The new ordinance is going to federal court sometime in September. There are a few constitutional issues at stake.
From an investment standpoint, the problem that I have with RICK is that it is in a highly competitively environment. In Houston, they no longer have a unique product. If you pick up one of the adult advertising rags at your favorite club in Houston, you will see that there are well over 60+ clubs in Houston. Of those, probably a good 25% are direct competitors with RICK. Each are targeted for the business professional. Competition is intense. In fact, dancers work in more than one club. One dancer I spoke to said that she worked both at Rick's and the Men's Club. Claiming to have a Penthouse Pet or a Playboy Playmate in your club means little if she's dancing at your competitor's club on weekends. Also, dancers in the other clubs provide additional unwritten "services" in private rooms ( much like the VIP rooms at Rick's ) where touching among other things is allowed. This has become a big attraction in Houston. But if you are a public company, you have to becareful of any illegal activities. You are under a great deal of scrutiny. Though lewdness and prostitution are difficult to prosecute, RICK cannot afford bad publicity. It harkens back to the "dirty, seedy" clubs.
What RICK needs to do is acquire clubs that are found in cities where strip clubs are few and have "dirty, seedy" reputations. RICK's strength is bringing in upscale clientele to a nice, friendly, and clean atmosphere. They need to once again be unique. The New Orleans club is a great start, but they need to do more. Thus, I was surprised that the Shiek's Palace in Minneapolis acquisition did not go through ( I assume this to be true as I have read nothing about it since the news release. This was about a year ago ).
The idea of having two Rick's in Houston was a poor idea. Most likely, they would just cannibalize each other just as Rick's is being cannibalized by the other Houston clubs. Their dance club, Tantra, is successful though like most dance clubs in Houston are temporary two year fades.
As of now, their stock is at 2 1/8, way below the IPO. Summer is their slowest months as few conventions occur within the city. I do not see a significant turnaround until the SOB ordinance issue is resolved and RICK acquires clubs across the nation. |
