RCI Hospitality - Earnings Call - Q2 2025

Executive Summary

• Mixed quarter: revenue fell 8.9% YoY to $65.9M on weather disruptions and Bombshells divestitures, but GAAP EPS rose to $0.36 on sharply lower impairments; non-GAAP EPS declined to $0.65 on softer same-store sales and Bombshells pre-opening costs.
• Nightclubs resilient: segment OpInc margin expanded to 25.4% (from 18.6%) on lower impairments despite -3.5% SSS and absence of Baby Dolls Fort Worth; Bombshells revenue fell 35.6%, producing a small operating loss, near breakeven on non-GAAP.
• Cash generation moderated: FCF $6.9M vs $8.8M LY, net cash from ops $8.5M; debt rose to $241.5M with Flight Club financing; leverage at 3.56x TTM adj. EBITDA, expected to improve as sales rebound and new assets ramp.
• Outlook/Narrative: “Back to Basics” plan continues (club acquisitions, divest underperformers, buybacks); management reiterated FY29 targets ($400M revenue, $75M FCF, 7.5M shares) and “modest annual dividend increases.” QTD commentary points to weather normalization, new club contributions, and Bombshells cost actions as near-term catalysts.

What Went Well and What Went Wrong

• What Went Well

  • Nightclubs margin expansion: GAAP OpInc rose to $14.6M with 25.4% margin on lower impairments; non-GAAP OpInc $17.1M (29.8% margin) despite softer sales.
  • Capital allocation progress: closed Flight Club (Detroit), acquired Platinum West (SC in 3Q25), opened Bombshells Denver, rebranded Chicas Locas El Paso; repurchased 56,875 shares for $2.9M ($50.92 avg).
  • Clear strategy reaffirmed: “Back to Basics” 5-year plan prioritizing nightclub acquisitions, buybacks, dividends; long-term targets reiterated; “flex up” buybacks when valuation attractive.
  • Management quote: “During and subsequent to 2Q25, we continued to make progress with our Back to Basics 5-Year Capital Allocation Plan, acquiring clubs, completing projects, and buying back shares.”

• What Went Wrong

  • Weather and comps: 18 locations closed 1–2 days; management estimates ~$5.6M lost sales over ~8 weeks (~$3M EBITDA impact), pressuring same-store sales and profitability.
  • Bombshells drag: revenue -35.6% YoY; GAAP operating loss (-$0.23M) with pre-opening costs at Denver; non-GAAP near breakeven (-$0.07M).
  • Mix headwinds: Nightclubs alcoholic beverages -5.3%, service -2.9% with lower VIP/bottle spend; consumers trading down to drinks-by-the-glass.

Transcript

Mark Moran (Head of Investor Relations)

Greetings and welcome to RCI Hospitality Holdings' Second Quarter 2025 Earnings Conference Call. You can find the company's presentation on RCI's website. Go to the investor relations section, and all the links are at the top of the page. Please turn with me to slide two of our presentation. I'm Mark Moran of Equity Animal, and I'll be hosting our call today. I'm coming to you from Washington, D.C. Eric Langan, President and CEO of RCI Hospitality, and CFO Bradley Chhay are in Houston today. Please turn with me to slide three. RCI is making this call exclusively on X Spaces. To ask a question, you'll need to join the space with a mobile device. To listen only, you can join the space on a personal computer. At this time, all participants are in a listen-only mode. A question-and-answer session will follow. This conference call is being recorded.

Please turn with me to slide four. I want to remind everybody of our safe harbor statement. You may hear or see forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those currently anticipated. We disclaim any obligation to update information disclosed in this call as a result of developments that occur afterwards. Please turn with me to slide five. I also direct you to the explanation of RCI's non-GAAP financial measures. Now, I'm pleased to introduce Eric Langan, President and CEO of RCI Hospitality. Eric, take it away.

