RCI Hospitality Holdings Inc (RICK) 2014 Q2 法說會逐字稿

Greetings and welcome to the Rick's Cabaret International second-quarter 2014 conference call and webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Gary Fishman, investor and media relations for Rick's Cabaret International. Please go ahead.

Thank you. I just want to remind everybody that our Safe Harbor statement is posted at the beginning of our conference call presentation. It reminds you that you may hear, or see forward-looking statements that involve a number of risks and uncertainties. I urge you to read it.

Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments which occur afterward. I also urge you to read the explanation of non-GAAP and adjusted EBITDA measurements that we use and that are included in our presentation and news release.

Finally, I would like to invite everyone in the New York City area to stop by Vivid Cabaret in New York tonight at six o'clock for a firsthand look at one of our newest clubs. Vivid Cabaret in New York is located at 61 West 37th Street between 5th and 6th Avenues. If you haven't RSVPed already, ask for my name at the door. Now here is Eric Langan, President and CEO of Rick's.

Thank you for joining us today. Also on the line with me is Phil Marshall, our CFO. To get started, please turn to slide number 4.

We are pleased to report record results for the second quarter ended March 31 with GAAP EPS fully diluted of $0.37 per share, up 27.6% year-over-year. Non-GAAP EPS was $0.45, up 12.5% year-over-year. Results were driven by revenue of $32.9 million, up 14.4% year-over-year, and an operating margin of 22.7% versus 21.5% in the year ago quarter.

Cash-generating power of the Company was very strong, as reflected by our adjusted EBITDA. It reached $9.2 million, up 23.1% year-over-year.

This quarter we also introduced a new disclosure item called preopening costs. And this will include all expenses incurred before a new club or restaurant opens for business, so that investors can get a better understanding of our core operating profitability.

This was a turnaround quarter for us. Everything we have been working on this year is starting to come together. With the opening of the Vivid Cabaret in New York and the Bombshells in Webster, Texas, and the other new clubs and restaurants launched or acquired over the past year, we have reached a higher level of revenues.

In turn, this has expanded operating margins and profitability to record levels. The pro football championship game in New York City certainly benefited us, but our organic performance countrywide, excluding our Club Onyx units, was more significant. We are already seeing improvements in the Club Onyx brand as a result of steps we have taken, and we expect to see -- we expect to continue to see strong revenue numbers for the clubs and restaurants going forward.

For the balance of the call, I am going to go into more detail on the second quarter. Then, we have got a number of updates on the new clubs and restaurants, the Club O acquisition, the private REIT that is being set up, how our Board of Directors approved a stock repurchase program and expanded, and how we are also exploring a dividend possibly in the future. And, of course, we will update you on our fiscal 2014 guidance.

Please turn to slide number 5. Total revenue for the quarter reached a record $32.9 million. This improved markedly over the $27 million to $29 million quarterly revenue range that existed since the first quarter of 2013, when we began benefiting from the Jaguars acquisition.

2014 second-quarter revenues included $5.6 million from new adult clubs and restaurant sports bars. This includes approximately two months of both Vivid Cabaret New York and the second Bombshells in Webster, Texas, a suburb of Houston.

Same-store sales were $27 million, or down 1.1% year-over-year. Major brands showed year-over-year improvement despite severe weather -- winter weather, particularly in Texas, with the exception of our four Club Onyx units. Excluding Club Onyx units, same-store sales were up 3.8%, reflecting initial benefits of our post-recession strategy of increasing pagers from bigger ticket, higher margin customers.

Clubs and restaurants, in particular Rick's Cabaret in New York and Vivid Cabaret in New York, benefited from the big game in early February and, to a lesser extent, the Big East College basketball tournament. Nonetheless, both New York clubs built momentum during February with Rick's Cabaret -- I mean, with Vivid Cabaret in New York's March sales higher in March than they were in February, and Rick's Cabaret New York's March sales representing 35% of the unit's quarterly take.

Please turn to slide number 6. Operating margins reached a quarterly high of 22.7%. That is up from 21.5% a year ago and a quarterly average of 19.6% since the first quarter of 2013.

