TSI Reports First Quarter Decrease in Revenue, Will Consider Closing Clubs

Town Sports International (TSI), New York, reported a decrease in first quarter 2014 revenue and may close underperforming clubs later this year as the company released its financials today.

TSI had revenue of $115.9 million in first quarter 2014, a 2.7 percent drop from the $119.1 million it generated in first quarter 2013. TSI also had a net loss of $3.5 million in first quarter 2014 compared to net income of $4.2 million in the same period last year.

TSI CEO Bob Giardina said the company fell short of its forecast by about $1 million, driven by declines in membership revenue and ancillary revenue from kids clubs and small group training. Giardina also cited the convergence of low-cost competition, the growth of studios, weather-related expenses and the cost associated with the opening of new clubs as reasons why the company fell short of expectations.

"However, the long-term combination of an increased consumer focus on fitness and health, and our initiatives to capture our share of this growing market, keeps us excited, motivated and optimistic about where we will be in a couple of years," Giardina said in a conference call with analysts today.

TSI's members decreased by 1,000 to 496,000 at the end of first quarter 2014 compared to an increase of 2,000 members the company had in first quarter 2013. Membership attrition stayed steady, averaging 3.5 percent per month in both first quarter 2014 and first quarter 2013.

"The softness in membership sales was more pronounced in the months of January and February when we experienced extreme cold weather and more than usual snow days in our markets," Giardina said in the call. "These top-line dynamics, accompanied by higher than planned expenses, most notably in our utilities during the unusually cold winter months, weighed on our bottom line."

Giardina said the company will review the possibility of closing 5 percent of its clubs later this year, with more details expected during the second quarter 2014 call in July. TSI, which operates New York Sports Clubs, Boston Sports Clubs, Philadelphia Sports Clubs and Washington Sports Clubs, had 162 clubs at the end of 2013, so the reduction would amount to about eight clubs. Most of the clubs that will close are likely to be in suburban areas, Giardina said.

"This will enable us to consolidate a portion of these members into our existing clubs, while reducing our club operating expenses, such as occupancy and payroll costs," Giardina said.

TSI does plan to open five new clubs in urban areas this year, as well as at least two of the company's new BFX Studios this year.

For the second quarter, TSI expects revenue to be between $116 million and $117 million, compared to $120.1 million in second quarter 2013. Net results are expected to break even.

TSI's stock price was $8.20 at the close of trading today on the NASDAQ Stock Market.

Today marked the final financial call for president and COO Dan Gallagher, who will relinquish his CFO duties to new CFO Carolyn Spatafora on May 12.

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