Eric Langan (President and CEO)

Thank you, Mark. Please turn to slide six. Thanks for joining us today. Let me run through some key takeaways. All comparisons are year-over-year unless otherwise noted. As we previously announced, revenues reflect the sale to Vesture of five underperforming Bombshells segment locations and the effect of severe weather on company same-store sales in January and February. This was offset by improving trends in March and contributions from new and rebranded locations. Profitability reflects the lower same-store sales, offset by lower costs of Bombshells-related units and lower income. In addition, during the subsequent to the second quarter, we continued to make progress with our back-to-basics 5-year cap allocation plan. We acquired two upscale adult nightclubs, Flight Club in Detroit and Platinum West in South Carolina. Price multiples were in line with our cap allocation strategy. We are also working on another acquisition.

We opened a Bombshells in Denver and rebranded and reformatted the Chica Locus in El Paso. This reduced our list of development projects. We repurchased 56,875 common shares for $2.9 million, ending the quarter with approximately 8.8 million shares outstanding. Now, here's Bradley to review our performance in more detail.

Bradley Chhay (CFO)

Thank you, Eric. Please turn to slide seven. All comparisons are year-over-year for the quarter unless otherwise noted. Total revenues were $65.9 million compared to $72.3 million, a difference of $6.4 million, primarily due to closures or divestitures of non-performing Bombshells and the effect of bad weather, as Eric mentioned. Eighteen club and Bombshells locations had to close one or two days each. Even if clubs and Bombshells were able to open, they experienced slower business, particularly on weekends when temperatures were below zero or had heavy snow and ice, for example, in Dallas and Houston. With warmer temperatures in March, sales began to improve. Impairments and other charges were $2.1 million compared to $8.2 million, a difference of $6.1 million. That was due to lower impairments in nightclubs.

As a result, net income attributable to RCI Hospitality Holdings common shareholders was $3.2 million compared to $0.8 million, a difference of $2.5 million. GAAP EPS was $0.36 per share compared to $0.08 per share. Net cash provided for operating activities was $8.5 million compared to $10.8 million, a difference of $2.3 million. That was primarily due to reduced operating margins due to lower sales. As a result, free cash flow was $6.9 million compared to $8.8 million. Adjusted EBITDA was $14.2 million compared to $17.2 million. Non-GAAP EPS was $0.65 compared to $0.90. Now, please turn to slide eight. Nightclub revenues totaled $57.5 million, a difference of $1.8 million, or -3.1% year-over-year. Key factors included a 3.5% decline in same-store sales and the absence of Baby Dolls Fort Worth due to a fire.

This was partially offset by $1 million from Flight Club acquisition and four rebranded clubs not in same-store sales. Alcoholic beverage sales declined 5.3%. Service declined 2.9%. However, food, merchandise, and other increased 2.4%. Impairment and other charges totaled $2.0 million, with impairments spread across four clubs. This compares to impairments and other charges of $8.2 million in the year-ago quarter. Operating income was $14.6 million compared to $11 million. Margin was 25.4% of revenues versus 18.6%. Results primarily reflected the impairment decline offset by sales decline. Non-GAAP operating income was $17.1 million compared to $19.8 million. Margin was 29.8% of segment revenues versus 33.4%. Non-GAAP results primarily reflected the sales decline. Now, please turn to slide nine. Bombshells revenue totaled $8.2 million, a difference of $4.5 million, or 35.6% year-over-year.

The key factors here included sale and divestiture of five underperforming locations in the fourth quarter of 2024 and the first quarter of 2025, which impacted revenues by $3.7 million, a 13.4% decline in same-store sales and bad weather. This was offset by two locations not in same-store sales, consisting of a full quarter of Stafford, Texas location, and a partial quarter of the new Denver location. Operating results were a loss of $227,000 versus an income of $699,000. Margin was -2.8% of segment revenues versus a +5.5% in the year-ago quarter. On a non-GAAP basis, the segment was virtually break-even with a loss of $67,000 versus income of $750,000, or -0.8% of segment revenues versus +5.9%. These results primarily reflect the sales decline from open locations and Bombshells Denver pre-opening costs, most of which were offset by the sale and divestiture of non-performing locations.

