Investing in personal health and fitness is a smart lifestyle choice. Could extending this pursuit to investing in companies tied to physical wellness prove gainful as well? For one, the US health club industry is a sizable economic sector. It generated nearly $22 billion in revenue last year, with close to 60 million Americans patronizing fitness centers in 2012, says the International Health, Racquet & Sportsclub Association (IHRSA). For every five Americans age 6 or above, one is a health club patron, the IHRSA estimates.
The search for a stock pick which can draw a generous share of this business can start with Life Time Fitness, Inc. (NYSE:LTM). This Chanhassen, Minn.-based company had helped the US lay claim to having more health clubs than any other single country. As of this June, it operates 106 multi-use centers for fitness, family recreation, sports and athletic activities in 23 states encompassing 29 markets, including a Canadian province. Its total membership as of last year is nearing the 800,000 level.
A regional king
Regional dominance, on the other hand, is what propels the fortune of New York-based Town Sports International Holdings, Inc. (NASDAQ:CLUB). This company owns and operates 160 health and fitness facilities, making it the largest among operators in the U.S. Northeast and Mid-Atlantic. Three Town Sports clubs are also operating in Switzerland.
Membership as of the 2013 second quarter totaled 512,000 for Town Sports, unchanged from the first quarter this year. Nevertheless, the company’s second-quarter 2013 net income rose 14.4% year over year to $6.2 million from $5.4 million. Diluted EPS in the same comparative period increased to $0.25 from $0.23. Total revenue slid 1.7% to $120.1 million from $122.2 million, but the 2013 results gained favorable impact from insurance recovery related to Hurricane Sandy property damage claims.
Life Time Fitness, Inc. (NYSE:LTM) likewise showed gains in its 2013 second quarter with its net income up at $33.2 million, or $0.80 per diluted share, from $30.3 million, or $0.73 per diluted share, a year earlier. A 6.9% revenue growth to $308.1 million was posted during this year’s second quarter, compared to the $288.3 million posted in the same 2012 quarter.
Moving forward, one of the major challenges for both Life Time Fitness, Inc. (NYSE:LTM) and Town Sports International Holdings, Inc. (NASDAQ:CLUB) is differentiating their service offerings from the health and fitness chains or studios which have been proliferating in malls and shopping centers in recent years. This trend was brought about mainly by the decline of retail tenants and the potential of gyms and spas as a magnet for mall visitor traffic across consumer segments, i.e. from the young fitness buffs to health-conscious baby boomers.
A window of opportunity for growth, on the other hand, can be tapped if the two companies can draw additional club members from the quarter of a million or so Americans who prefer to exercise in the comforts of their homes. The significance of these fitness disciples as a factor in the business of health and fitness can be drawn from the market performance of Nautilus, Inc. (NYSE:NLS) which designs, develops, sources and markets cardio and strength fitness products to direct consumers.