Hard Work in 2010 Pays Off for Life Time Fitness, Town Sports International

Bahram Akradi and Robert Giardina, the CEOs of Life Time Fitness and Town Sports International (TSI), respectively, are proud of their companies’ efforts in 2010 and are pushing ahead for what they hope will be a successful first quarter 2011.

A focus on internal operations drove both CEOs. Akradi’s Chanhassen, MN-based company fell just short of his goal of 36 percent attrition. However, Life Time enjoyed a 9.8 percent revenue growth to $223.7 million in fourth quarter 2010 and a 9.1 percent growth to $912.8 million for 2010. Memberships increased to 612,556 on Dec. 31, 2010, from 578,937 on Dec. 31, 2009.

“Instead of retreating, we have gone on the offensive,” Akradi told analysts during last month’s financial call. “We have added value to our offerings rather than lowering our dues and cutting services. We have continued to invest in our buildings and equipment to keep them in like-new conditions. We have invested heavily in our programming and events to make them the best in class.”

Giardina had more of a disadvantage in trying to improve TSI’s earnings. Unlike Akradi, who has been with the company since its inception and was able to stabilize Life Time through the recession, Giardina just returned to TSI last March after a three-year absence from the New York-based company.

One of Giardina’s first orders of business was to improve club sales. TSI had fewer than 300 membership consultants upon his arrival, and, as he said in TSI’s earnings call last month, half of those were not the right fit. By year’s end, TSI had 390 membership consultants.

TSI made other sweeping changes in 2010. The company pared down the number of types of memberships to two, eliminated short-term summer memberships for students, introduced a $20 a la carte membership in four of its clubs, reintroduced a new member processing fee and saw an increase in total average joining fees from $25 in fourth quarter 2009 to $43 in fourth quarter 2010.

The result? Revenue decreased 0.2 percent in fourth quarter 2010 to $114.1 million and 4.7 percent in full-year 2010 to $462.4 million. Memberships, however, rose from 486,000 on Dec. 31, 2009, to 493,000 on Dec. 31, 2010.

“We have made good progress on attrition, and we feel that we are now selling higher-quality memberships than we have been over the past few years, which should help [the] attrition rate,” Giardina said. “By higher quality, we mean that joining fees are higher, and we are selling fewer month-to-month, no initiation fee memberships like we were a year ago. Even though we made very good progress in attrition in 2010, we still think there are modest improvements to be seen in 2011 as well.”

Life Time and TSI have already enjoyed some success this year. Life Time said it had 21,000 memberships this past January compared to 18,000 memberships in January 2010. TSI, which operates New York Sports Clubs, Boston Sports Clubs, Philadelphia Sports Clubs and Washington Sports Clubs, said it achieved its net member gain this past January despite snowstorms that hit the East Coast. However, ancillary revenue, and in particular personal training revenue, was behind for the month, TSI reported.

“We still believe we will show improvements in ancillary revenue for the first quarter, but to a lesser degree than originally planned,” TSI CFO Dan Gallagher said on the call. “Removing the effect of these snow days and considering more recent trends, personal training is slightly ahead of our original plan since the weather has normalized.”

Life Time opened a new club in January in Syosset, NY, the first of three scheduled large-format clubs to open this year. TSI plans to open two new clubs in the second half of this year.

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