Planet Fitness Review: absorption of franchised fitness clubs

Обзор Planet Fitness: поглощение франчайзинговых фитнес-клубов

Planet FItness IncPLNT86.31 $BuyService in partnership with Tinkoff Investments. Quotes are updated every 15 minutes

Planet Fitness (PLNT: NYSE) is an American fitness club operator based in Hampton, New Hampshire. It is one of the largest fitness club chains in the US.. In addition to the USA, she has clubs in Canada., Panama, Mexico, Dominican Republic and Australia. The company itself positions itself as the fastest growing fitness network in the United States..

In Russia, the company's shares are traded on the St. Petersburg Stock Exchange with 28 March 2019 under the ticker PLNT. Their medium-term dynamics is positive, although a sideways trend dominates in the short term.

About company

history of the company. Planet Fitness founded in 1992 in Dover, New Hampshire, Michael and Mark Grondal, who bought a bankrupt Gold's gym. At that time, it was not much different from competitors. Then Chris Rondo joined the staff of the company, University of New Hampshire student, whose business experience was limited to, that he helped in his father's chain of pharmacies. Since 1993 he has worked at the club's front desk, but by 2013 he rose to the rank of executive director of the company.

At that time, 28 thousand people lived in Dover, and of them only 15% of the population were engaged in fitness. The task was, to convince the rest of the population to go in for sports.

Initially, Planet Fitness considered, that the easiest way to do this is to reduce the cost of membership to 10 $ per month. Up to a certain point it actually worked., but still more experienced athletes came to the hall, than beginners. That's why, when the company opened its second gym in New Hampshire, the emphasis was not on heavy weights, what is suitable for beginner athletes.

When did Portsmouth Gym 4 open?, the emphasis was already on round-the-clock work. The rest of the clubs were built on this model.. They all looked alike, up to that, that the technique was the same purple and yellow colors, - similar branding has been preserved to this day.

Sponsorship of various projects began to develop, in particular New Year's Eve celebrations in Times Square in New York. In 2003, the company's first franchise opened, a gym in Altamonte Springs., Florida. And in 2011, the network went beyond the continental United States - in Puerto Rico.

During the crisis of the late 2000s, the company began to occupy the premises of bankrupt stores in large shopping centers. In 2014, the first gym outside the US opened in Canada.. The company went public in 2015. In the same year, she began to explore the sports market of the Dominican Republic., expanded to Panama in 2017, in 2018 - to Mexico, further to Australia.

Composition of the group of companies. The company itself does not distribute information about its subsidiaries for unclear reasons., but indirectly it can be concluded, that there are only three: Judson Fitness, Planet Fitness Master Issuer, Pla-Fit Holdings.

Apparently, such a poor composition is due to the emphasis on franchising to a greater extent, than to open your own fitness rooms.

Shareholders. The composition of shareholders is represented mainly by institutional investors and mutual funds. Vanguard Group has the largest share, one of the world's largest investment companies. This is a positive factor for the group of companies., since many retail and even small institutional investors are guided by the choice of such large market players.

Rumors about, that Arnold Schwarzenegger is among the shareholders, Alas, do not correspond to reality - apparently, this is a common stock exchange provocation to promote the company's shares in the interests of stock bulls. With Schwarzenegger, however, related to another story, concerning a competitor of a group of companies, Gold's Gym fitness center chain: Schwarzenegger stopped going to these clubs due to low indoor protection against coronavirus. This lowers the prestige of Planet Fitness's competitors..

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Most of the share of private investors belongs to the top management of the company. How many shares are owned by the Grondahl brothers, unknown.

Key figures. The most famous top manager of the company is the chief executive Chris Rondo.. He has held this post since January 2013., prior to that, he was chief operating officer.

Over the years, Chris has played a critical role in developing and refining the company's business model.. Under Rondo's leadership, Planet Fitness has won many awards., including "The 500 Fastest Growing Franchises for Entrepreneurs", "200 best franchise franchises", "America's Best Franchises" Forbes, "Best Newsweek Customer Service" and "Best New Hampshire Jobs". Rondo himself was awarded the title of entrepreneur of the year. In 2020, he joined the Board of Directors of the International Franchise Association.

