TSI Lowers Expectations After Mixed Third Quarter Results

New York — A weaker than anticipated growth in net members caused Town Sports International (TSI), New York, to lower its outlook for the year, the company announced in its late October financial filing for the third quarter 2008. During the quarter, the company had an increase in revenue but a decrease in net income.

TSI lowered its total revenue expectations to $504 million to $508 million, which is 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 had opened six clubs and closed three clubs as of Sept. 30, 2008.

"As you are well aware, the economic environment has been tumultuous since the last time we've reported our earnings, especially in our core New York City metropolitan area," Alex Alimanestianu, president and chief executive officer of TSI, said in an Oct. 31 call with financial analysts. "We finished the first half of the year with solid results, including stable year-over-year attrition rates, and we expect the first-half trends to continue through the balance of the year. However, in July and August and as the financial crisis escalated in September, we saw consumer behavior change, and as a result, we saw new members sign up for shorter plans and attrition rates move higher than expected."

He noted that September was an important new member sign-up month for TSI, second only to the month of January. Although TSI had a higher total membership in the third quarter, Alimanestianu expects the numbers to be down in the fourth quarter as a result of likely increases in attrition and continued slower new member sign-ups.

The company's personal training revenue was up 12.3 percent in the third quarter, which is an improvement from the first half of the year. Member participation in personal training grew 16 percent, which Alimanestianu attributed to better execution in this area of the business. Corporate membership sales continued to grow versus the prior year, but the year-to-date double-digit rate of growth in new unit sales slowed to single digits as companies were more focused on cost controls, layoffs and other critical needs, he said.

TSI's total revenue for the third quarter increased 7.8 percent to $128.1 million 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.

For the nine months ending Sept. 30, 2008, total revenue increased 8.4 percent compared to the nine months ending Sept. 30, 2007.

"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," Alimanestianu said.

The company's stock had a 52-week high of $11.48 in December 2007, but as of late last month, the stock hovered around $2.30.

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