Please turn to slide ten. GAAP expenses totaled $5.5 million, a decline of $1.3 million. Non-GAAP expenses totaled $5.4 million, a decline of about $0.9 million. Expense margin was 8.4% of revenues versus 9.4% GAAP, and 8.2% versus 8.8% non-GAAP. This decline primarily reflects lower overhead from fewer locations. Please turn to slide 11. We have slides in the upcoming deck that discuss free cash flow and adjusted EBITDA, which are non-GAAP. In advance of that, we wanted to present the closest GAAP equivalents, which are operating income, non-net cash provided by operations, and net income. Please turn to slide 12. We ended the first quarter with cash and cash equivalents of $32.7 million. During the quarter, we used $6 million as part of the Flight Club acquisition and $2.9 million to buy back shares. As a percentage of revenues, free cash flow was 11%, and adjusted EBITDA was 22%.

Both primarily reflected lower margins. Please turn to slide 13. Our debt at March 31 increased $5.9 million from December 31st. The increase primarily reflects financing related to the Flight Club acquisition and the construction of Bombshells Roulette and Lubbock, offset by scheduled paydowns. The weighted average interest rate was 6.7% compared to 6.6% in a year-ago quarter. Total occupancy cost was 8.5% of revenue compared to 8% a year ago, reflecting lower second quarter revenues, not higher costs. Debt to trailing 12-month adjusted EBITDA was 3.56x compared to 3.32x in the preceding quarter, reflecting the higher debt at March 31 and lower second quarter EBITDA. Debt to trailing 12-month adjusted EBITDA should decline as sales rebound with warmer weather and growth from locations that have come online more recently and from those anticipated to open. Debt maturities continue to remain reasonable and manageable. Now, here's Eric.

Eric Langan (President and CEO)

Thank you, Bradley. Please turn to slide 14 to review our capital allocation strategy. Our plan calls for allocating our free cash flow in the following manner: 40% to capital allocation or to club acquisitions and 60% to share buybacks, debt reduction, and dividends, with the goal of growing free cash flow per share at 10%-15% annually. Please turn to slide 15. Operationally, we are focused on our core nightclub business, reviewing every club to increase same-store sales on a regular basis. We'll rebrand, reformat, or divest our underperformers. Our nightclub plan also involves acquisitions. Our goal is to acquire an average of $6 million of adjusted EBITDA per year, focusing on the best clubs, buying base hits with an occasional home run.

Our target matrix remains the same: 3x-5x adjusted EBITDA for the club and fair market value for the real estate, targeting 100% cash-on-cash returns in three to five years. Purchases would be made with cash on hand, bank financing, or seller notes. We would also consider using stock if our valuation improves. For Bombshells, we're working to improve existing locations, targeting 15% operating margins and a return to same-store sales growth. We also plan to complete two new locations in development. The final part of our plan is regularly buying back our stock, flexing up if we consider the price to be particularly undervalued. We also anticipate modest annual dividend increases. Over the 5 years, we aim to generate more than $250 million in free cash flow and repurchase a significant amount of shares.

By fiscal 2029, our targets are $400 million in revenue, $75 million in free cash flow, 7.5 million shares outstanding, and the end result would be doubling free cash flow per share to approximately $10 from last year's. Please turn to slide 16. To give you an idea of the progress we've made on the share buyback, 10 years ago, we had about 10.3 million shares outstanding. As of last Friday, we had about 8.8 million shares, which is about a 15% drop. Please turn to slide 17. With Bombshells Denver and Chica's Locus now open, we have five remaining developments. Three are very close to completion. We are targeting Bombshells Lubbock for the opening later this month or early June, and Rick's Cabaret Central City for early next month as well, and Bombshells Roanoke sometime this summer.

We are still awaiting construction permits for Baby Dolls Fort Worth West, and we are awaiting engineering review and zoning plans for the Baby Dolls Fort Worth that was burnt in the fire. We have also sold our Aurora, Colorado property, which we were going to use for Bombshells, and listed the other properties for sale in Austin and Huntsville. As we've continued to make progress with Favoritely.com, our social media fan site for adult nightclub entertainers and staff, we are out of beta now, and we have added a few more clubs and entertainers since our news release last month. I'd like to thank all of our loyal and dedicated team members for all their hard work and efforts, and all of our shareholders who believe and make our success possible. Now, here's Mark.

