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Is It 'Irrational' to Support Town Sports International?

Is It 'Irrational' to Support Town Sports International?

Seeking Alpha is not often at the top of my go-to reading lists about the health club industry. In the past, I've sought out Seeking Alpha, an investment research website, for transcripts of earnings calls for Life Time Fitness and Town Sports International.

One recent Seeking Alpha headline caught my attention, however, and it involves TSI: "There Is Irrationality And Then There Is Town Sports International."

TSI is coming off an earnings call in which it announced sharp decreases in revenue and net income, rolled out a low-price model for 20 of its clubs and announced plans to close nine clubs. I could not read the entire article at first, so I signed up to be a Seeking Alpha subscriber. (You can, too, and receive Wall Street emails first thing in the morning!)

If the headline isn't enough to pique your interest, then the first line of the article/analysis piece will. It reads: "Having a gym membership is like a carrying a condom in your wallet. You may never use it but you always want to have it."

Let the record show, your honor, that the article was written by Ravi Ramenani—a man. Regardless, I've never seen gym memberships described quite this way before.

Ramenani went on to analyze the industry and TSI, and in the end, despite its 2 percent drop in membership and 70 percent decline in stock price over the past year, he encourages investors to stay with TSI. From Seeking Alpha:

"Investors are focused heavily on short-term metrics and are overlooking the current value proposition. … There are multiple catalysts lined up in the near future and I believe there is going to be a huge upside from here for those investors who stick through the turnaround story."

A few readers disagree with Ramenani's support of TSI, and he responds to them in the comments section after the article. Normally, I wouldn't encourage readers to read the comments section of an article, but there are no personal insults hurled or mentions of Kim K. here, so it's all good.

I've been listening to TSI conference calls since 2007, and this was as dramatic a change in philosophy as I can ever recall. The company is focusing more on its urban clubs, its BFX studio model and, most surprisingly, its new high volume/low-price model.

After talking to a couple of industry insiders, a few questions come to mind: Is this a good strategy by TSI? Or is this a panic move by the company? How long will Bob Giardina stay on as CEO? Will another club company want to buy TSI? It will be interesting to see how all of this plays out the rest of the year.

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