As we approach the end of 2023, the time for New Year's resolutions is upon us. With the Ozempic weight-loss trend in full swing, it's no surprise that many consumers will be making New Year's resolutions to join a gym and get in shape. Gyms love this time of year as they cash in on these New Year's resolutions.
This results in heavy gym traffic in the first few months as members eventually tire themselves out as attendance dries up again. Planet Fitness has stated that 60% of its net member growth historically occurred in the first quarter. Rinse and repeat every year. With that in mind, here are 3 gym stocks that will be benefactors again during this time of year.
Planet Fitness Inc. (NASDAQ: PLNT)
As the nation’s largest gym operator with 18.5 million members in 50 states, consumer discretionary sector member Planet Fitness deploys a low-cost strategy with monthly memberships that start at just $10. This makes it easy and convenient for new members to sign up online. Memberships can have a $49 startup and $49 annual fee. The cost is so cheap that it's easy to forget about it once you get tired of going to the gym. Paying the startup or annual fee almost compels you to keep the membership going if you lose the motivation to go.
Membership fees are automatically withdrawn from your checking account rather than a credit card in most locations. Cancelling a membership can be a pain as it must be done either in the gym or via certified mail. However, this is a common practice with gym chains: it is easy to get a membership but tougher to cancel one.
Unexpected CEO termination
Planet Fitness has over 2400 gyms in the United States. Over 90% of the gyms are franchisee-owned locations. They offer no-frills basic facilities, making Planet Fitness an asset-light company. Its stock was rattled in September 2023 when the Board unexpectedly and abruptly fired its CEO, Chris Rondeau, who had been with the company since 2013.
No reason was given, and share prices plunged over 30% in the aftermath. Investors braced for the worst, but shares were able to bottom out at $44.13 and stage a recovery as the worst fears stemming from accounting irregularities didn't materialize. Former New Hampshire Governor Craig Benson replaced Rondeau as the interim CEO.
Flexing growth
On Nov. 7, 2023, Planet Fitness reported Q3 2023 EPS of 59 cents, beating consensus analyst estimates by 4 cents. Net income rose $10.6 million to $41.3 million, up from $30.7 million in the year-ago period. Revenues grew 13.4% YoY to $277.6 million, beating analyst estimates of $268.18 million.
System-wide same-store sales rose 8.4%. The company opened 26 new Planet Fitness locations (2 corporate-owned and 24 franchisee-owned) for a total of 2,498 gyms. Cash and cash equivalents were $474.1 million, comprised of $309 million in cash, $118.7 million marketable securities and $46,4 million in restricted cash at the end of the quarter. Check out the sector heatmap on MarketBeat.
Raising full-year 2023 outlook
Planet Fitness plans to add 150 to 160 new gyms for the full year 2023. Same-store sales are expected in the high single digits, with revenues rising 14% YoY, up from the 12% previous forecast. Adjusted EBITDA is expected to rise 18%, up from 17% in previous estimates. Adjusted net income is expected to be around 33%, up from 30%. Adjusted EPS is expected to rise 35%, up from 34%. Net interest expense is expected in the low $70 million range. The company is also exploring the potential for raising prices on its three-decade-long $10 per month membership.
Interim CEO Insights
Planet Fitness's interim CEO, former New Hampshire Governor, current board member, and franchisee Craig Benson stated that the company added 145 new locations in the year-ago period, marking 3X growth of its nearest 17 competitors. The conversion rate of team participants to paying members rose to 5.5%, up from 5% last year.
Over 30% of new members were previous members compared to 20% in the pre-COVID period. Cancellation rates declined for the 9th straight quarter. The strongest net member group was Gen-Zs, which is a quarter of its membership base enhanced by its successful summer pass program, which three million teens and two million parents signed up for in the summer of 2023.
Benson concluded, “In closing, our management team has taken responsible and data-driven approaches to adjust our franchisee return model, which we believe set us up for sustainable growth. We recognize that the operating landscape has changed, and therefore, we are evolving for the long-term sustainability of the model without compromising the member experience.”
Planet Fitness analyst ratings and price targets are at MarketBeat. Planet Fitness peers and competitor stocks can be found with the MarketBeat stock screener.