Compared to second-quarter 2013, margins primarily reflected increased operating leverage. Salary and wages fell to 20.9% of revenues versus 21.4% in the year ago quarter. And legal and professional fees fell to 1.3% from 3.4%.

In turn, this was partially offset by insurance, which increased 3% -- to 3% of revenue from 2%. Insurance costs increased due to the Company's growth and, of course, industry factors.

Rent and interest combined, which is how we evaluate our true cost of occupancy, was 9.4% versus 8.8%, with the rent portion 3.5% versus 2.7%, but the interest down to 5.9% versus 6.1% a year earlier. Rent reflects the addition of the Vivid Cabaret in New York and the Bombshells in Webster, and the previously disclosed increase in the Rick's Cabaret in New York.

Turn to slide number 7. Operating income hit a record $7.5 million in the second quarter of 2014. That is up from $6.2 million in the second quarter of 2013, and up from the quarterly average of $5.5 million since the first quarter of 2013. This helped drive adjusted EBITDA to a record $9.2 million compared with $7.5 million a year ago, and a quarterly average of $7.1 million since the first quarter of 2013.

Turn to slide number 8, for a review of our balance sheet. You will see we have reduced our debt by $4.7 million, $3.6 million of which was cash and $1.1 million that was converted into stock. Our debt paydown included another $800,000 of Tootsies related notes, which is our most expensive at 14%. We have paid down $1.6 million of Tootsies debt year to date and we have $3.7 million remaining on that debt.

Shareholders equity hit a record $105.3 million, up from $100.1 million at December 31. This primarily reflects an increase in retained earnings and our total assets also rose.

If you look at slide number 9, as you can see, we are adding a number of new units, both adult clubs and restaurant sports bars. For the balance of fiscal 2014, we have at least four sites in active development. All, as it happens, in Texas and one acquisition that has been announced.

We have one Gentlemen's Club in active development, which is Rick's Cabaret in Odessa, that is expected to open once the new water well permit is received. I would just like to point out that Odessa is the capital of fracking in Texas. It has been ranked as the country's second-fastest growing metropolitan area in personal income for the past three years, up 6.98%. Once it is up and running, we anticipate Rick's Odessa will be one of our top clubs.

We have the Club O acquisition, which I will go into more detail in a minute, and we have three Bombshells sports bars and restaurants in active development: one in Austin, Texas, which we expect to open in the third quarter of 2014; south Houston, which is targeted to open in the fourth quarter of 2014; and the Spring, Texas location, which is a suburb of Houston just south of The Woodlands. This is slated for the fall and this unit replaces one that was originally planned for Beaumont, Texas.

We are currently working on additional restaurant sports bar locations and our objective is to have 10 locations open or in development by the end of calendar year 2014. Principally clustered in Texas, but others possibly in select cities that have significant tourist and convention traffic.

If you will turn to slide number 10, we have been in the sports bar restaurant business for about a year now, and we have two in Dallas and one in Houston, two of which are Bombshells. Bombshells is getting good reviews. Recently, it was named the number one restaurant of its kind by a top young men's site.

We are continuing to refine the concept and evolve the model, and we are now looking at an approximate investment of $1.2 million to $1.8 million per unit, a $3 million to $4 million in annualized revenues per unit, and operating margins that we expect to expand as we continue the number of units to 15% to 25% of revenues.

Bombshells in Houston is performing very strongly since it opened in late January, and its revenues have been rivaling many of our adult clubs. As warmer weather hits the Dallas-Fort Worth market, we are able to get the patios back open, and those two units there should be generating similar revenues to the Houston store.

So turn to slide number 11. We also want to update you on the Club O acquisition. Club O will be a major entry point into the Chicago market. We are in the process of transferring licenses and, once this is complete, we expect to close the transaction. As we have disclosed, the cost will be $11.06 million, including the $2 million for the real estate.

