Planet Fitness, Hampton, New Hampshire, posted $137.3 million in second quarter 2021 revenue, a 241.1 percent increase from $40.2 million in second quarter 2020 when many health clubs in the country were temporarily closed due to COVID-19. The publicly traded company released its second quarter financials on Aug. 9.
Despite the improvement from second quarter 2020, Planet Fitness still fell short of second quarter 2019 when it reported $181.7 million in total revenue. Net income in second quarter 2021 was $14 million, compared to a $29.2 million loss in second quarter 2020 and $42 million in second quarter 2019.
As long as the COVID-19 pandemic does not worsen this year, the company expects 2021 revenue of between $530 million and $540 million. By comparison, in 2019 prior to COVID-19, Planet Fitness reported $688.8 million in revenue for the year, which was a 20.2 percent increase from 2018.
Franchisee segment revenue was $72.8 million, 246.9 percent increase from $21 million in the prior year period. The increase in franchise segment revenue is primarily due to a $37.7 million increase in franchise royalty revenue, an $8.3 million increase in the national advertising fund revenue, and a $5 million increase in franchise and other fees, primarily attributable to temporary club closures as a result of COVID-19 in the prior year period.
Revenue from corporate-owned stores was $40.6 million, a 330.8 percent increase from its $9.4 million in the prior year period. The increase was primarily due to temporary store closures as a result of COVID-19 in the prior year period, as well as the opening of seven new corporate-owned clubs since April 1, 2020. Corporate-owned clubs are typically more mature clubs, are primarily in markets that were most impacted by temporary shutdowns from COVID and were in the group of stores that were temporarily closed the longest, Planet Fitness CFO Thomas Fitzgerald told analysts on an Aug. 9 call.
Membership Growth
The company added 700,000 net new members since the end of the first quarter, marking six consecutive months of net member growth, although the number is still below the prior year number. Total membership was 14.8 million at the end of the quarter, but by the end of July, the company had exceeded 15 million members. Membership growth in the second quarter not only exceeded net growth in the first quarter, but it also doubled what the company experienced in second quarter 2019.
In the call with analysts, Planet Fitness CEO Chris Rondeau emphasized the membership growth: “We have regained approximately 75 percent of the members we lost from our peak in first quarter 2020 to our low in fourth quarter 2020. I have never seen this type of unseasonable membership growth in my nearly 30 years at Planet. And some of our larger franchisees, who have been with us for a good portion of that time, are also amazed at the positive trends that they're seeing across their portfolios.”
In May, Planet Fitness ran a sale offering one month free and no commitment, which resulted in a total net member growth in the month that was three times the growth in May 2019. In June, Planet ran a Black Card flash sale, experiencing net member growth that was nearly 20 times growth in June 2019 when it ran a similar offer.
“In just 12 months, our business has rebounded,” Rondeau said in the call. “And importantly, our franchisees are very excited about the trend in the future. It's hard to predict whether these unseasonable joins will continue for the rest of the year, but we believe that people are recognizing the importance of taking better care of themselves.”
When asked whether the proof of vaccination requirements for gyms in New York City would affect membership growth in the near term, Rondeau said that it could, but the company hasn’t seen any effect yet.
“It is definitely a little bit of a hurdle here for people to work out,” he said, noting that it will depend on how long the requirement is in place. Out of the entire portfolio, Planet has about 95 clubs that are in areas where masks are required at all times and about 31 clubs where people must wear masks when not actively exercising.
Attrition and usage are normalizing for Planet Fitness, and in some cases, exceeding its 2019 level, both on a regional and age demographic basis, Rondeau said. During June, the company began seeing certain key metrics in its business return to nearly pre-COVID levels. National usage trended up during the quarter, ending June at nearly 90 percent of 2019 levels. Usage in June for all demographics was nearly back to a typical pre-COVID month at usage of about six times per month. Baby Boomers were trailing, but their numbers are still trending upward for that age group, he said.
About 30 percent of joins are rejoins now, compared to 20 percent historically, Rondeau said. About 3 percent of the joins are coming from closed competition. About 40 percent of joins are first-timers.
Gen Z is joining at a rate that the company hasn't seen in the past while join rates for Millennials and Gen X are about the same, and Baby Boomers are slightly behind.
Club Growth
Planet Fitness opened 24 new clubs during the second quarter, bringing its system-wide total to 2,170, as of June 30, 2021. Ninety-eight percent of those clubs are open globally. It anticipates between 75 and 100 new club openings for the year, on its way to its long-term goal of 4,000 locations in the United States. In comparison, in 2019, the company opened 261 locations.
Several Planet Fitness franchisee groups are taking advantage of the increased supply of real estate, as retail businesses have closed due to the pandemic, Fitzgerald said on the analyst call.
“We believe we're even more attractive to landlords given that no Planet Fitness locations permanently closed because of the pandemic, which strengthened our position as a tenant of choice,” Fitzgerald said. “We're not necessarily seeing rents come down yet, but we are hearing from franchisees that landlords are sometimes offering more tenant improvement dollars. In general, we are seeing a more favorable real estate market and historically unseasonable membership trends, which have been the catalyst for some of our franchisees to accelerate their development pipelines. I would categorize franchisee sentiment as bullish as membership levels continue to climb.”
Planet Fitness signed an agreement this week to accelerate growth in Mexico with a minimum of 80 new stores over the next five years in addition to the five Planet Fitness clubs already in Mexico.
“I always knew that we would come out of the pandemic even stronger, but the pace is even faster than I expected,” Rondeau said. “I always come back to the fact that we are a purpose-led brand on a mission to change people's lives much better, which is what the U.S. and the world needs more than ever.”