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Since they are a publicly
held company, opening a club in New York City has enabled Ricks Cabaret
International to gain exposure to Wall Street, giving stockbrokers and analysts access to
their product
Services
Restaurants
(RICK-NASDAQ)
Ricks Cabaret International, Inc.
10959 Cutten Rd.
Houston, TX 77066
Phone: 281-397-6730
Eric S. Langan
Chairman, President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
June 15, 2006
BIO:
President & CEO Eric Langan joined Ricks Cabaret in 1998 and became chief
executive in 1999. He has steadily expanded Ricks operations, growing revenue and
profit, opening a flagship club in Midtown Manhattan and building the first national brand
name at the high end of the gentlemens club sector. Ricks Cabaret fills a
market void for first-class adult cabarets serving discerning executives and professionals
in a pleasurable ambiance with a relaxed, conscientious approach to customer service. The
company has been featured in profiles in The Wall
Street Journal, Corporate Board Member,
Smart Money, Forbes, USA Today, The New York Times and
many other publications. Time Out New York magazine includes the new Ricks
Cabaret-NYC restaurant in its TONY 100 list of fine dining establishments.
Company Profile:
Rick's Cabaret International, Inc. operates upscale gentlemens clubs and
adult-oriented Websites. Founded in 1984, Ricks Cabaret was the pioneer in the
creation of elegant gentlemens clubs featuring beautiful topless dancers in a
cabaret setting along with first class restaurant service. Ricks Cabaret completed a
successful IPO in 1995 and is listed on NASDAQ under the symbol RICK. Ricks Cabaret
has built powerful brand name awareness for its high quality adult entertainment featuring
beautiful women. Thirteen performers from Ricks have become Penthouse Pets (three have been named Pet of the
Year) while three have become Playboy Playmates,
including Anna Nicole Smith, who met her late husband while dancing at Ricks.
CEOCFO: Mr. Langan, what was your vision when you started
with Ricks Cabaret and where are you today in that vision?
Mr. Langan: When I started Ricks in 1998, they
had purchased my company and I envisioned being the COO and running the day-to-day
operations of the nightclub business. In March of 1999, I had ended up with the position
of where I owned the majority of the stock. I sold one of the clubs to the founder and
took over as chairman and CEO. From that point, we envisioned growing and creating a
national brand. It has been a long ride for about seven years now. When I first took the
company over, we sold one of the locations to the founder, and about a third of the
management staff left the company and went with the founder. We were a little short on
management, so we had to do a building process, which I think we have done well. We have
now expanded into New York this past September and we are on our way toward creating a
national brand.
CEOCFO: I know you have
different names for your clubs, how does that work on the national branding and why is it
done that way?
Mr. Langan: We are branding the Ricks name and
Ricks Cabaret as our upscale venue. We also have four slightly downscale clubs
called XTC Cabaret that operate a little differently and feature all-nude dancing. Most
recently we have created the Club Onyx brand for the urban gentleman. But the
national brand that we are creating is Ricks Cabaret, basically a business traveler
and tourist destination location.
CEOCFO: What is Ricks
Cabaret?
Mr. Langan: Ricks Cabaret is a nightclub
featuring a cabaret show and an upscale restaurant, with lots of beautiful women to
entertain you while you are there.
CEOCFO: What is your
demographic and how do you expand it?
Mr. Langan: The demographic is changing so rapidly in
the past three or five years; it is amazing. It used to be predominantly 33-55 year-old
white males; today that demographic has expanded to 25-65 year-old males of all races plus
an increasing number of couples and single females that now frequent the cabarets.
CEOCFO: Why has it
changed?
Mr. Langan: The industry has changed a lot. Twenty
years ago, topless bars were mostly seedy strip joints, kind of hidden in the back alleys.
Today, the upscale cabarets are multi-million dollar venues with high quality sound and
lighting systems. They are more cutting-edge and trendy, with full liquor bars and very
plush surroundings. I think that has attracted a trendy crowd.
CEOCFO: Is the topless
dancer more in the background than it may have been previously, and how do you get away
from the stigma attached to such places?Mr. Langan: Twenty
years ago you went to what were typically called strip clubs; they were certainly not
gentlemans clubs. You went there to see naked or semi-naked girls, and that was the
purpose of going. Today, we have changed the market in the sense that you are not
necessarily going to see the girls; yes, they are going to be there and yes it is the
reason you are going but in todays market, people need a primary reason to go. For
example, we have big-screen TVs and we are showing the big sporting events; we have VIP
nights for specific industries, and on those nights, it is the place to see and be seen.
