A Member of Pat McKeough’s Inner Circle recently asked for his advice on a large fitness center company.
Pat likes the firm’s rebounding revenue and earnings numbers. However, he warns there are few barriers to competition and any new COVID-19 variant poses a huge risk for shutdowns.
Planet Fitness Inc. (Symbol PLNT on Nasdaq; www.planetfitness.com), is one of the largest and fastest-growing franchisors and operators of fitness centres in the U.S. as measured by number of members and number of locations. The company was founded in 1992 in Dover, New Hampshire.
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As of December 31, 2021, Planet Fitness had 15.2 million members and 2,254 stores in 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia.
In February 2022, the company completed the major acquisition of Sunshine Fitness Growth Holdings LLC for $800 million. Sunshine Fitness is currently Planet Fitness’s largest franchisee.
Sunshine Fitness was the first franchisee in the Planet Fitness system and has been backed by private equity fund TSG Consumer Partners since 2017. Sunshine Fitness started from one location in Altamonte Springs, Florida, in 2003. It now has facilities in five states in the U.S. southeast.
TSG’s involvement with the Planet Fitness brand dates to November 2012 when TSG acquired a majority stake in Planet Fitness. For nearly five years, TSG and Planet Fitness worked together to develop the Planet Fitness brand and improve the support and value proposition for both members and franchisees. In August of 2015, Planet Fitness began trading publicly on the New York Stock Exchange. After a successful partnership, TSG fully exited its investment in PLNT in May 2017. Later that year, in December, TSG acquired a majority stake in Sunshine Fitness.
Today, Sunshine Fitness operates 114 locations in Alabama, Florida, Georgia, North Carolina, and South Carolina that will be combined into the current Planet Fitness company-owned portfolio, which is predominantly located in the U.S. Northeast.
With the completion of the transaction, Planet Fitness now owns 200 (about 10%) of its 2,254 locations. The rest are franchised. Shane McGuiness, co-founder and CEO of Sunshine Fitness, who has been an owner and operator in the Planet Fitness system for nearly 20 years, will oversee operations of the combined corporate store portfolio.
The acquisition is expected to add immediately to earnings.
Planet Fitness’s revenue rose strongly from 2016 to 2019, climbing 60.2%, from $429.9 million to $688.8 million. Revenue then fell 41.0%, to $406.6 million in 2020 as the pandemic hit. Revenue then rose 44.4% in 2021, to $587.0 million.
The company’s earnings also rose steadily from 2016 to 2019, climbing 101.5%, from $66.3 million, or $0.84 a share, to $133.6 million, or $1.60 a share. Earnings then fell sharply in 2020, to $3.1 million, or $0.04 a share. With the pandemic restriction easing, earnings rebounded in 2021 to $71.5 million, or $0.82 a share.
Gyms were initially hit hard by the pandemic in 2020 when some 9,100 U.S. gyms—or a quarter of the industry—closed for good. But many were also able to pivot by offering online classes and fitness instruction.
Last year, gyms began to recover, and Planet Fitness ended 2021 with 15.2 million members, an increase of 1.7 million members from the end of 2020. In 2021, 132 new stores were opened, and the company ended the year with 2,254 stores worldwide. Currently, 98% of Planet Fitness’s stores are open including 100% of U.S. locations.
In the quarter ended December 31, 2021, Planet Fitness’s revenue was $183.6 million, up 37.3% from $133.8 million a year earlier. The fitness chain had 12.3% same-store sales growth in the quarter. Revenue increased as more of its locations opened in 2021 on pandemic easing. Excluding one-time items, Planet Fitness earned $22.5 million, or $0.26 a share, in the quarter. That was up 49.6% from $15.1 million, or $0.17.
The company has some long-term appeal. However, it’s in a volatile and fiercely competitive business with few barriers to entry. It’s also at risk of new COVID variants. At present we don’t recommend it.
Recommendation in Pat’s Inner Circle: Planet Fitness Inc. is not recommended.
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