Ace River Capital Partners' Q2 2025 Investor Letter Highlights RCI Hospitality Holdings (RICK)

Ace River Capital Partners, an investment management company, reported a -5.33% return in Q2 2025. The firm highlighted RCI Hospitality Holdings, Inc. (NASDAQ:RICK) as a key holding, with a one-month return of -12.42%. RCI owns and operates adult nightclubs and sports-bar restaurants, with limited potential buyers and strong unit economics. The company has a market capitalization of $307.057 million.

Ace River Capital Partners, an investment management company, reported a -5.33% return for the second quarter of 2025. The firm's performance underperformed the S&P 500 and the Russell 2000 Indexes, which returned +4.1% and +3.6% respectively [1]. The fund's strategy focuses on a concentrated portfolio of high-quality small-cap businesses with durable economics, competent management, and the ability to reinvest at attractive rates.

One of the key holdings highlighted by Ace River Capital Partners is RCI Hospitality Holdings, Inc. (NASDAQ:RICK), which experienced a one-month return of -12.42% in the same period. RCI Hospitality Holdings operates adult nightclubs and sports-bar restaurants, with a market capitalization of $307.057 million [2]. The company owns 57 clubs across 13 states and an additional 12 sports-bar restaurants with the "Bombshells" concept. The business operates as a local monopoly in many markets due to the limited issuance of new adult entertainment licenses, providing a long runway for growth.

Despite the recent share price drop, RCI Hospitality Holdings has shown strong long-term performance, with a 110% gain over the last five years. However, the share price has dropped by 50% over the last three years, raising concerns for shareholders who have not held shares for the long term [2]. The company's earnings per share (EPS) have decreased by 3.6% per year, despite the strong share price performance over the five-year period. This discrepancy suggests that the decline in EPS may not be representative of the company's underlying business performance.

Ace River Capital Partners remains focused on the long-term growth potential of RCI Hospitality Holdings, despite the recent share price volatility. The company's strategy of investing in high-quality small-cap businesses with unique advantages and growth potential within their respective industries has led to strong long-term returns. The firm's approach to investing involves significant research and patience, with a focus on companies that meet their strict criteria and pass their risk/reward assessment.

References:

[1] https://seekingalpha.com/article/4810837-ace-river-capital-q2-2025-quarterly-letter
[2] https://ca.finance.yahoo.com/news/rci-hospitality-holdings-nasdaq-rick-103237856.html