Should You Invest in This Strip Club Chain?

When The Juice loaded Trackstar, our proprietary sentiment indicator the other day, we were surprised to see that RCI Hospitality (RICK), more commonly known as Rick’s, surged and became the fifth most searched ticker among all stocks by institutional investors. We were also surprised to see how Rick’s – an operator of strip clubs and otherwise adult-oriented venues – markets itself.

Source: Twitter 

That’s a Tweet from an investor relations firm called Equity Animal. 

On its recent earnings conference call, Rick’s said it “hired Equity Animal to get our story out to the people directly.” Clearly, Equity Animal’s branding aligns with the business Rick’s runs in. 

No matter how you feel about the adult night club space – and this tacky, if not outright offensive marketing – it makes sense to take a closer look at Rick’s strategy. 

The Juice will hit you with some data and thoughts and you can take it from there. 

First, highlights from Rick’s Q1/2023 report: 

Source: RCI Hospitality 

• Rick’s Nightclubs segment grew revenue by 21.4%, despite “challenging” comparisons to its Bombshells segment. 
• What is Bombshells, you ask? A military-themed sports bar featuring Bombshell Girls. Think something like Hooters. 
• Rick’s recently closed a deal to acquire five strip clubs in Dallas-Fort Worth. At $66.5 million, it’s the second largest acquisition in Rick’s history. 

Promoting Rick’s Stock on Twitter!?

Alongside Equity Animal’s promotion of RICK, the company’s CEO, Eric Langan (@RicksCEO), uses Twitter to not only communicate with, but recruit investors. Here’s what Langan had to say about this on the call: 

What has Twitter done for our shareholder base? We started out — I have to go back and pull the exact numbers, but it’s between 6,000-7,000 shareholders on our owners list. I think now we’re getting close to 9,000… I saw institutional ownership dropped from 54% to 42%, and yet our stock was hitting all-time highs. This had never happened before. 

When you lose your institutional ownership, your stock crashes. But that didn’t happen with RCI. The only thing we changed was we went on Twitter. We hired Equity Animal to get our story out to the people directly, and that’s what’s changed. I can’t be more excited about how it’s going.

Some might call this a red flag. 

Institutions leaving a stock as a company hires an irreverent and promotion-focused IR firm and the CEO spends a considerable chunk of his time communicating (and promoting) on Twitter. 

Sounds familiar. However, the presence we’re referring to on Twitter already has a brand that dominates with significant growth, traction, mindshare and word of mouth in its space. Elon Musk (yes, this is who we’re talking about) doesn’t need to communicate with the people and promote Tesla (TSLA) on Twitter. At the end of the day, Musk’s antics are more of an aside and less of a focus. 

Some might view Rick’s approach as an edgy and innovative way to get the word out about a relatively small company that runs in a provocative space. Go to where a meaningful segment of your existing and potential audience is delivering the messages you want them to hear. 

The Bottom Line: We’re neutral, leaning toward skeptical on this one. While we can’t recommend Rick’s, The Juice thinks the company’s tactics are, at best, mildly interesting. At worst, they’re a sign that the business isn’t strong enough to stand on its own, thereby requiring the type of presence and promotion we often see associated with penny stocks.

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