TSI Lowers Expectations After Third Quarter Results

NEW YORK -- Town Sports International (TSI), New York, saw an increase in revenue during the third quarter 2008 but had a decrease in net income. The company is lowering its previous outlook for the year after growth in net members was weaker than anticipated.

In third-quarter financials released last week, TSI’s total revenue increased 7.8 percent to $128.1 million in third quarter 2008 compared to $118.9 million in the same period last year. Total operating expenses increased 11 percent to $116.5 million from $105 million in the third quarter 2007. Net income for third quarter 2008 was $3.8 million, down from $5.1 million in the same period last year. Also during third quarter 2008, membership attrition averaged 3.6 percent per month.

For the nine months ending Sept. 30, 2008, total revenue increased 8.4 percent compared to the nine months ending Sept. 30, 2007 driven by growth in membership and personal training revenue. Total operating expenses increased 9.8 percent for the first nine months of 2008 compared to the first nine months of 2007, and net income was $15.4 million in first nine months of 2008 compared to $7.6 million for the first nine months of 2007. The increase was due to the loss on extinguishment of debt of $7.4 million recording in the first nine months of 2007.

In terms of 2008 projections, TSI lowered its total revenue expectations to $504 million to $508 million, down from $510 million to $520 million. Net income is projected to be $16.5 million to $17.5 million, down from $21.3 million to $22.3 million.

TSI now expects to open nine new clubs and close four clubs in 2008. Two clubs expected to open in 2008 are now expected to open in early first quarter 2009. TSI opened six clubs and closed three clubs as of Sept. 30, 2008.

“After a solid first half of the year, we were able to post increases in membership and same club revenue in the third quarter, but fell below our overall financial targets for the period,” TSI CEO Alex Alimanestianu said in a company statement. “As the quarter progressed, we felt the increasing effects of the recessionary economy, and the outlook we are giving for the fourth quarter reflects the worsening consumer spending environment. We are convinced that health and fitness will continue to be a high priority for our target customers, and we remain extremely confident in our strategy, the operational initiatives we have undertaken, and the long-term growth potential of our company.”

TSI’s stock dropped to $2.53 on the NASDAQ stock exchange Friday afternoon. Its 52-week high had been $11.48.

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