Daily cup pattern
The daily candlestick chart on PLNT illustrates the daily cup pattern completion at $70.49. Shares recovered from the $44.13 low on Sept. 26, 2023, triggered by the unexpected termination of its CEO. Shares staged a rally heading into Q3 2023 earnings, which caused a gap on the top and bottom line beat and raised guidance. Shares managed to gap and go through its daily 200-period moving average at $65.99 to complete the cup pattern as it reached the $70.49 cup lip line. The daily relative strength index (RSI) has risen from the oversold 20-band to the overbought 77-band. Pullback support levels are at $64.26, $59.80 daily MSL trigger, $56.04 and $52.38.
Xponential Fitness Inc. (NASDAQ: XPOF)
Boutique fitness studio franchisor Xponential Fitness offers more cardio-focused fitness brands than traditional free weights and machines. The company has 2,980 Global Open Studios with plans to open 127 new studios, comprising 100 in North America and 27 internationally. Its 10 brands range from Club Pilates to CycleBar, Stretch Lab, Rumble Boxing, BFT, Pure Barre, Yoga Six, Row House, Stride and AKT Dance Studio.
They offer specialized fitness at various premium price points ranging from $99 to $199 per month, with its XPASS all-access membership plans and individual studio members ranging from $25 to $299 per month. On-demand digital plans range from $9.99 to $29.99 per month. Individual classes can be purchased for $10 to $20 per class. Premium pricing lends to higher margins in excess of 70%, with an EBITDA margin north of 27%, expected to increase with growth. Users can schedule their sessions conveniently on the app and opt to take different classes at different locations based on their schedules.
Growth accelerating
Xponential saw Q3 2023 EPS of 11 cents versus 16 cents analyst estimates, a 5-cent miss. Revenues grew 26.1% YoY to $80.44 million, beating consensus analyst estimates of $74.17 million. Membership grew 26% YoY, with visitation up 30% YoY. The company sold 216 franchise licenses and opened 127 new studios. As of Q3 2023, Xponential Fitness has sold 6,088 franchise licenses and had 2,980 operating studios.
Xponential Fitness CEO Anthony Geisler commented, “Our KPIs continue to trend well in Q4, and we are confident we will close the year out on a high note.” He continued, have begun implementing the movement away from company-owned transition studios that we discussed during our Analyst and Investor Day in September; the impact of this right-sizing on our profitability in 2024 will be material.”
Xponential Fitness analyst ratings and price targets are at MarketBeat.
Lifetime Group Holdings Inc. (NYSE: LTH)
Life Time is a chain of massive standalone fitness resorts that include state-of-the-art fitness equipment, tennis and basketball courts, pools, hot tubs, saunas, spas and salons with cafes and child care centers on-premise. These fitness resorts have an average size of 50,000 to 150,000 square feet, with some flagship locations as large as 200,000 square feet.
Their locations are called fitness country clubs with luxurious amenities from towel service to sun-filled studios and spacious fitness floors, power plate machines, business centers, computer labs, private pedicure stations and specialized classes with personal trainers. Most locations are company-owned and operated. Membership fees start at $179. One-day memberships are $50.
Growing giant
Life Time: they reported Q3 2023 EPS of 13 cents per share, matching consensus analyst estimates. Net income fell to $7.9 million from $24.7 million in the year-ago period. Adjusted net income rose to $26.7 million from a loss of $11.5 million in the year-ago period. Adjusted EBITDA rose 101.5% to $143 million from $71 million in the year-ago period. Revenues rose 17.9% YoY to $585.2 million, missing analyst estimates of $586.4 million. The company cut revenue guidance for Q4 2023 from $555 million to $565 million versus analyst estimates for $576.56 million.
CEO Insights
Life Time CEO and Founder Bahram Akradi noted that the priority of increased visits and engagement per membership led to stickier memberships with lower attrition rates versus pre-COVID. They pushed back several revenue-expanding initiatives to 2024 but expect double-digit growth for revenue and adjusted EBITDA.
Akradi commented, “We generated record levels of revenue and Adjusted EBITDA, and our trailing 12-month Adjusted EBITDA surpassed $500 million for the first time in our history. Our investments in programming are working to increase member engagement at our clubs, with average member visits up 24 percent versus 2019. As we look to next year, we expect to be free cash flow positive after all capital investment, including new club growth, by the middle of 2024, two years earlier than originally anticipated.”
Insider buying and analyst reiteration
CEO Akradi purchased 90,000 shares between $12.47 and $12.95 for approximately $1.1 million in early November 2023. On Nov. 17, 2023, Oppenheimer reiterated its Outperform rating with a 12 to 18-month price target of $33. Analysts view Life Time as a high-return category killer within the large and fragmented domestic health club space.
Life Time analyst ratings and price targets are at MarketBeat.
