Society has become more health conscious as obesity is accelerating its pace and therefore, more people are visiting fitness clubs for workouts and physical activity. A great player in this industry is Planet Fitness Inc.Ă‚ (PLNT, Financial).
On Aug. 6, 2015 Planet Fitness went public and since then, the company has been providing better than expected results. The company has posted excellent quarterly results, including a 8.4% increase in revenue. During the third quarter, Planet Fitness opened 26 system-wide new stores. Further, Planet Fitness has raised its fiscal year 2015 guidance.
Founded in 1992 in Dover, New Hampshire, Planet Fitness is one of the largest and fastest-growing franchisors and operators of fitness centers in the U.S. by number of members and locations. It is engaged in licensing and selling franchises under the Planet Fitness trade name, owning and operating fitness centers under the Planet Fitness trade name and selling fitness-related equipment to franchisee-owned stores.Ă‚
With more than 1,000 locations in 47 states, the District of Columbia, Puerto Rico, and Canada, Planet Fitness' mission is to enhance people's lives by providing a high-quality fitness experience in a welcoming, non-intimidating environment. More than 90% of Planet Fitness stores are owned and operated by independent business men and women. As of Sept. 30, 2015, Planet Fitness had 1,040 system-wide stores.
Positive third quarter results
On Nov. 12, 2015, Planet Fitness reported financial results for its third quarter 2015 ended Sept. 30, 2015. The company’s total revenue increased 8.4% to $68.8 million compared to $63.5 million in the prior year period. System-wide same store sales increased 6.9% and adjusted EBITDA increased 11.8% to $26.5 million.
In the reported quarter, Planet Fitness reported net loss of $3.9 million compared to net income of $8.1 million in the prior year period. Further, the company’s pro forma adjusted net income increased 6.6% to $10.3 million, or 10 cents per diluted share, compared to $9.7 million, or 10 cents per diluted share in the year ago quarter.
Planer Fitness ended the quarter with cash and cash equivalents of $28.461 million and total long-term debt, net of current maturities of $498.45 million.
Factors contributing to the net loss
- Selling, general and administrative expenses increased to $17.348 million compared to $8.582 million in the year ago quarter.
- Total operating cost expenses increased to $58.478 million.
- Income from operations decreased to $10.339 million.
- Income before income taxes decreased to $1.968 million.
- Provision for income tax increased to $1.230 million.
Segments’ performance in third quarter 2015
EBITDA for corporate-owned stores segment decreased primarily due to the changes in foreign currency exchange rates and lower profit contributions from the four corporate-owned stores opened during the last 12-months as they ramp to mature operating margins.
Equipment segment revenue decreased primarily due to expected changes in the timing of replacement equipment sales and new store equipment sales. Further, EBITDA decreased mainly due to the combination of planned lower equipment sales, lower pricing, and a slight decrease in volume rebates.
Projections for fourth quarter
Planet Fitness expects its total revenue in the range of $318 million to $321 million and system-wide same store sales growth between 7.0% and 7.5%. Pro forma adjusted net income is expected in the range of $50.5 million to $51.5 million, or 51 cents to 52 cents per diluted share. Further, the company expects to open 192 to 197 new franchised stores and three new corporate stores.
Growth and management
Planet Fitness is one of the largest and fastest-growing franchisors and operators of fitness centers in the U.S. with a powerful business model. The company has a highly attractive franchise system and from 2010 to 2014, total franchised stores grew at a CAGR of 25%. The company is well positioned to increase its store base. From 2010 to 2014, total stores grew at a CAGR of 24%. Over the next seven years, Planet Fitness expects more than 1,000 additional committed store openings. From 2010 to 2014, the company’s equipment revenues grew at a CAGR of 29%.
Planet Fitness partnered with vendors to supply franchisees with high quality custom Planet Fitness-branded fitness equipment. Further, to drive growth, the company is increasing its brand awareness. Recently, the company announced that it will be the national gym partner of NBC's 'The Biggest Loser' for the fifth year in a row.
On Sept. 17, 2015, Planet Fitness appointed David P. Berg to the company’s board of directors. David’s franchising and international expertise, and experience helping companies drive long-term growth will help Planet Fitness to continue its strategic expansion.
(Source: Company website)
On a concluding note
Overall, Planet Fitness is a rock solid company with a differentiated fitness concept, strong store-level economics, highly attractive franchise system, predictable recurring revenue streams with high cash flow conversion, and experienced management team.
As per the International Health, Racquet & Sportsclub Association (IHRSA), the U.S. is the leading market in the health club with 54 million members and revenues of $24.2 billion. This will provide growth opportunities to Planet Fitness. Additionally, with the recent quarterly release, the company is well-positioned to generate strong top-line gains, margin expansion, significant free cash flow over the long-term, and is all set to create greater shareholder returns.
Disclosure: I do not hold any position in the company.