Let me give you some background on Club O. This is in a suburb just south of Chicago and it's highly visible just off an exit of Interstate 294 and Highway 80 -- or Interstate 80. The actual club itself only 25% occupies of its 56,000 square foot, building and this is where we got the idea to more fully utilize the facility by converting it into our highly successful Tootsies Cabaret mega-club format, which is our largest and most profitable club. During the construction phase and expansion phase, Club O is expected to remain open generating revenues.

If you will turn to slide number 12, as many of you know, we like to own our real estate for many of our adult clubs. Rules often require the license to be physically tied to location. Owning this real estate makes our balance -- makes our income statement balance sheet look different than many other fast-growing restaurant bar chains.

To solve this problem, we have been exploring the concept of developing a private real estate investment trust. I am pleased to report that a private real estate investment trust has been legally formed, and the Company is in the process of moving forward expeditiously with it. The potential benefits of the REIT could include a major favorable liquidity event for Rick's, cash for making acquisitions, funding restaurant development or paying down higher-priced debt. Rick's is becoming more of an operating company with a significantly higher return on equity and would make us much more comparable to other publicly traded restaurant bar chains.

Turn to slide 13. I'm also pleased to report that the Board of Directors has approved an increase in available repurchase authorization to bring our total available for repurchase up to $10 million. In addition, the Board has begun exploring the feasibility of a dividend. And here is our thinking.

With our new higher level of sales, we believe we are going to generate much higher levels of cash. This will enable us to pay off our higher-priced debt. As mentioned earlier, only $3.7 million on Tootsies debt remains and so this will give us much more cash flow.

Turning to slide 14, to wrap up, we want to update our guidance. Based on the first half performance and expectations for the balance of the year, excluding acquisitions, we continue to target this fiscal 2014 revenues of approximately $130 million. The level of second-quarter 2014 quarterly revenues is anticipated to rise in the second half due to five major factors: improved weather compared to the second quarter of 2014's adverse conditions. This affected sales particularly in Texas.

Major sporting events: we had a nice a boost from the college basketball early April Final Four Championship in the Dallas-Fort Worth metropolitan area, where we have 14 adult clubs and restaurants. In July, major league baseball's All-Star game will be played in Minneapolis, home of two of our major top clubs. Full quarter of operations for Vivid Cabaret New York and Bombshells in Webster, and improvements already underway in the Club Onyx unit.

April same-store sales, including Club Onyx, were up 4% compared to a year ago. Opening of the Rick's Cabaret in Odessa and at least one or two more Bombshells in this fiscal year. With the first six months of 2014 behind us, we now have a better handle on what we are planning in terms of preopening costs and expect them to be higher in the second half. We also anticipate additional one-time legal expenses in the second half.

In total, we anticipate that margins will be affected by approximately $2 million to $3 million in higher preopening and legal costs in the second half. As a result, we are refining our guidance for fiscal 2014 to EPS GAAP moves to $1.10 from $1.20 versus -- I'm sorry, versus $0.96 in fiscal 2013. And the EPS non-GAAP moves to $1.60 from $1.70 versus $1.40 in fiscal 2013.

Altogether, this will result in good double-digit growth access across the board. Revenues would be up 16%, GAAP EPS up 15%, and non-GAAP EPS would be up 14%. I would like to note that this guidance does not include the acquisition of any adult clubs such as Club O, although such acquisitions are part of our longer-term 20% to 30% annual growth target.

With that, let's open the line for questions, operator.

(Operator Instructions) There are currently no questions. I will turn the call over to Gary Fishman.

Pardon me. There is one question now from [Nate Rasmussen, DeCount].

Congrats on the quarter. Things look pretty good. I haven't had it chance to go through the entire press release yet, but was just curious regarding the preopening expenses and the legal expenses. Can you breakout break out the $2 million to $3 million higher -- which ones are one-time and which ones are pre-open on -- I mean, which ones are legal and which ones are pre-open? And if you could kind of discuss why those are little bit higher as well, thank you.

Sure. Well, even the preopening are one-time expenses as far as for those particular units. Unless we do more units, they wouldn't repeat in another quarter. But, basically, we are looking at several of the lawsuits that we have had out there, and we have been trying to -- really want to try to wrap some of those up at the end of this -- by the end of this year.