Mark Moran (Head of Investor Relations)

Thank you very much, Eric and Bradley. If you'd like to ask a question, please raise your hand in the X Space. When you finish, mute your microphone to eliminate any background noise. We have a limited number of speaker spaces today, so after your question, we may move you to the back of the audience to free up space. Now, first, we have Orchid Wealth. Please take it away. Hey, Orchid Wealth, you're still on mute.

Hey, guys. Just a couple of quick questions about financing. Obviously, with the market being where it is today, you'll probably encounter a lot of possible sellers. If you guys use seller financing, what do you feel like is the average rate of return that you're going to have to pay these sellers? If you have to resort to using bank financing, what's that rate?

Eric Langan (President and CEO)

No, they're both pretty close to the same, about 6%-7% right now in the current market.

Okay. So you guys are essentially paying what people pay on a 30-year fixed mortgage. That's kind of crazy.

That's the going rate.

Yeah. No, no, actually, that's fantastic. The other part being is, obviously, from a year or 2 years ago when you guys weren't making acquisitions, have you noticed any difference in the people that you're speaking to about making deals or you're negotiating with or talking with about how they're approaching it differently from a few years ago or a year ago?

A few years ago, everybody was trying to use 2022 numbers, which were just astronomically high. '24 has been a really bad year for the industry. People have been—I mean, we're down, but I mean, I've talked to other people. We've seen other numbers that are down higher percentages than us even. You've got that. Now they're trying to do some type of average or combination because they don't want to use the low numbers from '24. We're coming up with solutions to some of these deals, as you've seen with our South Carolina acquisition. We've gotten finished, and we've got the Detroit acquisition completed. We've got several more we're working on right now. It's just a matter of coming to terms that make sense for us. We're not in a hurry to get anything done unless the terms are right.We'll move very rapidly.

As a side note, what do you think the average range is of the owners that are out there? I mean, are we dealing with people in their 50s, 60s, 70s, people that are--I'm trying to get an idea of when you're looking at the clubs that are out there, obviously, if they're talking to you about selling, their children or their relatives don't want to take over the business. Is there an age group you're typically dealing with?

I mean, the majority of the guys are in their late 60s to 80s, to low 80s that we've been talking with so far. There's some guys in their 40s we're talking to right now as well that are trying to decide if they want to stay in this business or they want to go do something else, which we've had a few buyouts of guys like that in the past. They get married, they have kids, they decide that the adult entertainment business is not something they want to stay in. We see that sometimes. I would say the majority are between the ages of probably 65 and 80.

Okay. All right. Thank you, guys.

Yeah. Thank you.

Mark Moran (Head of Investor Relations)

Thanks so much. Next up, we have Aaron. Aaron, please take it away. Looks like you're still on mute. Okay. Next up, we'll bring Adam Widen up. Adam, once you're connected, please take it away. You're still on mute, Adam? Hey, Adam, you're still on mute. I will text you right now. While we're waiting for Adam to unmute, I will pull up Jason. Jason, once you're connected, you are good to go. Adam, you're unmuted if you want to proceed.

Eric Langan (President and CEO)

I still show unmuted on my end. Both him and Jason are still muted.

Mark Moran (Head of Investor Relations)

Jason or Adam, whoever unmutes first can have the next question.

I'm unmuted. Thank you, Mark.

There we go.

Thank you, Mark. I just wanted to ask Eric about the new acquisition in Detroit with the new Flight Club and what rebranding and new improvements you have made to the Flight Club and how the Detroit market is treating you guys?

Eric Langan (President and CEO)

It's been great for us. We really like the market up there. We got our typical welcome where everybody told every entertainer and customer all the crazy things that we were going to do, which we have never done before. We had a little rough start in the beginning because a lot of the entertainers were afraid to come to work because they thought that, I mean, some of the stories they come up with this time were really good. That lasts about 2 weeks, and the word gets out, and we get our customers in, especially as we start seeing some of our VIP guests from other cities come to town and know that it's an RCI club and come in. We got over that pretty quickly.

