Over the last fifteen years, management has attempted nearly a dozen non-strip club ventures, from internet websites to restaurants to an energy drink company. Every single one ended in failure. Gullible investors(and newsletter 'authors') ate up the Bombshells growth story, but I have been trying to warn investors that it will end in failure like all of the other ventures.
Recently two events have started to show investors that Bombshells is not quite what it seemed:
1) RCI reported that Bombshell's 4Q 2018 Same Store Sales were down an astonishing 21.3%. I'm the biggest Bombshells bear in in the market and even I had to read the press release twice to believe it. Management provided weak excuses: a heat-wave, road construction near one location, and the June shutdown of the "Crime Factory" Fuqua location (notice it was closed in June which is Q3, it was not closed at all during Q4).
The brand is comping down 20% but management is moving full speed ahead on its growth plan, blowing tens of millions of dollars to open four more Houston locations in the coming year. How bad will the comps get once the new locations start cannibalizing the existing ones?
2) An article was published on Seeking Alpha that uncovered CEO Eric Langan's ownership in an investment vehicle run by the contractor that has been awarded more than $20 million of construction contracts for projects including new Bombshell buildouts. Suddenly it becomes clear why RCI was so aggressively spending on Bombshells expansions, its CEO was benefiting from the excessive construction projects. I encourage everyone to read the article, but below the summary is below.
https://seekingalpha.com/article/4209165-rci-hospitality-troubling-relationships-reinforce-short-thesis
RCI Hospitality: Troubling Relationships Reinforce Short Thesis
Summary
RCI’s primary construction provider, Tannos Construction, set up an investment entity called Tannos Land Holdings that’s partly owned by RCI CEO Eric Langan.
Since creation of the Langan-owned investment vehicle, Tannos Construction has been awarded 10+ construction projects RCI has initiated including multiple Bombshells locations and RCI’s new $6 million headquarters.
Tannos may have received upwards of $20 million from RCI over the last three years based on Bombshells construction.
Given the CEO’s undisclosed financial interests, RCI’s over-investment in Bombshells build-outs now makes sense.
Filings with the Texas Secretary of State show a second RCI executive also has a financial interest in one of the Tannos ventures.