Now, I can't, of course, guarantee that we will settle anything, but we are looking to. And so I just wanted to be prepared for it. We have also -- going to have a little bit higher legal costs while we sort out these insurance claims with IDC -- or IDEC. So as we work those out, so that's going to add a little bit of legal cost as well. So we want to be prepared for that.

And I just want to be very accurate on our numbers and our guidance. This is the first year we have really brought guidance back. Probably in the next quarter we will try to get guidance for 2015 out there going forward, and, like I said, we just want to be very accurate on our numbers. And with these expenses coming and our models show us that, by adding these expenses, that we will need to -- our earnings will come in in line with the numbers that we put out today.

Okay. And, as far as maybe -- and it's probably too early to tell, but having the new Chicago club and the openings of the additional restaurants in the clubs in Odessa as well, I would imagine we can -- you are seeing pretty good leverage with margin expansion. I would imagine we will see [15] earnings growth, possibly higher than [14].

Oh, I believe definitely. Yes. We are definitely going to continue to see earnings growth. And you're going to have clubs that weren't even open a full year, they are going to have get full year's worth of revenues and earnings. You're getting the growth of Vivid in New York City as well.

So we are definitely going to see much higher numbers, I think, in 2015. I think our run rate's expanding each quarter. So we are going to try to continue to keep that growth rate going and we just want to be -- as open to investors as we can on exactly where we as management believe our earnings are going to come in.

Bill Brown, a private investor.

Just a few questions. First of all, I just want to be clear. Did you say at the end that the $1.10 for this year does not include closing on the Chicago club? Is that right?

That is correct. Yes. We never include acquisitions in our guidance until we actually close.

Okay. And would you anticipate, assuming that we do close, would you anticipate at the time of that closing updating guidance or would you just wait until the next quarter?

We will probably wait until the next quarter to do any type of guidance update.

Okay. I just -- sorry -- couple more; anything in terms of getting any traction in LA?

You know, we are starting to pick up. Our guy from Phoenix is overseeing the club now. We have changed the format up a little bit and the numbers are getting better. It is not a home run, but it is not a strikeout anymore, either.

So we are kind of in the middle right now, and as we go for the next 3 to 6 months, we will start getting a better feel for exactly where it is headed. But it is going in the right direction. It's going in a better direction, I should say, than where it was. So we are happy with it.

Okay. You mentioned Bombshells; nothing on the Ricky Bobby's. Are we holding off on that pending what is going on in terms of litigation or are we -- is that just coincidental?

No, the litigation is -- we have reached a settlement agreement on the litigation. We are waiting for the final doc to get it all complete. We're going to end up changing the name Ricky Bobby's to another name, just to avoid the legal hassle.

Out of the two concepts, the Bombshells concept works much better for us. We like that concept a lot more. It appeals to a much broader customer base than the Ricky Bobby's did anyway. We will probably change the name of Ricky Bobby's to another race type name and keep that one. It will just be a one-off for us, basically. And then the Bombshells locations will be the locations that we continue to expand.

Okay. And last question, just in terms of visibility and going forward, the question is in terms of -- in the last conference call, where it looked like we were tracking also close to 4%, and then we ended up the quarter being down and I guess as the Club Onyx was such a drag.

Is there anything different from last quarter, to this quarter, that you would say, well, that was the reason why it wouldn't necessarily -- in other words, this time all speakers saying that we are tracking so far around 4% same-store sales midway through the quarter. Why do you think last quarter would be different than this quarter?

Sure. The NBA All-Star game was in Houston, which was a big effect on the Club Onyx brand. As well, the Club Onyx brand had a really, really rough March overall, and even in February. Philadelphia was affected by severe weather. Charlotte had some weather. Even Dallas and Houston had a little bit of weather.

But the Onyx brand itself had some other issues -- management issues that we have now worked on and are changing in the process. And we are seeing, like I said, a pretty strong April. I think we will continue to see the Onyx brand continue to improve through May and June and then run pretty good through the rest of the year.