We do spectacular lunch specials; in New York City you can get a steak or shrimp entree,
salad and dessert for $10.00. In New York City, you are lucky if you can eat at McDonalds
for $10.00. So, we have created other reasons to come to the club other than just the
entertainers; but believe me, the entertainers are the reason the people are coming.
CEOCFO: You came into
NYC last year; was it a matter of finding the right location, or social environment, why
are you there and where are you going next?Mr. Langan: We
wanted to be in NYC for several reasons. First, we believe it is one of the best markets
in the country; second, we needed the exposure to Wall Street and we have been able to get
the stockbrokers, the analysts and the financial community to come in and get a feel for
our product. We tried to bring them to Texas and New Orleans, even Minneapolis, but it was
difficult. By opening a club in NYC, we have gained a lot of eyes on us and exposure for
the company.
CEOCFO: Where do you
want to go from here?
Mr. Langan: We would like to be in 30 major markets;
our long-term goal is 50 clubs and 30 major markets. At that point, I think we are the
tried and tested national brand that we are trying to create. It could take us 5 to 10
years to get to that point. It will depend on how the market reacts to us. If the market
supports us, it will happen quicker and if not, it will take longer because we will have
to use more traditional financing methods, versus being able to raise capital through the
equity market.
CEOCFO: Is there
anything that you are not offering in the clubs now that you would like to offer?
Mr. Langan: Down the road when we become one national
brand, I think our merchandising will increase. That is one of our goals and primary
targets of growth. We want to become the Hooters of America, Inc. of our industry. We like
the Hard Rock Café (Hard Rock International, owned by the Park Group Plc. Pink-L)
concept for selling our merchandise, where customers can travel city-to-city to collect
different merchandise from each of our clubs. That is what we envision as we grow.
CEOCFO: On what do you
make the most money?
Mr. Langan: To be honest, we make money on everything
in the club from the time they walk in to the time they walk out. If they use and ATM, we
make money, if they buy food, beverages, or merchandise we make money. If they are
spending money on the entertainers and using their credit card, we are making money on the
transaction fee. The entertainers pay a facility-use fee to use the facility as
independent contractors. We literally have revenue sources set up throughout the club. The
majority of our revenue is derived from our food and beverage services, service revenues,
vending and different revenue streams that we have inside the club.
CEOCFO: You had an
excellent first half; do you envision continuing to grow the way you have been?
Mr. Langan: During the first half of this year we have
seen same-club revenue increases in the 20-25% range. Because we have added the New York
City club, our overall revenues increased somewhere between 65% and 75%. Without
acquisitions, I think we can continue that trend for another 12 months or so simply
because of the organic growth in NYC and our Charlotte market. As we continue during that
time period I would hope that we will continue to make strategic acquisitions and maybe be
able to increase that growth even more.
CEOCFO: Will you tell us
about the competition?
Mr. Langan: What is happening in our industry is we are
kind of following the model of the casinos; they were very mom-and-pop operated and had a
less-than-stellar reputation. Our industry was the same. You started seeing small chains
pop up and different groups had multiple locations. The clubs are now well-managed
businesses. The public market came into the picture when Ricks did its IPO in 1995.
Another gentlemens club company went public recently and trades on the AMEX. We will
lead these public companies in acquiring the smaller club chains and individual operators
and will build a larger public company. I think this will happen over the next 5 to 7
years and I think that at that point, you will start seeing larger public companies start
to merge with one another somewhat like the casinos.
CEOCFO: In which other
ways do you reach out to the investor community and are they responding?
Mr. Langan: We have an IR and a PR firm in New York
that helps us to continue to brand our name and get our story out there. We have had two
Due Diligence Balls at our NYC club after our quarterly earnings are announced, where we
invite all of the financial industry professionals to come to our location. We have free
admission and cheap drinks for the night for them. We let them come in and look at the
club and see our business model and hopefully get them as investors in our company as well
as turn them into repeat customers.
CEOCFO: Why should
potential investors be interested and what should they know that they do not realize about
the business?
Mr. Langan: The main thing people do not realize about
our business is that it is a business. For so many years, television and Hollywood have
portrayed our industry as seedy and sleazy. It is a very highly regulated business; we are
a corporation on the NASDAQ and we are transparent. We run our business like any other
NASDAQ business to make profit and earn money.
CEOCFO: In closing, why
is this a good time for people to be interested?
Mr. Langan: The growth in our industry is phenomenal
right now. Consolidation is happening and where 5 years ago, there were less than 15
operators multi-club operators; today there are probably 50 multi-club operators out
there. The number of clubs that those operators own is growing every month; there are more
acquisitions being made and those companies are opening new locations and I think that is
going to continue. It is becoming difficult in our industry because of regulations to open
new locations. What you are going to see is a consolidation of the existing locations
simply because there are no new locations opening because government regulation limits
competition.
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