President Dorwin Lively joined Planet Fitness in July 2013, prior to the presidency, served as chief financial officer. Before coming to Planet Fitness, August 2011 to July 2013, Lively served as Executive Vice President, Chief Financial Officer, Interim Chief Executive Officer and Chief Administrative Officer of RadioShack Corporation. His experience: CFO at Ace Hardware, Maidenform Brands, senior vice president at Toys R Us, Association Readerʼs Digest.

Third Most Important - Chief Operating Officer Bill Bode. He has been in this position since December 2020.. Manages the operations of a franchise company, corporate operations and supplier teams. He joined Planet Fitness in 2016 as Senior Vice President of Franchise Operations.. Before joining Planet Fitness, Bode held several senior positions at Dunkin' Brands., including the position of Regional Vice President Dunkin' Donuts Northeast, where he supervised the activities of more than 2600 restaurants.

Geography of fitness clubs. Most of the company's clubs are located in the eastern and southeastern states of the United States, to a lesser extent in central, and also in California. This geographical distribution is a strength of the company., because these regions are the richest in the US. Besides, individual clubs are located abroad.

What he earns

Brands. The company has only one brand - Planet Fitness. But more 90% gyms, working under it, owned by independent owners, although they are all unified down to the color scheme of interiors and sports equipment.

At the same time, the share of income from own gyms for 9 months of 2021 was disproportionately high. But this is quite logical from a geographical point of view., since the company's own halls are located mainly in the Northwest of the United States, where the population density is higher, and his income is more.

IN 3 quarter of 2021, the situation changed slightly compared to the same period of the previous year - in favor of the share of income from equipment sales. This is due to the trend towards non-gym fitness classes., both at home and on the street.

Income structure for 9 Months, one thousand dollars

2020 2021 Share in 2021 The change
Franchise income 112 296 173 419 42,78% 54,43%
Income of own gyms 78 224 122 355 30,18% 56,42%
Income from equipment sales 55 335 68 735 16,95% 24,22%
Income of the National Advertising Fund 26 509 38 493 9,49% 45,21%
Commission income 483 381 0,09% −21,12%

Income structure in 3 quarter, one thousand dollars

2020 2021 Share in 2021 The change
Franchise income 47 171 61 481 39,86% 30,34%
Income of own fitness clubs 28 289 43 899 28,46% 55,18%
Income from equipment sales 17 337 34 973 22,67% 101,72%
Income of the National Advertising Fund 12 538 13 863 8,99% 10,57%
Commission income 48 39 0,03% −18,75%
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Financial indicators. For 9 months of 2021 all results are up significantly compared to the same period in 2020. Revenue growth is attributable to, that in 2020 it was low due to the temporary closure of clubs during the lockdown. Spending up in 2020, takeover-related 12 clubs, who were previously franchised, and opening 9 new clubs.

The growth of financial indicators in 3 quarter of 2021 compared to the same period of the previous year was more modest, than for 9 months of 2021, although the growth was still significant. Apparently, this is related to, that in the same period of 2020 there was no longer such a hard lockdown, how in 1 half of 2020.

Financial performance for 9 Months, one thousand dollars

2020 2021 The change
EBITDA 6624 161 658 2340,49%
Profit before tax −31 955 54 826 271,57%
Net profit −24 886 39 838 260,08%
Basic earnings per share −0,3 $ 0,45 $ 250%
Diluted earnings per share −0,3 $ 0,44 $ 246,67%
Adjusted EBITDA 69 249 161 448 133,14%

Financial indicators in 3 quarter, one thousand dollars

2020 2021 The change
Profit before tax −4319 25 107 681,32%
Net profit −3284 18 632 667,36%
Basic earnings per share −0,04 $ 0,21 $ 625,00%
Diluted earnings per share −0,04 $ 0,21 $ 625%
EBITDA 29 654 61 472 107,3%
Adjusted EBITDA 31 981 62 164 94,38%

Plans and prospects

The immediate prospects for Planet Fitness can be assessed in direct relation to recent and planned acquisitions of companies and the opening of new gyms..

Earlier this year, the company announced, that Grand Fitness Partners, one of the largest franchisees in the Planet Fitness system, announces the acquisition of a portfolio of 13 Planet Fitness centers throughout Virginia from Asbell Group.

Acquisition follows investment in Grand Fitness by HGGC, leading private investment company in the middle market, in November 2021. The value of the deal is, that these fitness centers are located in regions with rapid economic growth: Richmond — Petersburg, Roanoke, Charlottesville, Washington Metropolitan County, Columbia region. Clubs compare favorably with local competitors.

