as to which of the clubs that you have would have any barriers to entry, so as we're sitting here --

Look at our goodwill. That's probably about the only way (multiple speakers)--. No, I don't think we really do because I don't think we really want to let our competitors know. Of course, when we're out buying stuff, we don't want people to know exactly how we value the other locations' licenses because we want to continue to do deals on EBITDA. Not on --

If there is any way in the future if you could just maybe identify a particular zone, let's say like in El Paso, or something like that, and let us know -- this is a market that has a certain amount of licenses whereas other ones might not. Maybe just identifying that?

We might be able to do something along those lines. I know we've gone to a new format in the Q where we break down the clubs by amount of revenue and say how many clubs we have in each revenue bracket, so --. Trying to give people that idea of different size of the clubs we own.

Thank you. Eric Beder with Brean Capital.

Let's talk about the New York club a little bit here. So how do you expect the New York club not to cannibalize the club you're at? It's pretty close, if I remember correctly. What is the different drivers of clubs that both will be successful?

Actually, it's about four blocks away. Actually, the more clubs in an area, the better the clubs do, which is why cities outlaw clustering. They make it so the clubs have to be 1,000s of feet apart and all those things. But it actually will be a different concept. Very similar to what we did in Minneapolis; the clubs in Minneapolis are 1.5 blocks apart.

Since we bought the club up there and made the chiques -- now called Downtown Cabaret, we run our -- what we call our Cabaret concept in it, which caters to a 25-year-old to 35-year-old crowd. So it's a little more trendier music, it's a little louder. It's as much a night club as it is a strip club -type deal as far as the energy levels and whatnot. So it doesn't really cannibalize the Rick's customer. It's a different customer base.

Okay. On the economics -- or do you think the economics will be the same or better or --

They are very similar. Like I said, obviously, it's going to take time to build the brand. Like I said, we think we with start out $6 million to $8 million the first year, $8 million to $10 million the second year. Keep that growth going very similar to the way we did the original New York location. It could be a little faster. We are a little more experienced in the marketplace than we were when we came here in 2005.

So hopefully, we will be able to do it a little bit faster and grow it a little bit faster than we did the Rick's location. But New York is still a tough cookie. New Yorkers are very set in their ways. They go to the same coffee shops and the same dry cleaners and the same stores, and to get them to change and do new things is tough. But I think for that 25 to 35-year-old crowd, it will be an easier transition for them.

Okay. What are you seeing in terms of the flow for potential acquisitions going forward?

We get a call -- we get calls every day. Right now, it's not a matter of what to buy. It's -- or I mean, what are we going to buy or can we buy. It's what we do, what do we want to buy. That's really what we've been searching through and taking our time. We're very patient. We're still, we think, the only cash buyer on the market. We're not really sitting on a huge amount of cash right now.

So we're even using a little bit of leverage ourselves right now, because we've launched new projects and got some other things going so that we can control our destiny on growth when we are unable to find a suitable acquisition. We're hoping that one of our new concepts where we can build basically anywhere there is no zoning restrictions. So it's just a matter of finding a great location for it and being able do those locations as well. Plus they are much cheaper to start up and operate as well.

So when you look at the restaurants that affects the overall volume this fiscal year, what should we think about in out-years in terms of opening of restaurants going forward?

I -- we don't really have additional plans for at least six months. We are going to get these ones -- get these locations open, master, make sure the margins are where -- what we expect. Make sure the flow is what we expect and we really want to be confident before we go out on a limb too much and overexpand. I mean, the biggest mistakes restaurants make are growing too quickly. That's something we're definitely keen on, and we're watching. We want -- like I said, we want to prove the concept before we try to take it to other markets at this point.

Okay.

So I don't think before fiscal year end in September, I don't think we are going to be looking to be adding a lot of new things unless we -- all of a sudden one of them takes off and goes crazy. We're just -- we're at the very beginning stages. We just had a grand opening the Saturday before Super Bowl in V Lounge, the other -- the Bombshells is not even open yet. It opens on the 17th. So it's too early for us to tell and say this concept is great. We're going to -- let's go do three more of them, so --.

Okay. In terms of uses of free cash flow, you talk about debt. Are you still buying back stock when it hits a level, too.

Yes, absolutely. I mean, you've seen last quarter, we bought back additional shares. I can't remember the exact number, but about 45,000 or 48,000, I think, in the Q. Yes. I mean, if it's out there, obviously, we are very restrictive on how many shares we can buy a day. We can't buy in the first 30 minutes. We can't buy over 25% of the average daily trade buy which limits us. Some days, we have bids out there but we -- our bids never get hit. So we are in the market. We are watching the stock. I mean, we brag at this prices, I think the cheapest clubs I can buy are our own clubs. Nobody else is selling any clubs that I know the risk under that I know exactly what I'm getting as our own.

