Insider Trading Report: Town Sports International (CLUB)

Insiders at Town Sports International Holdings (CLUB) made several purchases since the beginning of November. Insider trading reports filed with the SEC show that four insiders bought CLUB shares at prices between $3.05 and $3.20. Before these transactions, none were recorded over the past 12 months.  In fact, Farallon Capital, one of the largest hedge funds in the world, has been selling its stake in CLUB until March 2010. They stopped selling after March 5th.

Town Sports International Holdings, Inc. (NASDAQ:CLUB)

Here are the insiders and their purchases:

1. Kevin McCall: McCall bought 30,000 shares since November 1st at prices between $3.05 and $3.10.  McCall has served as a director since March 2007. McCall is President and Chief Executive Officer of Paradigm Properties, LLC and its investment management affiliate, Paradigm Capital Advisors, LLC. Prior to forming Paradigm in 1997, McCall held positions as a director of Aldrich, Eastman & Waltch, L.P. (now AEW Capital Management, L.P.) and as a Partner and Senior Vice President of Spaulding & Slye Company. McCall serves as a director of the Boston Museum, MetroLacrosse, Hearth, Inc., Building Impact and the National Association of Industrial & Office Parks — Massachusetts Chapter.

2. Thomas J. Gilligan III bought 18,000 shares since November 2nd at prices between $3.05 and $3.20. Gilligan has served as a director since March 2007 and was appointed Chairman of the Board in March 2010. Galligan is Executive Chairman and a member of the board of directors of Papa Gino’s Holdings Corp. Galligan served as Chairman, President and Chief Executive Officer of Papa Gino’s Holdings Corp. from May 1996 until October 2008 and Chairman and Chief Executive Officer until March 2009. Prior to joining Papa Gino’s in March 1995 as Executive Vice President, Galligan held executive positions at Morse Shoe, Inc. and PepsiCo., Inc. Galligan is currently a director of Bay State Milling Co. and Dental Service of Massachusetts, Inc.

3. Paul Arnold bought 5,000 shares on November 9, 2010 at around $3.16 per share.  Arnold has served as a director since April 1997. Arnold was Chairman of the Board from May 2006 until February 2009. Arnold has served as Chairman and Chief Executive Officer of Cort Business Services, Inc., a Berkshire Hathaway company, a provider of rental furniture, since 2000. From 1992 to 2000, Arnold served as President, Chief Executive Officer and Director of Cort Business Services. Prior to 1992, Arnold held various positions over a 24-year period within Cort Furniture Rental, a division of Mohasco Industries. Arnold is currently a director of H&E Equipment Services, Inc.

4. J. Rice Edmonds bought 30,000 shares on November 1st at $3.11 per share. Edmonds has served as a director since July 2002. Edmonds is the founder and Managing Director of Edmonds Capital, LLC, a private equity firm. From 1996 through September 2008, Edmonds was employed by BRS, most recently as a Managing Director. Prior to 1996, Edmonds worked in the high yield finance group of Bankers Trust. Edmonds is currently a director of McCormick & Schmick’s Seafood Restaurants, Inc. and several private companies. Since 2005, Edmonds has also been a director of The Sheridan Group, Inc., Real Mex Restaurants, Inc. and Penhall International Corp.

Edmonds bought more than 6,000 shares of McCormick & Schmick’s Seafood Restaurants, Inc. (MSSR) a year ago at less than $6 per share.  Today, MSSR trades at $8 per share. Edmonds made 35% in a year from his insider purchases, beating the S&P 500 index by nearly 25%.

CLUB was a $20 stock 3 years ago. With the onset of the great recession, their members started to cancel their memberships earlier and potential members became more reluctant to spend money on their fitness. As a result, comparable club revenue started to decline since the last quarter of 2008. Even in 2010, comparable club revenue has been declining at a 5% rate compared to already low values of 2009. The decline in revenue actually accelerated during the third quarter of 2010. Financially it still doesn’t make sense to invest anything in CLUB unless you believe that their revenues will increase or the company will be sold at a premium.

Insider Monkey, your source for free insider trading data, doesn’t have any nonpublic material information about CLUB. But the insiders might. Small firm insiders know their companies better than do insiders at larger companies. Stocks bought by more than 3 insiders have historically outperformed the index funds by an average 7 percentage points per year. Since we are following a quantitative investment strategy, we will be adding CLUB to our hypothetical portfolio.

Business Description of Town Sports International (CLUB) Taken from 10-K:

Based on number of clubs, we are the second largest owner and operator of fitness clubs in the Northeast and Mid-Atlantic regions of the United States and the fifth largest fitness club owner and operator in the United States. As of December 31, 2009, the Company, through its subsidiaries, operated 161 fitness clubs under our four key regional brand names; “New York Sports Clubs” (NYSC), “Boston Sports Clubs” (BSC), “Philadelphia Sports Clubs” (PSC) and “Washington Sports Clubs” (WSC). These clubs collectively served approximately 486,000 members, excluding short-term and seasonal memberships, as of December 31, 2009. We owned and operated a total of 109 clubs under the “New York Sports Clubs” brand name within a 120-mile radius of New York City as of December 31, 2009, including 39 locations in Manhattan where we are the largest fitness club owner and operator (more than twice as many as our nearest competitor). We owned and operated 25 clubs in the Boston region under our “Boston Sports Clubs” brand name, 18 clubs (two of which are partly-owned) in the Washington, D.C. region under our “Washington Sports Clubs” brand name and six clubs in the Philadelphia region under our “Philadelphia Sports Clubs” brand name as of December 31, 2009. In addition, we owned and operated three clubs in Switzerland as of December 31, 2009. We employ localized brand names for our clubs to create an image and atmosphere consistent with the local community and to foster recognition as a local network of quality fitness clubs rather than a national chain.

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