Planet Fitness, Inc. (NYSE:PLNT) was a leading franchisor and operator of fitness centers, boasting a highly recognizable national brand and an impressive footprint of over 2,599 stores across the United States, Puerto Rico, Canada, Panama, Mexico, and Australia. The company's mission was to democratize fitness by providing a high-quality, non-intimidating, and welcoming environment for people of all fitness levels, catering to a broad demographic that included occasional gym users and those new to the fitness experience.

Business Overview

At the heart of Planet Fitness' success was its "Judgement Free Zone" philosophy, which created an inclusive atmosphere where members could feel comfortable and supported in their fitness journey, regardless of their starting point. The company's bright, clean stores, typically spanning 20,000 square feet, offered a wide selection of high-quality, branded cardio and strength-training equipment, complemented by friendly staff trainers who provided unlimited free fitness instruction through the PE@PF program.

Planet Fitness' differentiated fitness experience, with memberships starting as low as $10 per month for the standard Classic Card, had proven to be a highly attractive value proposition that appealed to a diverse customer base. As of March 31, 2024, the company boasted approximately 19.6 million members, solidifying its position as one of the largest and fastest-growing fitness center franchisors in the world.

The company operated and managed its business through three distinct segments:

1. Franchise:

2. Corporate-owned Stores:

3. Equipment:

Financials

In the first quarter of 2024, Planet Fitness delivered strong financial results, with total revenue increasing 11.6% year-over-year to $248.0 million. This growth was primarily driven by a 12.2% increase in Franchise segment revenue and a 15.6% increase in Corporate-owned Stores segment revenue. The Equipment segment, however, saw an 8.6% decrease in revenue due to lower equipment sales to new and existing franchisee-owned stores.

The company's Franchise segment revenue of $104.0 million in the first quarter of 2024 was driven by a 11.0% increase in franchise revenue, which included a 12.0% increase in royalty revenue, a 1.1% increase in franchise and other fees, and a 12.5% increase in placement revenue. The National Advertising Fund (NAF) revenue also grew by 17.7% during the quarter.

The Corporate-owned Stores segment revenue of $122.4 million in the first quarter of 2024 was primarily attributable to a 15.6% increase, driven by a 6.2% same-store sales growth and contributions from new and acquired stores.

Planet Fitness' Equipment segment revenue of $21.6 million in the first quarter of 2024 decreased by 8.6% due to lower equipment sales to new and existing franchisee-owned stores, which was driven by fewer new store placements and a shift towards more strength equipment versus cardio.

The company's cost of revenue, which primarily related to the Equipment segment, decreased by 1.9% to $19.0 million in the first quarter of 2024. Store operations expenses, associated with the Corporate-owned Stores segment, increased by 12.6% to $74.4 million, primarily due to new stores opened or acquired. Selling, general, and administrative (SG&A) expenses increased by 5.1% to $29.2 million, driven by higher consulting costs and severance-related expenses.

Planet Fitness' net income for the full year 2023 was $138.3 million, with annual revenue of $1.07 billion, annual operating cash flow of $330.3 million, and annual free cash flow of $194.3 million. In the first quarter of 2024, the company reported net income of $35.0 million.

Liquidity

The company's balance sheet remained strong, with $301.7 million in cash and cash equivalents, $93.4 million in short-term marketable securities, and $45.2 million in long-term marketable securities as of March 31, 2024. Total long-term debt, excluding deferred financing costs, stood at approximately $2.0 billion as of the same date.

Outlook

Looking ahead, Planet Fitness provided updated guidance for the full year 2024. The company expected system-wide same-store sales growth to be between 3% and 5%, down from the previous range of 5% to 6%. Full-year revenue was expected to grow in the 4% to 6% range, while adjusted EBITDA was projected to increase by 7% to 9%, and adjusted net income was anticipated to rise by 6% to 8%.

The company's decision to increase the price of its Classic Card membership from $10 to $15 per month, effective this summer for new members, was expected to further enhance the average unit volumes for its stores. Additionally, Planet Fitness planned to explore refinancing a portion of its debt this year, which could potentially lower its overall weighted average interest rate.

Recent Developments

The appointment of Colleen Keating as the new Chief Executive Officer, with her extensive experience in hospitality, real estate, operations, franchise, and brand management, was expected to further strengthen the company's leadership and drive its continued success.

Conclusion

Despite the challenges faced in the first quarter, including the impact of social media noise and a softer-than-expected start to the year, Planet Fitness remained well-positioned for long-term growth. The company's focus on innovation, including testing new pricing strategies and amenities, as well as its commitment to reducing capital requirements for franchisees through its new growth model, positioned it as a highly attractive franchise system that generated strong and stable free cash flow. With a strong brand, loyal member base, and a proven business model, Planet Fitness was poised to capitalize on the growing demand for affordable and inclusive fitness experiences, solidifying its position as a leading player in the industry.