Okay. The last question. You've talked about coming back on the discount adding the other pieces. How has that impacted traffic? Do you think there's more opportunities to raise prices? How is your thought process --

Well, really what it does, it eliminates what I call -- the people we're not making any money on. Basically, what it does, it allows us -- say, like $2 Tuesdays. We were doing $2 premiums and down. Then we went to $2 Crown and down. Now we're $2 domestic beer and wells. So we still have $2 drinks on Tuesday but the premium drinkers, the people that are spending the higher money who don't really care how much the drink is, are paying us the full price. We're still getting the other customer in there just drinking bar vodka, or bar drinks -- well drinks instead of the premium drinks. So it's helped us, and it's helped us with our cost of goods, so--.

Great. Congratulations on your quarter.

Thank you. David Kaczorowski, a Private Investor.

Okay. One more from me. You talk -- in past quarters, you've talked about getting the stock moving out of its trading range. Have you given any [sentiment or] action around investor conferences or getting exposure from the investor side?

Yes. We've been out meeting with some institutional investors, doing some non-deal road shows. We will probably continue to do that going forward. We're getting out there, trying to get the Company seen, tell the story. I think it's helping on the stocks, trading at the high end of the range. We have been trading at between $7.75 and $8.50. We seem to be trading toward the higher end of that range and then hopefully, we will break through that here shortly. It seems like we are drying up some of the sellers.

I know there's a few guys out there that have been looking to pick up some larger blocks of stock and have not been able to find them because they have called us and asked us if we can help them find them. We don't know anyone with any large blocks that are looking to get out of the stock right now either. So, but we'll keep pushing and hopefully, originally, our hard work will be recognized -- or eventually, I mean. I'm sorry.

Chris Donnelly with Pacific Rock Capital.

Eric, I just had a -- I came on the call a little late. I just wanted to check in. As it relates to the first quarter, the majority of the growth was acquisitive. I think you had mentioned 4% comps, if I heard that correctly, for the first quarter. Can you give us an update on January and February? You mentioned that you saw some accelerating trends. But if you could give a little bit more color, that would be great.

Well, that and the Jaguars, I think the Jaguars are doing much better for us in January. I think our same-store sales growth is pretty much staying about the same. We've -- like I said, we've cut back on discounting. So we are not doing as much volume. But the volume we are doing, we're making more money on, which is why you see that the same location, same great club operations increasing 12.5%, exclusive of corporate overhead. That's because -- excuse me, let me grab a drink here. Sorry, I have been sick all weekend. Trying to function with this cold and now my sinuses are draining on me.

So the same-store revenue, I am not seeing future increase on. Of course, this year, we didn't have Super Bowl in one of our cities. So February, I don't expect a big same-store sales growth in February. So we will lose about $0.5 million in revenue in Indianapolis alone. But I still think we will have steady revenue growth. That's really what we're watching right now. We want to continue to see those margins as close to 22% to 24% as we can and keep our cost of goods in that 12.5% range.

See a better cost of goods because we're not discounting the premium liquor. So that helps brings our cost of goods in line a little better. I think we're going to continue on that. Right now, with the economy, it seems to be picking up and getting better. We are seeing it in the customer spend. As long as we continue to see that, I think we will continue with that strategy at this point.

Okay. Could we focus on the real estate, on the balance sheet at this point?

Sure.

You talked about you had the potential for REIT. I think there is also a potential possibly for a sale leaseback. Is there a case for it to be made for you just to manage these properties under a long-term lease? Maybe do a transaction where you could sell these, repay debt and make it accretive to shareholders? Your thoughts on that.

The percentage rates that these guys talk on sales on leasebacks and the controls they want; this is why we own our real estate. They all realize how much those adult licenses are worth, and they want to control that adult license. If we're a typical hamburger stand and we can get decent rates and it made sense to us, I am not saying we wouldn't look at sale leasebacks with an option to repurchase the real estate at the end of the term or something. But the people we've talked to and the ones that have approached us have just been so high that it just didn't make any sense to us. We're only paying an average of 7.62% interest on the real estate debt.

I don't know how much better we could do. As a -- we do have a few pieces that are higher. As we pay those higher pieces down, then our total rate declines. So we've got a lot at 5.5%. We've got some Prime Plus One mortgages through some banks and those types of deals. So it's really -- our real estate debt is really not that bad.

What do you think the actual value of the real estate is in a sale versus the carrying value on the balance?

Usually somewhere between $70 million and $80 million.

Okay. And then final question. What do you CapEx for -- how should I think about CapEx for this year?

Typically, it's been running around 30% of our depreciation. So I'd -- maybe a little bit higher this year because we are making some investments in the Jaguar properties. But I wouldn't expect it to be much more than that.

Thank you. Ladies and gentlemen, at this time, there are no further questions. I would like to turn the floor back to management for any closing comments.

All right. And then I'll turn it over to Allan here. Thanks, everybody, for calling in today.

Thank you, everybody. Any further questions you have, you can always reach me at ir@ricks.com. For those of you in New York, I hope that you can drop by to Rick's Cabaret this evening for our due diligence event. Thanks very much.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.