I think (multiple speakers) -- so I think the same-store sales will continue to grow. I don't see anything -- June over June numbers, looking at last June and this June, there is nothing surprising in June. There is nothing surprising in May. There is no big one-time events last year to affect them. But I think now we are going to be on that 4% growth rate. I hope we can continue that.

Great. Thank you.

Steven Martin, Slater Capital.

Am I doing something wrong? I have been unable to find the slide presentation.

That I don't know. You are the first one that has told me you can't find the slide presentation so, hopefully, they have it up there. We will email it over to you, Steve (multiple speakers).

Okay. Can we go back to Club O and can you -- what is the financing going to look like? And what do you expect the run rate to be prior to getting it converted?

Sure. I think the run rate is probably around -- between $80,000 and $100,000 a week in sales right now.

Right.

We hope to increase that considerably when we first take over by -- of course, with our branding and the excitement of us coming in. The club has been owned by the same owners for a long, long time. They are ready to retire and get out, so hopefully that will bring some excitement. We will bring in some fresh faces along with all the staff that is there now, so we will just complement what is already existing and keep it going. So I am very excited about that.

The financing is real simple. It is $4 million in cash. We have got the cash in the bank, so it is being financed out of our own cash. The shares we are issuing restricted stock. It has got a one year hold on it, or six months' hold, I mean. After six months, [one-sixth] a month can be sold into the market or sold to back the Company depending on the stock price at the time. And the rest is a long-term 4% note, or it was a 5% note. I can't remember; but very, very favorable interest rate for us on the remaining balance.

Okay. Can you talk about -- you made some comments about the Vivid New York club. Can you talk about where the run rate is headed and what it looks like, if you had to guess what it is going to be on an annualized basis? Is it too soon or do you have some idea?

It is pretty early. It is pretty early. I mean, typically, it takes these clubs about 6 to 18 months to ramp up, until you figure what their run rates are going to be. I can tell you, we are doing in excess of $500,000 a month in sales already, so we are already over $6 million run rate. I am going to guess that the first year is going to come in close to $8 million, which is pretty close to where we thought it would come in at.

I figured we would come in closer to $6 million, but it looks like we will come in closer to $8 million for the first 12 months. As we get into month 18, hopefully, we will start seeing like Rick's in New York. I noticed about 40% ahead of where Rick's in New York opened up at in 2005, when we first opened it. So, very excited to see that we have opened up with so much more potential than even the Rick's location did when we opened it back up in 2005.

Now, have you seen any impact on the Rick's club from the Vivid club? So if Vivid has a good night, does that mean Rick's didn't?

No. Actually, it is exactly the opposite. The better Vivid does, the better Rick's seems to do. We always said that people like to club hop, so the reason they pass all these ordinances to hurt the adult business -- keep the adult business apart is because, basically, the more clubs that are in a congested area, the more and more business that comes to that area. So the area gets congested with adult business.

And we are seeing that in this case, too. Vivid did very, very well in March and Rick's did even better. We have seen no slowdown at ricks Rick's at all and I don't anticipate that Vivid will slow Rick's down at all.

First of all, it is a little bit of a different customer demographic. We probably only share about 25% -- maybe 20%, 25% customer demographics between the two locations. And you go to Rick's for a different experience than you go to Vivid for.

Okay. And the Vivid club and, obviously, it is still sort of shaking out, but how do you think the operating margin is going to look?

It is going to be very similar to Rick's. They are going to run close to the 50% range.

Okay. The note paydown in Tootsies, you are paying that down pretty aggressively. How soon do you expect that to go away?

Well, if we continue on the current course and we don't make any additional principal payments other than what we are making right now -- we are paying an additional $170,000 a month, so $540,000 a quarter in additional principal right now. So basically, at [$800,000] you would be looking at four more quarters. Just depending on how everything goes, we may speed that up a little bit if we don't have other things to do with the cash.

If we find other things to do with the cash, as far as additional acquisitions or whatnot, we will probably stay right on course with what we are doing right now. So I would say it will be paid off in the next 12 months, for sure.

