Planet Fitness Second Quarter Earnings Review

Breaking down the results of this gym chain.

“There is a dislocation in the fitness industry with approximately 22% of U.S. gyms permanently closed due to the pandemic. We believe Planet Fitness is the place that fills that gap with our affordable, non-intimidating workout environment. We are confident in achieving and possibly exceeding our long-term target of 4,000 locations in the U.S.” — CEO Chris Rondeau

a. Demand

**As of the end of July, Planet Fitness had re-surpassed 15 million members with 98% of its stores now open globally vs. 100% sequentially. Planet Fitness has now seen 6 straight months of net member growth. 75% of Planet Fitness members who left due to the pandemic have returned. Normally, Planet Fitness sees strong membership growth from January-April and then no growth for the rest of the year. This year, growth has continued into the summer.

The company now has 2,170 stores open. This is up 1.1% sequentially and 16.7% vs. pre-pandemic.

“I have never seen this type of un-seasonal membership growth in my nearly 30 years at Planet Fitness. Some of our larger franchisees are also amazed at the positive trends they’re seeing.” — Rondeau

Importantly, increased promotional activity has not resulting in rising churn.

b. Profitability

c. Guidance

For the first time this year, Planet Fitness introduced 2021 guidance including:

1. Revenue between $530 and $540 million

2. Adjusted EBITDA between $200 and $210 million

3. Adjusted earnings per share of $0.65 and $0.70

4. It will open close to 100 stores — at the high end of its annual 75-100 range

Analysts had been expected $541 million in sales and $0.94 in earnings per share meaning Planet Fitness guided down in both categories. This guide also assumes no significant surge in Covid-19 and new restrictions.

d. Management Commentary

Planet Fitness has announced a new partnership with “a prominent local retail services company and one of its largest U.S. developers” to expand further into Mexico. It is for a minimum of 80 new stores over the next 5 years with Planet Fitness having just 5 open in Mexico today.

“I always knew we would come out of the pandemic even stronger, but the pace is much faster than I expected.” — Rondeau

60% of Planet Fitness members have now downloaded the app vs. 40% just 2 quarters ago.

The company is testing pricing bundles with the PF+ paid app it debuted. In June, 40% of new PF+ subscribers who had not yet bought a brick and mortar membership did so. This is vs. 20% 2 quarters ago.

“Several franchisee groups are now taking advantage of the increased supply of real estate. We believe we are increasingly attractive to landlords as a tenant of choice due to none of our locations closing as a result of the pandemic. We are seeing a very favorable real estate environment.” — CFO Tom Fitzgerald

Black card penetration rose 1.9% year over year to reach 62.6%. This is the company’s all-access membership.

Usage levels are back to 90% of pre-pandemic levels and have even exceeded it in some locations.

“Stores opened this year are performing better than new stores opened pre-pandemic.” — Fitzgerald

e. My Take

Planet Fitness remains in recovery mode but has made meaningful strides towards its business normalizing. I continue to think this will be a great long term investment and extremely volatile in the short to medium term. I have no interest in trimming or adding to my position at this time.