Rick's Cabaret: Sin Is In

• Same-store sales beating 6% forecasts by 2.24%;
• Customers visiting different clubs in different cities demonstrating growing customer loyalty;
• Continued aggressive expansion plan buying clubs in metropolitan areas with $10 million or more in sales and immediately accretive to earnings; and
• Sales in calendar year 2008 sales between $68 million and $70 million with EPS between $1.55 and $1.60.

Online Woes
While business is booming in its clubs, the same can't be said for its online ventures, which appear to be struggling to compete with free adult sites so common on the internet. Rick's isn't alone with this problem. The grand dame Playboy (NYSE:PLA) and New Frontier Media (Nasdaq:NOOF), a producer of adult entertainment videos, are also suffering.

In the second quarter, it Rick's generated $172,000 from the internet, approximately 1% of revenue and shrinking. It's time to send the unit packing as it's too much of a distraction from the core business. Additionally, states like Louisiana are attempting to restrict sexually oriented businesses and this could mean increased difficulties with licensing, etc. Although there isn't anything currently on the table to impact seriously the company's business, it's something to be aware. Other than this, the future is bright.

The Sin Bin
In the last year, its market cap doubled. Currently around $170 million, it will soon become a small-cap generating additional institutional investor interest. If investors were to look at the valuation metrics of Rick's and McDonald's (NYSE:MCD) side by side and their names were hidden, you'd be hard pressed to choose a winner. While it doesn't pay a dividend like the golden arches, it is growing much faster.

In 2003, MSN Moneycentral ran a story about whether you should invest in sin stocks. Its conclusion: there were no profits in sex. Since 2003, Rick's Cabaret stock has risen steadily from around $2 to over $20 today. The moral of the story: stocks are atheists.

Bottom Line
Americans generally are a conservative bunch when it comes to sex. However, situations involving Eliot Spitzer and Bill Clinton show a different side to the country, one that is far more accepting of sexual misconduct than we might otherwise have thought. Once unimaginable, there are now two publicly traded adult entertainment nightclub operators in America. Times have surely changed and not necessarily for the worse. No matter what one thinks about the exotic dance business, it seems to me that the oversight the SEC provides, does more to clean up the once tawdry industry than any by-laws or government legislation can.

For further reading, check out A Prelude To Sinful Investing and Socially (Ir)resposible Mutual Funds.