You know what's sexy? Double-digit increases in same-store sales, my Foolish friends.
A 10.4% increase in same-store sales helped Rick's Cabaret (NASDAQ:RICK) achieve close to 24% revenue growth for the second quarter. Rick's recorded about $7.6 million on the top line, which management said is the highest level ever in the adult entertainment company's history.
Unfortunately, the bottom line wasn't so hot. Net income decreased 43% to $0.08 per diluted share. This poor showing was driven by a 29% increase in the cost of goods sold. Operating expenses as a whole rose 33%.
Reining in costs is the obvious opportunity here, but investors need to keep in mind that Rick's is undergoing an expansion. That'll be important for earnings going forward, and for keeping the top line moving up. That said, I would hope that management is vigorously identifying any opportunity to keep costs at a minimal growth rate. It'll also need to address the weakness in Internet operations.
I came away with a good feeling about the company when I reported on the full-year results back in January -- indeed, the numbers were pretty flashy. I still feel bullish on Rick's, even with the drop in earnings this quarter. Management believes it will earn at least $0.48 per share in fiscal 2007 and $0.85 in fiscal 2008. If these expectations come to pass, then the stock is pretty reasonable at its current price levels.
Rick's didn't achieve earnings nirvana this time around, but I look favorably on its expansion in the gentleman's-club marketplace, the trend in net sales, and the current valuation. I also believe that the adult-entertainment industry will thrive over time. Businesses such as New Frontier Media (NASDAQ:NOOF), Playboy (NYSE:PLA), Private Media Group (NASDAQ:PRVT), and VCG Holding (AMEX:PTT) are all out there competing for consumer attention, and I think Rick's Cabaret will capture plenty of sinful dollars.
For related Foolishness:
- Rick's Cabaret: A Titillating Thesis?
- Rick's Cabaret Looking Sexy: Fool by Numbers
- Memo to Playboy: Fix Publishing
Playboy is recommended in the Motley Fool Rule Breakers service. Sign up for a free, no-risk trial to see why this company made the cut.
Fool contributor Steven Mallas owns none of the companies mentioned. As of this writing, he was ranked 5,989 out of 28,794 rated investors in the Motley Fool CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.