Of course, we had some great ice storms and some weather that was very unwelcoming in Detroit as well during the first takeover. It's going very, very well now. We've done some minor upgrades. The club was in really good shape. We upgraded the POS systems. We changed some of their systems and how they treated and find entertainers, how they did some stuff that we just don't operate that way. We had to fix those things and get that into play. Since then, it's been very, very good for us. We're right on course with the numbers we predicted.

Good to hear. Good to hear. What do you think was the biggest operational change that you guys had to do from the previous owners down there?

Just treating the way they treat guests. I mean, they wanted everyone to be a VIP. If you were not spending $200 or $300 when you walked in the door, you were not treated very well, I do not think. That is kind of our take of it. We wanted to make it a place where the average guy can come in and have a good time. If you want to be a VIP, there is plenty of space in the club for VIPs as well. We kind of created that all-around encompassing club like we do in the majority of our markets. I think that was the biggest change we made.

Okay. Nice. One last question. With the adult entertainment business being very popular on the infamous Eight Mile Road, are you guys looking at any other adult entertainment clubs on Eight Mile, or are you guys just going to stay more in the suburbs of Metro Detroit?

I mean, we've looked in Detroit. We've looked at about four or five clubs up there. We were actually on a hunt. I posted on my X, posted some pictures of some of the clubs and some of the flight, taking the flight up there and some of those things. We've talked with other owners. We haven't been able to come to terms with any of them that we agreed to at this point, but we're always open. I mean, we're always looking for sure.

Okay. Thank you for your time, Eric and Mark. Thank you, guys.

Thank you.

Mark Moran (Head of Investor Relations)

Thanks very much for your question, Jason. Next up, we have Adam Widen. Adam, feel free.

Can you guys hear me?

We can.

Perfect. Okay. Three questions. First question is on the insurance accrual. You guys created your captive, and I know you had like a five-and-some million dollar charge in the quarter, the previous quarter. Can you sort of give us some clarity on how much sort of the insurance accrual you had in the quarter on your EBITDA that, quote-unquote, "wouldn't have been cash" that's sort of burdening your EBITDA?

Eric Langan (President and CEO)

The accrual for this quarter was $1.3 million, Adam. We look at it on an annualized basis. Our first quarter annualized run rate was about $9.x million. Given the actualization of run rates and whatnot, it's reduced to about $8.8 million. We won't know until any of these claims come in, any invoices or things like that. It is a non-cash. You're correct. It is a non-cash, just a purely accrual charge. About $1.3 million.

Right. But you took a big charge in the first quarter, so we would not expect basically huge accruals going forward. Is that right?

Correct. I just told you, I think the annualized is 8.8 million. From that, you guys can speculate what the next two quarters could be based upon our current trends. If we have massive claims coming through or invoices or new lawsuits coming in, that can change it. It just depends on what falls off and what gets added by the actuarial side.

Got it. We had a big charge in the first quarter, right? We had like a five-some-odd million dollar charge in the first quarter?

That's correct.

Got it. Okay. That makes sense. I know a lot of restaurants have been complaining about weather, and you said, "Well, weather was bad and we couldn't get in because of snow." I mean, is there any way to sort of quantify how much EBITDA we lost in the first quarter because of weather? I mean, I know it's hard, but I'm saying, do you have a sense of sort of what the burden was a little bit based on if you—let's say you'd close the location instead of having the people open. Do you sort of have a sense of what you think weather hurt you on comps or EBITDA a little bit?

Yeah. I think it was about—I mean, there's no way to know for sure, but I can tell you that I believe that it was over about an eight-week period, and it was about $700,000 a week in sales declines. And I'll tell you where I get that from is we were doing $4.9 million-$5.1 million during those first eight weeks, January and February, when we were having weather and close downs. And by March, we were doing $5.7 million-$5.9 million per week. If you figure our true average should have been $5.7 million-$5.9 million, and it was $4.9 million-$5.1 million, about $700,000 a week over about an 8-week period. If you did that, it's about $5.6 million in sales. If you take that to a margin, about $3 million probably in EBITDA.

