TSI39s conversion of 123 of its 154 clubs to a highvalue lowprice model led to a 64 percent decrease in revenue for the company in second quarter 2015 Photo courtesy TSI

TSI's conversion of 123 of its 154 clubs to a high-value, low-price model led to a 6.4 percent decrease in revenue for the company in second quarter 2015. (Photo courtesy TSI.)

Town Sports International's Q3 Revenue Drops 7.8 Percent Amid Staff Reduction

The revenue decrease was attributed to existing members downgrading memberships and new members enrolling at a lower rate resulting from the company's move to more low-price clubs.

(Correction: An earlier version of the story misstated the payment Paul Barron will receive by the end of 2016.

Year-over-year third quarter revenue for Town Sports International (TSI), New York, fell 7.8 percent to $103.76 million in 2015, according to financials released Monday by the company. The company also shared that it had a headcount reduction but did not offer specifics. 

For the first nine months of 2015, TSI's revenue is down $20.6 million to $323.48 million compared to the same period in 2014, marking a 6 percent decrease. The company reported a net loss of $22 million in the third quarter, which included a non-cash fixed asset impairment charge of $12.4 million.

"The company remains focused on generating profitable membership growth," TSI Executive Chairman Patrick Walsh said in a statement. "In addition, the company has realized labor savings that should result in more than $25 million of annualized cost savings. Further cost saving initiatives are being analyzed that will potentially result in additional savings."

Initial results from the cost savings initiatives in the third quarter, which included the headcount reduction, decreased overhead and club expenses by $2.4 million. Payroll and related expenses decreased 2.5 percent to $42.88 million.

A request from Club Industry seeking further details related to the staff cuts was not returned.

The company attributed the third quarter revenue decrease to existing members downgrading memberships to memberships with lower monthly dues and new members enrolling at lower rates, which resulted from a low-price strategy completed at the majority of clubs during the second quarter. The effect of existing members opting for lower dues and new members enrolling at lower rates was only partially offset by an increase in membership sales volume, the company said.

TSI operated 153 clubs as of Sept. 30, with 105 New York Sports Clubs in the New York metro market, 27 Boston Sports Clubs in the Boston market and 13 Washington Sports Clubs in the Washington, DC, market.

Approximately 80 percent of TSI clubs operate under its low-price model with the remaining clubs operating under its passport-only model. TSI is still considering price adjustments in order to increase revenue while driving membership growth, the statement noted.

TSI closed one club in the third quarter. The Springdale New York Sports Clubs location in Stamford, Connecticut, informed members of the decision in July, according to the Stamford Advocate. TSI attributed the closure to "recent events" that made it difficult to provide "the highest quality member experience" in a letter to members signed by former CEO Dan Gallagher, according to the Advocate. The closure drops New York Sports Clubs to one location in Stamford and four locations in Fairfield County.

TSI's total member count increased 14,000 to 534,000 during the third quarter compared to a 9,000 member decrease in the third quarter of 2014. Membership dues, initiation and processing fees totaled 75.3 percent of total revenue at $78.17 million in the third quarter, marking a 10.4 percent year-over-year quarterly revenue decrease. Personal training and other ancillary club revenue totaled $23.94 million in the third quarter, marking a year-over-year revenue increase of one percent from 2014.

The average membership life span was 22 months in 2014 and for the nine months ended Sept. 30, Town Sports announced. The company tracked the membership life of restricted members (primarily students and teachers), and that membership was discontinued as part of the transition to the low-price model. The monthly average attrition rate at its clubs increased from 4 percent in third quarter 2014 to 4.4 percent in third quarter 2015.

TSI's three BFX Studio locations generated $689,000 in third quarter revenue. Development is underway at a fourth BFX Studio location on the Upper East Side in New York expected to open in early 2016.

TSI's operating expenses of $123.47 million in the third quarter marked a 12 percent year-over-year quarterly increase. Club operating expenses increased $2.6 million for the third quarter, which was attributed to rent and occupancy expenses, and increased electric utilities expenses.

TSI made changes to its management team in the third quarter.

In August, Gregory Bartoli was appointed as chief operating officer after previously working in the investment banking division at JPMorgan as the managing director of the interest rate trading group.

In September, Paul Barron was terminated as TSI's chief information officer without cause and will receive payments totaling $402,000 by the end of 2016 pursuant to a February 2015 agreement.

In October, TSI appointed Michelle Ryan as chief marketing officer and Leam Nelson as general counsel and corporate secretary. Ryan was previously Juicy Couture's vice president of global digital and social strategy, and Nelson was previously the Hess Corporations' assistant general counsel.

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