Posted by Thomas J. Ryan | Jan 13, 2023 | Feature, SGB Executive
Speaking at the 2023 ICR Conference, executives from Planet Fitness, Life Time Group and Xponential Fitness indicated that their respective health clubs continue to see healthy recovery post-pandemic while noting stepped-up expansion plans.
Planet Fitness Sees Record Q4 Membership Growth
Before presenting at the Conference, Planet Fitness had reported its largest fourth-quarter membership growth. Planet Fitness had approximately 17.0 million members across its 2,410 gyms as of December 31, an increase of 12 percent, or 1.8 million members, since the end of 2021.
Chris Rondeau, CEO, said the momentum set Planet Fitness for success in the critical first quarter. Traditionally, about 60 percent of annual memberships join Planet Fitness and fitness chains in the first quarter.
Said Rondeau, “When you think about it, this is the first quarter in almost four years to have uninterrupted operations, so this is a big first quarter for us. And to have that kind of momentum in the fourth quarter is a great sign.”
Rondeau attributed the gains partly to reaching Gen Z, representing the chain’s second-largest member base after being its smallest pre-COVID. He believes the Gen Z demographic better recognizes the benefits of fitness from the pandemic, including “not just waistline but mental health.”
The Gen Z growth also reflects the success of the company’s High School Summer Pass Program, which offers free membership to teens during the summer months. A total of 3.5 million signed up for the program in 2022 versus one million in 2019 when the program launched. In the third quarter, 5 percent had joined as members, outpacing the conversion rate of the 2019 program.
Other factors supporting Planet Fitness’ membership growth include marketing campaigns featuring three agencies and continued increased comfort in returning to a gym.
Planet Fitness reiterated its three-year annual financial targets detailed at its Investor Day last November that called for:
Rondeau said Planet Fitness plans to add about 600 stores over the three-year period. Some challenges to adding stores include shortages of HVAC units due to changing standards and supply chain disruption in China. Building a Planet Fitness location costs about $2 million, up about 20 percent from pre-COVID levels.
Rondeau said that some of the company’s top franchisees had slowed expansion until construction costs come down; however, franchises that are private-equity backed have the incentive to open locations due to the substantial payback when exiting a site.
Rondeau also said that the gyms “generate great returns.” Planet Fitness recently raised its annual fee, which comes on top of a monthly fee, to $49 from $39. Last May, its premium Black Card membership increased from $22.99 to $24.99. Said Rondeau, “Generally, all those new members are paying the new rates.”
Perks under the Black Card membership include using any Planet Fitness, bringing a guest for free anytime, using its tanning salon services, massage chairs and HydroMassage, and discounted drinks.
Basic White Card membership remains $10 a month, although most members upgrade to the Black Card. About 60 percent of its members are Black Card holders.
The company has no plans to change the $10 White Card monthly fee with Rondeau calling it “sacred” as the value reaches first-time gym goers. “I call it ‘Get You Up Off The Couch’ price,” said Rondeau. “We want to cater to casual first-time gym goers, and still, to this day, and has been for decades. Almost 40 percent of our members had never gone to a gym. We’re growing that pie, and everybody else is catering to the fit getting fitter.”
Life Time Group Sees 23 Percent Growth In 2023
Life Time Group Holdings, Inc. reported fourth-quarter sales would be in line with guidance and earnings ahead of guidance. The upscale fitness center also set robust growth targets for 2023.
Bahram Akradi, founder, chairman and CEO, said Life Time had “rewired the business significantly” during the pandemic, including restructuring its corporate office and realigning its cost structure.
At the club level, sales and promotions were eliminated as incentives to drive in new customers and membership fees were raised. Akradi said he realized many clubs had too many members to deliver a premium experience. “I wanted to have a Four Seasons/Ritz Carlton brand quality from day one, but it was a mistake at the price point we started. It wasn’t possible,” said Akradi.
In the third quarter last year, average monthly dues per center membership increased 17 percent to $157 from $134. For the fourth quarter, sales are expected in the range of $472 million and $473 million, representing growth of 31 percent. Guidance had called for sales between $460 million and $490 million. Adjusted EBITDA is expected in the range of $104 million from $106 million, topping guidance in the range of $80 million and $90 million.
The fourth-quarter improvement reflects growth in membership dues and in-center revenues, including the continued successful execution of its pricing strategy. The top-line growth in the fourth quarter came despite several new club openings in the later fourth quarter than initially anticipated and two club openings delayed to January 2023.
Total comparable center sales are expected to increase 26 percent in the quarter compared to the prior year period. The earnings improvement was primarily due to a faster implementation of margin expansion activities, lower than anticipated expenses related to self-insured medical plans and lower real estate taxes.