Bradley Chhay (CFO)

Probably more.

Eric Langan (President and CEO)

Maybe more because we still—

Bradley Chhay (CFO)

Probably more.

Eric Langan (President and CEO)

Because we still had the cost, right? We still had the cost. We did not have any of the revenue. We still had the cost. It was considerable. I think we will have a real good idea of it as we come out of this quarter because I do not suspect too much weather in April, May, or June to affect us much at this point. The only thing we have this year is we have Easter was in April this year instead of March. This Mother's Day weekend was a little off for us, not too bad, but a little off. I think we are going to come in pretty close to about $5.7 million a week average this year or this quarter is what I am hoping, unless we get some pickup at the end of May and in June. We will see how that goes.

Okay. I got two more questions. On the M&A pipeline, you talked about another club. Can you talk a little bit about what you think has contributed to EBITDA so far between Detroit and then this other one in South Carolina and the other one that you're working on now and sort of what the pipeline is? It looks like you're averaging a good amount more than $6 million of EBITDA right now. I mean, you—

South Carolina didn't contribute anything. We didn't close until April, but it will contribute this quarter. Detroit didn't contribute much last quarter because we closed in January, but January and February had really bad weather. We were still taking over, so there were some operating costs that we increased as we first went up there before we got the revenues back up. It is doing very, very well for us, and it will contribute probably on par with the $2 million run rate that we estimated when we purchased it. It is going to be in good shape. That is why I think this quarter, April, May, June will be a much better quarter for us to gauge everything on. We also had just recently closed the Bombshells. We fired David Simmons, the Director of Operations for the restaurant division. We promoted someone else from within.

They've really started working on changing those things and changing costs. We've lowered costs considerably. We're making some other cost changes. We've got the Denver location open. We've got Lubbock opening, hopefully on May 29th. If not, by June 5th, I think we'll be open for sure. Bombshells is going to go through some significant changes in this quarter, and I think we'll get a much better idea of Bombshells as well. Plus, Bombshells was drastically affected by weather. We had the Houston Rockets in the playoffs this year, so that helped a little bit. Hopefully, NBA basketball continues to do well for us through the NBA playoffs. We've got Astros baseball back up. I think we'll be in a much better idea to see where Bombshells are going by June 30th.

That's kind of been—and I think I kind of told you that once before in a conversation we had where I said it's going to take till the end of June for Bombshells to really—for me to figure out the change we've made, if they're effective, if we're doing any good with them, and to get these other two locations open so that any and all drag for Bombshells is gone.

We're not building outside of—like you said, you sold Aurora and you sold Huntsville.

No, we have not listed. We have not sold Huntsville. We sold Aurora. We have the Huntsville property listed. We have the Austin property listed where we were going to build Bombshells locations. Both those properties are being listed for sale or lease right now. We are going to start working on all that. The Grain just closed. It has been for sale. We have people looking at it, but this is a tough restaurant environment right now. I think it will take a little bit. Maybe by the end of the summer, I suspect that we will see some movement on those.

Right. But it sounds like you've gotten rid of all the bad Bombshells by and large. You've got the final two that you're open, which you're opening because you've sort of very far along. I guess it sounds like your focus is trying to get it to comp positively and figuring out whether it makes sense to divest it or what to do with it, right?

Exactly. I mean, if we can get a good offer for it, we would divest it. I mean, we're not—the offers, when we put it up for sale the first time, we got ridiculously crazy. People wanted us to give them $80 million worth of assets for no money down and pay us $20 million for 50% of them and basically have no liability on their side, keep all the liability on us, but give them 100% operational control. I mean, we can't do that. I mean, that's not fiduciary. I mean, at least if I did that, I couldn't even walk away, right? I'd be stuck with whatever they decided. At least this way, we can close and sell our properties. We have a lot of options still. This is the first quarter we've ever really lost money at Bombshells since its inception over 14 years ago.