[Louis Luther, Essex Investors].

I was wondering what your thoughts are in terms of the timing of any possible conversion to the REIT?

Well, it actually -- what it will actually be is a sale to the REIT. The Rick's itself will stay an operating company and publicly traded operating company. And what we are going to do is we will sell the existing real estate into a privately owned REIT that will then enter into a management agreement with a subsidiary of Rick's to manage the assets of the REIT, as well as entering into the long-term leases with the operating entities, so that the operating entity continues to control the property through the lease.

All right. So what you are saying is the Rick's public shares will stay as is?

Yes. Yes. The Rick's public shares will stay as is. And what we will do is we will get a large influx of cash. We estimate we have somewhere between $90 million and $100 million in real estate with about $40 million, $45 million in debt against that real estate. So basically, about a $40 million equity that we would like to basically cash out and bring that $40 million-plus -- $40 million to $50 million in cash into Rick's so that we can do expansions, pay off high interest debt, and look at our -- and fund a stock buyback, possibly.

What is your general feeling about the price of the stock? It is at $10.44 right now.

My personal feeling is it is extremely cheap. I mean, if you look at our EBITDA numbers and you look at the multiples of EBITDA that we trade at, and you look at any other restaurant company out there, you look at any private transaction of restaurant companies out there, nothing trades as cheap as we trade right now.

Why do you suppose that is?

You know, I think we have been misunderstood for a long time. I think the people -- we went from an acquisition growth to a build growth and now we are kind of mixed where we are buying existing and building new.

And I think we just haven't gotten the -- before the recession, we were basically pretty high-flying, had a pretty high multiple. And we just never, basically, recovered from that. So I think it is just a matter of getting out there, keeping the story going, keeping the growth going. As they say, eventually the stock is going to trade on the numbers, so I don't think it stays this cheap forever.

With that opinion you just gave, what would it take to do some of the buyback if you -- you said you were considering doing some buybacks of the stock.

Yes. We just recently had the Board increase the buyback to $10 million. As we roll some of this real estate out and bring the cash into the Company, and that cash starts to build up on the balance sheet, I want to be -- the ability to buy the cheapest assets out there. And if our stock is the cheapest asset out there that we can buy, that is what we are going to be buying.

That sounds good. Also, have you done anything or made any attempts to get some more analyst coverage in stock? I mean, it is over $10. My experience over 40, 50 years, actually, has been that companies that do well and are not noticed, the stocks languish. And it takes something -- a recommendation or some sort of -- I don't know how to describe it, but it would seem to me that stock is way, way undervalued. And has Rick's -- the management tried to get any more Wall Street coverage of the stock?

We are talking to people. The problem is, the system is broke right now for small-cap companies in that, the way that they are compensated for doing stuff -- for providing analyst coverage in that, they also want to do banking business with us. And with Rick's generating so much cash flow, we are not your typical company where we need to go out and raise capital all the time, which makes it very difficult to create that banking relationship.

We have looked at paid analyst coverage and we don't really see the true value in paying somebody to recommend our stock. So we basically avoided that at this point. We go out, we do road shows. We are doing some presentations throughout the year.

But, basically, I think we have had a couple of quarters where expectations were a little higher. We were in a growth mode, getting Vivid New York open. I think now that the numbers are going to start increasing, and they start seeing the sequential increase in revenue quarter after quarter and the bottom line margins continue to expand, I think that that will wake people up to the value of the stock.

Yes. I think so, too. And, as I say, my experience is mainly with the small-cap companies, which I have done very well. I have 10 other investors that pretty much follow what I say in terms of recommendations. And I think I'm going to talk very positively about Rick's.

I like what you are saying on the conference call, in a number of areas. I will say that once the stock is discovered, all the years that it languished, within a month is made up for. So I certainly hope that is --

I certainly hope so. We have been waiting a long time this time. We had a few -- I have been with Rick's since 1999. So we have had a few cycles -- up and down cycles and this has been a long stretch this time. So I am hoping.

I mean, like I said, we keep putting the results out. We keep doing what we are doing. We run the Company first, we operate, then we run the stock second.