“The business is robustly strong,” said Akradi. “All things are working—pricing strategy, sales strategy, margin expansion, and programming.”
In programming, Akradi said four programs launched last year: pickleball, dynamic personal training, small group training, and Arora. All have helped to entice new members.
In pickleball, participation at Life Time have grown from about 16,000 in January 2022 to about 160,000 in December 2022. Life Time finished the year with about 430 dedicated pickleball courts, expects to reach 600 to 700 by the end of 2023 and reach close to 1,000 by the end of 2024.
Said Akradi, “Life Time will be the largest provider of pickleball as it is today on an ongoing basis. It’s the fastest growing sport and generating significant memberships for the company.”
Alpha, GTX and UltraFit are Life Time’s small group training programs that Akradi described as similar to Orangetheory, CrossFit or Barry’s Bootcamp. The programs had a 147 percent increase in unique participants over the last year.
Dynamic Personal Training (sessions with trainers that include a stretch table and other gym equipment) cannot be replicated at home. The Arora program caters to age 65, and has seen “significant growth as we have put focus on branding and creating experiences,” said Akradi.
Total net center memberships are forecasted to decline by approximately 3,500 in the fourth quarter, significantly less than the seasonal membership decline it typically sees in the fourth quarter. As a comparison, in the same quarter in 2019, net center memberships declined to just over 13,000.
For the overall year in 2022, revenue is expected in the range of $1,822 million to $1,823, a gain of 38 percent. Guidance was expected in the range of $1,810 million to $1,840 million. Adjusted EBITDA is expected to land in the range of $279 million to $281 million, exceeding guidance between $255 million to $265 million.
In its initial guidance for 2023, Life Time said it expects $2.2 billion to $2.3 billion in revenue, a growth of 23 percent at the midpoint versus preliminary 2022 results, and $430 million to $450 million in adjusted EBITDA, a growth of 57 percent at the midpoint versus preliminary 2022 results.
Life Time opened five new clubs in the fourth quarter, ten clubs in 2022, and now has about 160 athletic country clubs across the U.S. About ten clubs are expected to open annually.
Akradi noted that securing land and constructing a club typically takes four to six years, and once open, the club takes about another four years to reach maturity. He said many clubs are still recovering from the shutdowns in 2020, with some market restrictions until April 2022.
Life Time’s forecast for 2023 considers recessionary conditions, but Akradi said Life Time’s club openings ramped up well during the recession in the late 2000s. So far, Life Time’s clubs have not experienced softness due to weakening macroeconomic conditions. Said Akradi, “Clubs are as busy as they’ve ever been with as much traffic as they’ve ever seen, and the membership numbers are strong.”
Xponential Fitness Sees Double-Digit Membership Growth
Xponential Fitness reported double-digit growth across the memberships, same-store sales and run-rate average unit volume (AUV) in 2022 to help the boutique fitness operator meet or exceed the high end of guidance.
Xponential Fitness’ portfolio of brands includes Club Pilates, CycleBar, StretchLab, Row House, AKT, YogaSix, Pure Barre, Stride, Rumble, and BFT.
The updated outlook calls for:
Anthony Geisler, CEO, said, “Xponential Fitness is the leading global franchisor in the $20 billion boutique fitness industry. The company has always aimed to make boutique fitness accessible to all. We are not a low-cost leader. We’re also not a high-end luxury brand. We’re that mid-to-high value range.”
The average member at Club Pilates, Xponential Fitness’ first club that opened in 2015, pays $130 a month.
For the year, Xponential Fitness surpassed 2,600 open studios and increased total licenses sold to over 5,400 across its ten brands globally.
Among its clubs, the biggest is Club Pilates, with 826 venues, followed by Pure Barre, 638; StretchLab, 305; CycleBar, 282; BFT, 230; YogaSix, 170; Row House, 96; Rumble House, 42; AKT, 34; and Stride, 18.
Geisler noted that fitness boutiques saw the fastest growth in the broader global health and fitness club industry from 2015 to 2019. During COVID, Xponential grew and gained share, benefiting from moves to aggressively stay open despite restrictions, shift to digital and form partnerships with Lululemon and others. At the same time, a third-party study by Frost & Sullivan found that 30 percent of U.S. boutique studios closed permanently during the pandemic.
Geisler said he does not expect Xponential Fitness to be overly impacted by a potential recession. Said Geisler, “The average member for us is paying $130 but makes $130,000 a year. So questions around whether the macroeconomic is hurting our business? The answer is that it’s not. Our 2022 cohort is much higher than any other year in the company’s history. Q4 was better than three, three better than two, two better than one. And so the business is operating very well.”
Photo courtesy Xponential Fitness/AJ Perez, XPro
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