Grand Fitness currently has more than, what was recorded before the pandemic. The expansion of the number of clubs through franchising will be a positive factor for the financial performance and dynamics of the company's shares, especially since it does not entail any additional costs on her part.

Other franchisees are also expanding. One of the largest Planet Fitness franchise groups, National Fitness Partners (NFP), Camp Hill, state of Pennsylvania, acquired 7 clubs on the East Coast for an undisclosed amount, preparing to open its 100th fitness club under the company's brand.

The acquired clubs belonged to Planet Fitness Chesapeake. 100th club to open in Philadelphia, large city with high incomes, in total there will be more than a hundred simulators and six solariums.

But the company itself is also planning acquisitions.. Earlier this year, she signed a definitive agreement to acquire Sunshine Fitness Growth Holdings., leading franchise owner and operator of over 100 Planet Fitness locations in the Southeast United States, in an $800 million cash and stock deal.

Undoubtedly, such spending could lead to a short-term drop in stocks, but in the medium and long term the decision will be positive for their dynamics, taking into account the scale of the business of the absorbed company.

The company predicts, that Planet Fitness's adjusted net earnings per diluted share will increase by a double-digit percentage from the takeover in 2022 alone.

Sunshine Fitness operates 114 of the company's franchised clubs in Alabama, Florida, Georgia, North Carolina and South Carolina, to be merged into the current portfolio. This means a geographical expansion of the company's network of corporate fitness centers., which prior to this deal are still primarily in the Northeast United States.

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The overall outlook for the US and North American fitness market is broadly favorable for equity investment.. Even though the omicron pandemic in the United States may cause further restrictions on visiting public places, industry representatives believe, that the main stage of the crisis has already passed.

In 2020 the fitness industry, like many others, interfered with long closures, social distancing and room occupancy restrictions. However, the industry has recovered from a very difficult 2020 and has experienced significant growth in 2021., despite the spread of the Delta strain. The US fitness market grew by 4,7% in 2021, total revenue reached $35.3 billion. Market participants predict, that in 2022 it will reach $37.3 billion.

This happens against the backdrop of, what for Americans, as well as for residents of other developed countries, The pandemic has heightened the importance of physical fitness and normal body weight: Proven, that overweight people endure COVID-19 very hard.

Risks

The main risk is competition from companies, manufacturing and supplying home fitness equipment, as a huge number of people are still afraid to visit fitness gyms because of the risk of contracting coronavirus, preferring to study at home. There are several trends in the global fitness, that can hinder the company's business and the entire fitness room industry.

mobility. Technology allows you to do fitness anywhere, even outdoors, without direct contact with the coach. In particular, any single platform allows you to track the process of training as on equipment, the manufacturer or owner of which has concluded a contract with it, and somewhere on the horizontal bars closest to the house.

Home comfort. There was a fashion for home gyms in those regions, where the level of prosperity of the population allows it, namely, in these regions the majority of the company's fitness rooms are located. Mobile applications allow the trainer to track the process of training in the home gym.

Fresh air. There is a trend towards outdoor activities, but outdoors and without any weights, especially among people, who have had COVID-19 more than once. After an illness, it is not recommended to overload, in addition, the risk of re-infection, for example, when running or walking is minimized. Outdoor physical activity can also be tracked using modern mobile applications.

The presence of the company in the Australian market also has rather controversial consequences., Considering, that the Australian Institute of Health and Welfare reports, that more than half of Australians are physically active or not engaged at all in remote conditions, or do not follow the recommendations.

conclusions

The company is quite promising due to its expansion, expansion into foreign markets and acquisitions of franchised gyms. These factors, combined with a significant increase in financial performance, make it possible to buy its shares..

Most likely, investors should expect medium and long term growth prospects. Short-term dynamics may be worsened due to a possible decrease in profits, which is related to the planned investment in the takeover of franchised gyms in the US Southeast.

But the risk, at least in the short term, may remain the same, as the coronavirus pandemic continues. The new strain of "omicron" is less deadly, than previous, but more contagious, because of which many people will prefer to exercise at home or outdoors.

Competition with mobile fitness app manufacturers is significant. Therefore, investors, determining the future dynamics of the company's shares, should be guided not only by her plans, but also to the pandemic situation.

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