I mean, when we make decisions, we are more interested in the long-term growth of the Company and what is going to continue to generate more cash flow and more dollars for the Company, because I am a long-term stockholder. Never really sold a share. Even when I have had stock option, I have always had net gains on any options I have exercised. I believe in this Company for the long haul and I will continue to do so.

Thanks very much for answering the questions. I appreciate it.

[John Rolfe, Argon Capital].

There was a story out last week that the controller there in Texas was starting to push for some of the club owners to start making payments on the group poll tax. Could you give any color around whether, from your perspective, there has been any change in terms of the status quo or the state's aggressiveness in going after those tax payments? Or has it just sort of been business as usual with respect to the poll tax and the request for payment?

Sure. I can tell you exactly what they have done. They sent a letter stating that we need to pay by sometime in July. We are talking with our attorneys now. The third quarter of appeals, I believe it is, issued a ruling two days ago. It is being reviewed by the attorneys now. Obviously, we can't comment too much on ongoing litigation.

I can tell you, we have made no payments other than the first three quarters or five quarters -- whatever we paid, the $2.6 million we paid in originally. We are going to be meeting with the attorneys over the next month or so. I believe that, one way or the other, we have already expensed it all, so it is strictly a cash flow issue for us. It has nothing to -- it is not going to affect our earnings per share. It is not going to affect our guidance or anything like that if we start paying this deal.

There has already been talk of payment plans and ways for the state to collect the money. What they really want is to collect the money. They don't want to put everybody out of business. And we will just have to wait and see. I don't know where we are going from here, if we are going back to the same court for a full panel court or if we are going to Supreme Court or whatnot. But, as I know more, we will try to get the news out to everybody.

(Operator Instructions) Bill Brown.

First of all, on the REIT, I'm sorry, I didn't catch. Can you help -- just help us understand maybe some next milestones we should be looking for and timing on how you see it going down?

For Rick's -- basically, the next steps for Rick's would be we will start announcing sale of assets. Obviously, it has got to get real estate appraisals and that type of stuff. The REIT itself will have to be funded -- start being funded.

So once those things start happening, I would say probably the next conference call we are going to have a pretty decent update on the REIT and where we are going. And you may see -- if the REIT -- certain amount of funding starts coming into the REIT and we start moving some of the assets from the Rick's balance sheet to the REIT, then we will see that.

I think the first step is going to be probably to close on the New York -- try to get the New York club real estate purchased, so we can get out of that lease that we are in now and have the REIT become our landlord instead of the current landlord there. And then probably from there, we will take a couple of fully owned -- wholly-owned properties that Rick's owns where we have -- we own the property -- 100% of the property right now with no debt on it. Probably move a couple of those pieces into the REIT so that we can pull some large chunks of cash into Rick's and pay off -- first, probably pay off long-term debt that is at a much higher interest rate.

So we would actually lower our expense on that. And that is what we are really looking to do is -- through the REIT, is actually lower our cost. We would like to see the REIT be able to pay about an 8% yield, which will basically mean Rick's will pay about 8% on all of our stuff.

As rent, right.

Right. It would be rent expense for us. Right.

Right. And, as far as the liquor license associated with each of the properties, they would just transfer over to the REIT?

No. Absolutely not. All the operating companies will stay. The only thing that will transfer is actual real estate. Real estate investment trusts have to have 85% of its assets as true real estate. So the operating companies will stay with Rick's.

So all the licensing, all the adult licenses, the liquor licenses, everything will all stay with Rick's. Only the real estate -- the dirt and the building and basically permanent fixtures will transfer to the REIT.

That's great. Something to be highlighted, for sure. That's great. And, last question, also just a timing question. Any idea in terms of the -- when you said the Board is starting to explore about a dividend -- I mean, again, something I strongly support. Any ideas in terms of what you are thinking in terms of timing to at least think about and/or make a decision?

Yes. I think we are going to see how the next quarter goes. We're going to keep talking about it. We are looking at our long-term debt and what we can do to reduce some of that long-term debt, especially the high interest debt.