The majority of that loss was basically the startup cost for opening Denver. I'm very optimistic on a go-forward basis that we can get the Bombshells to a point where they level out the whole industry and that side. I think even Twin Peaks reported negative same-store sales for the first time this last quarter. It's a tougher market out there in the restaurant side of the business. It's actually—we're seeing a little bit in the club side as well, where some of the drinking is number of people—the number of people through the clubs have been pretty steady. Our headcounts have been good. Just the amount of spend has been down a little bit based on the regional managers and that I've been talking with.

I'm optimistic that as we get into the summer, as these tariff wars settle down and things start to turn to normal, they get the new—the Republicans pass a new tax bill, and we get some certainty for the next three or four years or three and a half years, I guess, I think the economy could do very well. If that happens, that'll be great for us.

I mean, I would think gas prices and all the inflation things that they're looking at, like gas prices and milk prices and all this stuff, I mean, I would think that all of those things should be a tailwind for you guys. Not to mention, don't the comps get a lot easier for you guys over the next couple of quarters? I mean, you didn't start comping positively in nightclubs, I think, until the calendar fourth quarter last year?

Yeah, fourth quarter and first quarter. Then we were down again. We are flat for—we are up three and we are down three. We are flat for six months, basically, for 2025. I think that was mainly weather-related on the club side. Some of it is VIP spend as well, but we were making it up. We were doing very well with putting—like I said, we are putting more people through the doors, and that is working very well for us now. As you see, our food and merchandise sales are up, but people just are not drinking as much. They are just not spending as much. What they are not drinking is the high-dollar bottles, the high-dollar bottle sales, the liquor sales. They are drinking by the glass instead of—or buying by the drink instead of by the bottle. Bottle service is down. VIP spend is down.

As you've seen, our service revenue is down almost 3%. I think that's really what we've got to watch and focus on. We do have the Knicks in the playoffs, and New York is doing very, very well. Clubs have been doing great up there. People are really coming out there. I think they sold out the Madison Square Garden for the watch parties even when they were playing in Boston. That was great for the clubs. We're a block away from the garden there. That's been really good for us. Miami's done off a little bit. Hopefully, as we get into the summer months, we can get a little stronger in Miami. Like I said, the headcounts are good. We just got to get the spend up. I think a lot of that is uncertainty, right?

You got to remember, a very large portion of our customer base, especially the high-dollar spend, are small business entrepreneurs who make considerable amounts of money. If their money is uncertain, then they won't spend as much as they normally would. They'll get a little more reserved in their spending. As the uncertainty goes away, I believe that we'll see our numbers come back up.

Okay. Thank you.

Yeah.

Mark Moran (Head of Investor Relations)

Thanks so much for the questions, Adam. Next up, we have Manhans Nine]. Please take it away.

Thank you for taking my question, and I really appreciate this venue to talk with you. With the new administration making a lot of noise and headlines, as part of their Project 2025, pornography was listed as being—they had wanted to say that it should be outlawed. I wondered if you have heard anything about this, if there's anything that you'd want to add about that?

Eric Langan (President and CEO)

No. We haven't heard anything. We haven't had any issues. I don't think we're technically in the pornography business. We're not really making videos and whatnot. Our biggest protractors are always human trafficking, and we are very avid anti-human trafficking advocates. We're a founding member of COAST, Club Owners Against Sex Trafficking. We have done everything we can do and continue to do everything we can do in our powers to fight sex trafficking and human trafficking in all forms, as well as our training program has received a congressional honor. We're going to continue to work with that program. I think if you look at any real studies, less than 0.1% of all human trafficking is through adult nightclubs or even has any ties to any adult nightclubs.

While there are people out there that are against our industry that would try to skew those facts, I think those facts are pretty much given when you get into real studies, real scientific studies that have real data. So I'm not too worried about anything like that.

Thanks for taking my question.

Yep. Thank you.

Mark Moran (Head of Investor Relations)

Fantastic. Thank you very much for the question. Thank you, Eric and Bradley, on behalf of the company and our subsidiaries. Thank you. Good night. Please visit one of our clubs or restaurants to have a great time.