In its first ever earnings report as a public company, Planet Fitness Inc (NYSE:PLNT) pleasantly surprised Wall Street today, reporting that its profits grew by over 30% year-over-year during the second quarter, to $11.5 million. Adjusted earnings per share was reported to be $0.13, up by nearly 29% from the same quarter a year ago, while revenue was $78.95 million, up by almost 26% from 2014’s second quarter. Both adjusted earnings and revenue came in above consensus estimates, which stood at $0.12 per share and $77.1 million respectively.
Planet Fitness Inc (NYSE:PLNT), which completed its initial public offering on August 11, also revealed that it hit a milestone during the quarter, opening its 1,000th location. As 38 new locations were opened by the firm in the period, the company ended June with a total of 1,014 facilities. The company’s franchise segment, which includes commissions, tallied a total revenue of $21.88 million, up from $18.43 million in the prior-year period. Corporate stores segment revenues increased to $24.98 million from $22.43 million in the same quarter last year. However, the segment with the biggest gain was equipment sales, as its revenue grew to $32.1 million from $21.84 million a year ago.
For the year that ends December 31, 2015, Planet Fitness Inc (NYSE:PLNT) expects to report revenue of between $314 million and $316 million along with adjusted net income of between $46.5 million to $47.5 million, or $0.47 to $0.48 per diluted share. Analysts are expecting $313 million in revenue with earnings per share of $0.46. According to the budget gym company, it forecasts system-wide same store sales growth between 7.0% and 7.5%. It also anticipates opening between 187 and 191 new franchised sites and three new corporate facilities.
As the firm is fresh off its initial public offering, it will be interesting to see how the hedge funds we track treat the stock. It should be noted that the firm is majority owned by TSG Consumer Partners, a private equity firm that has seen notable successes with consumer brands and which became a Planet Fitness strategic partner at the beginning of 2013. Based on our data, none of the hedge funds we track have yet claimed an ownership position in Planet Fitness.
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Nonetheless, it’s important to discuss the things going against Planet Fitness Inc (NYSE:PLNT) in light of the positive first earnings report of the company. First off, the gym and health club industry is crowded and very competitive. According to The Street, which cites data from the International Health, Racquet & Sportsclub Association, there were 34,460 health clubs in the U.S. as of August. In 2014, the number of health clubs grew by 6.4%, the association notes, while membership only grew by 2.3%. In short, companies are building more facilities than they are growing their membership base. While Planet Fitness has over 7.1 million members paying $10 per month and it hopes to increase the number of facilities it operates to over 4,000 in the long term, we can see from the figures discussed earlier in this report that over 40% of the company’s revenues are generated from one-time equipment sales. This means that the firm is significantly dependent on opening new locations and getting existing locations to regularly replace equipment.
That said, Planet Fitness Inc (NYSE:PLNT) does have its advantages as well. For one, its brand is clearly defined. Apart from the recognizable purple and yellow branding, its catchphrases such as “No Gymtimidation” and “Judgment Free Zone” are very identifiable, attractive to consumers, and differentiating from other gym operators. Its famous $10 membership fee, while low, is targeted to the occasional gym user, which is about 80% of the target market of the industry. The firm is also encouraging members to migrate to a higher $19.99 membership with its PF Black Card, which will could help the company’s top and bottom lines depending on its success.
Disclosure: None