I think once our high interest debt is paid down, and as we take in -- depending on how quickly the REIT grows cash into the Company, whether the stock price -- what the stock price is, whether we should -- whether it is better to buy back stock or dividend out the cash, those are the kind of things we're going to weigh out. And let's probably take it on a quarter by quarter basis here for the next couple of quarters and try to figure out what is the best deployment of that capital.

Max Ellis, private investor.

Congratulations on another great quarter. Happy to hear forward progress on the dividend REIT. A lot of my previous questions have already been answered, but one of the questions I do have is, I know a lot of the country has seen some adverse weather over the past quarter. How do you see that affecting -- or how did that affect any of the quarterly earnings?

The weather, you know, in Texas it was pretty rough. I don't want to put a number to it because it is really hard to say, because we had days where people stayed in and then maybe did a little better on the weekend, but we had a really rough week overall.

We did lose -- the one quarter we lost the whole weekend. And that was pretty easy to monetize. When you have no business for a Thursday, Friday, Saturday, and a Sunday, it is pretty easy to monetize what that cost.

And it is really hard to say overall because -- and, of course, different areas of the country were affected at times by the weather. So it is really tough to say. I think, overall, it hurt us.

And I think we have seen that in April when the weather kind of straightened out everywhere and we had a really, really strong April across the board. The first week of May was good. This weekend is Mother's Day weekend, so it is always an off weekend as far as what you are looking at. But year-over-year, it was a decent weekend still. So we are still excited about our year-over-year numbers continuing to grow.

I think we should get back to that flat to a 4% same-store sales growth, which really has become our internal target. We're going to continue to try to keep that 4% number going and then just keep adding new locations.

Okay. Good to hear. Sorry to hear about the planning -- of leaving the Ricky Bobby's (multiple speakers)

Yes. We got out of it for -- I mean, basically, we're going to turn over the trademark rights and whatnot. And we have given them, I would call it, a token payment for some of their legal fees, very small amount of money.

We could fight it. We could probably win. We have talked to enough trademark attorneys that we probably could win it. But we don't need to battle.

The Bombshells brand is our brand. If it was our brand that we were going to grow 50 of them, okay, I would say we would stand and fight. But it just doesn't make sense when it is not going to be the brand that we are going to use. The Bombshells brand was so much more popular, so much more profitable, and much more well perceived that that is where we are going to put our time and energy.

Got it. I just have one final question for you. I know you were considering issuing a dividend. Is that more to return capital to shareholders or is it that you don't see the market for acquiring new clubs as undervalued (multiple speakers)?

We are going to be generating so much cash and getting such a huge influx of cash from the REIT right now to do expansions with. The high interest debt is starting to get paid down.

It may be another six months or 12 months before we actually start paying a dividend, but I want to start exploring it. I want to start getting feedback, of course, from shareholders as well as from my Board. And it is one of the things that has been brought up at the last two Board meetings that we have had. We have been talking about what is the right thing to do on dividends and cash deployment.

One of the things -- you know, I always said, look, our stock is so cheap. Let's talk about buying our stock back. And that is where we ended up with $10 million in stock buybacks. So we bring in $40 million in cash from this real estate in a very quick time, we just don't know how quickly the REIT is going to fully fund.

And the other thing we want to do with the REIT, of course, is buy additional club owners� real estate. So it is not just going to own Rick's real estate at some point, it will own real estate of other adult club owners as well. And the other nice thing is it takes off a lot of the debt off of our balance sheet.

Got it. Well, thank you again and congratulations on a stellar quarter.

There are no further questions at this time. I would like to hand the call back over to Gary Fishman for any closing comments.

Thank you, operator, and thank you, Eric. I just wanted to remind everybody again that we do have a due diligence event at Vivid Cabaret New York a little later from 6 to 8 o'clock. The address is 61 West 37th Street between 5th and 6th Avenues. If you have not RSVPed, ask for me at the door.

Until then, we look forward to reporting our 2014 third quarter sales in July and our third quarter results in August. Thank you, and good night, everybody, and thank you also for listening.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.