TSI Ramping Up Conversion to Low-Price Model

TSI Ramping Up Conversion to Low-Price Model

Town Sports International (TSI), which announced a plan to convert a number of its clubs to a low-price model last year, is intensifying that conversion in 2015.

Town Sports International (TSI), which announced a plan to convert a number of its clubs to a low-price model last year, is intensifying that conversion in 2015.

The New York-based company will have about 120 of its 158 clubs in the high-value, low-price model (HVLP)—which features a $19.95 price point—by the end of March, CFO Carolyn Spatafora said Monday. Spatafora and TSI CEO Bob Giardina presented at the ICR Xchange Conference in Orlando. The conference features analysts, investors, private equity firms and select media.

As of Monday, TSI had converted 91 clubs to the low-price model.

"Obviously, the initial results (of the conversion) have been very positive," Spatafora said at the conference. "We're seeing an average of approximately three times more sales compared to the prior year and eight times more guest traffic."

About 20 to 25 TSI clubs will operate under a high-priced, passport-only model, predominantly in urban markets, Giardina said.

TSI also highlighted its BFX studio model at the ICR Xchange Conference. The company plans to open its second BFX studio this quarter in New York City and two more studios, one each in New York and Boston, later this year.

As of Dec. 31, 2014, TSI operated 107 New York Sports Clubs, 30 Boston Sports Clubs, 13 Washington Sports Clubs and five Philadelphia Sports Clubs. It also operated three clubs in Switzerland. TSI closed eight clubs and opened four in 2014. One club opening is planned this quarter in New York City.

"We've reduced and slowed down our development, especially on the BFX, not because it's not doing well … but we think the bigger opportunity for us is to convert our clubs to HVLP and passport," Giardina said.

In an interview with the New York Post, Giardina said TSI was starting to lose student members to Planet Fitness and other low-cost clubs.

"We need to attract students," Giardina told the Post. "Students are our mainstay."

Although TSI will not release its fourth quarter 2014 and year-end financials until next month, the company reported Monday that revenue for the fourth quarter is expected to come in higher than its previous guidance of $108 million to $109 million. That still will be lower than TSI's revenue of $113.9 million in fourth quarter 2013.

TSI also said it ended fourth quarter 2014 with approximately $94 million of cash on hand. Net debt was about $214 million, a decline of about $37 million from the end of 2013.

TSI also estimates its membership at the end of fourth quarter 2014 was about 484,000, an increase of about 5,000 memberships from the same period in 2013.

TSI's stock price was $6.91 during midday trading on the NASDAQ Stock Market.

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