TSI Focuses on Retention, Cost Control

New York — As revenue and memberships fell again in the second quarter for Town Sports International (TSI), the company's CEO is focusing on areas that he says will help the New York-based public company deliver better numbers once the economy turns around.

“We will ride out the recession by reducing expenses and keeping capital expenditures to a minimum while at the same time continuing to invest in initiatives that improve the member experience and strengthen our brand,” TSI CEO Alex Alimanestianu told analysts last month during a conference call announcing the company's second quarter financials.

The company's customer service efforts are leading to better retention numbers, and club usage has increased 10 percent overall and 8 percent at comparable clubs, Alimanestianu said. However, dues revenue decreased as TSI lost some higher-paying members and discounted its dues to attract new members.

He says that the company's main challenges are getting new members to join and getting current members to purchase personal training sessions at the historic level.

“Despite usage in our clubs increasing, our members are spending less money on our ancillary services just as they are in other areas of discretionary spending,” Alimanestianu said.

Total ancillary club revenue totaled $20.9 million, a decrease of 8.1 percent. Within ancillary revenue, personal training revenue declined 9.2 percent to $15.2 million, while other ancillary revenue declined 5 percent to $5.8 million. TSI is increasing promotions on less costly 30-minute personal training sessions to improve those numbers, Alimanestianu said.

TSI's second quarter 2009 revenue decreased 4.2 percent to $123.9 million compared to the same period last year. Comparable club revenue had an even greater decline, falling 6.3 percent.

Net income for the second quarter of 2009 was $2.5 million compared to a net income of $6.8 million for the same quarter last year. For the six months ended June 30, 2009, net income was $3.2 million compared to $11.6 million for the six months ended June 30, 2008.

Total member count was 503,000, a decrease of 14,000 or 2.7 percent. However, corporate memberships increased by 25 percent from second quarter 2008 to 61,000 corporate members.

Membership attrition for the quarter averaged 3.7 percent per month compared to 3.2 percent in second quarter 2008 and 3.6 percent in first quarter 2009.

“Over the past 18 months, we have been very focused on improving the member experience in our clubs as we believe this is the best way to both retain and attract new members over the long run and also the best way to grow our earnings,” Alimanestianu said. “Based on our member feedback in our Mystery Shopper scores, we know that these programs are having a strong impact on member satisfaction and the quality of club operation, and we are also confident that this will benefit our bottom line in the future.”

TSI has reduced overall corporate and club payroll by nearly $5 million on an annual basis by reducing club operating hours and cross training club personnel, he says. Second quarter payroll and related expenses decreased by $407,000 to $48.2 million, mostly due to lower management incentive bonus expenses and a reduction in personal training payroll.

The company also is renegotiating lower rent, which Alimanestianu said could save the company roughly $1 million this year and at least that amount next year.

TSI is closing clubs that are not performing to expectations, he said. So far this year, the company has closed four clubs. Alimanestianu plans to close two more clubs by the end of the year while assessing at least two others for possible closure. The company opened four clubs in the first quarter but did not open any in the second quarter.

Dan Gallagher, CFO, said on the call that he expects third quarter revenue to be between $117 million and $119 million compared to $128.1 million in the third quarter last year.

TSI operates health clubs under the New York Sports Clubs, Boston Sports Clubs, Philadelphia Sports Clubs and Washington Sports Clubs names.

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