Giardina Returns to TSI after Tough Year for the Company

NEW YORK — Bob Giardina is no stranger to Town Sports International, New York. The new CEO, appointed by the board last month, is actually the former CEO who left for health and personal reasons in 2007. But during his 36-month absence, TSI experienced a recession and dropping stock prices. Last month, TSI's board of directors voted out Alex Alimanestianu, who had been CEO during Giardina's absence, and wooed back Giardina.

Alimanestianu will continue to serve on TSI's board. The board also voted to replace Jason Fish as chairman of the board with Thomas Galligan.

TSI would not comment for this story, but one industry insider says that the fact TSI's board made a change was not a surprise.

“The company has been dramatically underperforming under Alex's leadership,” he says. “The stock has been hammered, and the direction they've taken the company hasn't worked.”

TSI's stock was trading at around $22 in April 2007, but it dropped to around $16 right before Giardina's departure. During Alimanestianu's time as CEO, the stock price dropped even further to below $3 right before he was voted out. Right after Giardina's return, it jumped up to $3.86.

By comparison, the other publicly traded company in the industry, Life Time Fitness, Chanhassen, MN, was trading at about $51 in April 2007, around $58-$61 in October 2007, and as of late March, it was at around $27.

The industry insider says that the board made a good decision when it brought back Giardiana, but it could take him a year or two for the company to begin performing well again.

“If Robert can turn the company back to what it once was, it means good things for the industry because their stock will enhance, they'll perform better and that will be better for all of us,” he says. “If Robert can't turn it because it's too deep of a mess, it means it's the status quo, it's the same as it is now.”

Giardina served as CEO of TSI from January 2002 through October 2007. He originally joined TSI in 1981 and served as president and chief operating officer from 1992 to 2001.

Giardina's return came suddenly for Hydromassage, the company where he had been CEO for the past six months. Paul Lunter, president of Hydromassage, Clearwater, FL, says that once Giardina told him that TSI was trying to get him back, it didn't take long for the move. In fact, Lunter didn't even have time to find a replacement for Giardina before he left.

“Town Sports was in need of his assistance to make some changes in the company,” Lunter says. “He was instrumental in their growth for the past 17 years, so he was an obvious replacement.”

The vote to replace Alimanestianu came on the same day that TSI released its fourth quarter 2009 and year-end 2009 financials. Alimanestianu and Dan Gallagher, CFO, went over the financials with shareholders and analysts in a conference call conducted just prior to the vote.

The financials show that TSI's revenue decreased 7 percent to $114.3 million in the fourth quarter compared to the fourth quarter 2008 revenue of $122.9 million. For the year, revenue fell 4.2 percent to $485.4 million compared to 2008 revenue of $506.7 million. Comparable club revenue decreased 7.1 percent in fourth quarter 2009 compared to the same period last year and 5.6 percent for the year compared to 2008.

Alimanestianu blamed the lower revenue on lower membership numbers. The total member count decreased 4.7 percent to 486,000 as of Dec. 31, 2009, compared to Dec. 31, 2008. Membership attrition averaged 3.6 percent per month in the fourth quarter and 3.8 percent per month for the year. That was higher than the 3.4 percent per month attrition average in full year 2008.

However, TSI lost fewer net members in fourth quarter 2009 than it did in the third quarter. In January, TSI had a net member gain, although the snowstorms in the Northeast caused the company to lose some of those gains in February, Alimanestianu said in the call. However, he said that he expects memberships to increase in a quarter-over-quarter basis by the fourth quarter of this year.

“But that growth won't be sufficient to prevent a decline in revenue and profitability for the full year,” Alimanestianu said in the call. “However, a higher member count at year-end 2010 will set the stage for year-over-year growth in revenue and profitability in 2011. Of course, we are doing all we can to accelerate improvements in 2010, but by virtue of the subscription nature of our business model, revenue growth may well lag behind other consumer-facing businesses, like retailers and restaurants.”

Now, the company will look to Giardina to make sure that membership growth picks up and is followed by revenue increases.

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