The Fitness segment of Brunswick Corp. reported a 4 percent increase in revenue in first quarter 2018, as the company works to spin off its Fitness segment and awaits a decision by Planet Fitness’ preferred vendor contract, according to a media release from Brunswick, Mettawa, Illinois.
The growth was at one percent on a constant currency basis. Despite the revenue increase, operating earnings decreased 39.9 percent year over year to $11 million.
First quarter revenue for the Fitness segment, which is comprised of Life Fitness, Hammer Strength, Cybex, Indoor Cycling Group, SCIFIT and Brunswick Billiards, was $244.4 million compared to $235.6 million in the same quarter last year. Brunswick announced in March that it plans to spin off its Fitness segment.
International sales represented 50 percent of total segment sales in the quarter and increased by 14 percent compared to first quarter 2017.
Even though sales to U.S. commercial clubs increased, the overall domestic sales declined by five percent in the quarter, primarily due to Cybex sales in advance of its new product launches and to weakness in several unnamed vertical markets.
“Domestic sales would have increased slightly for the quarter had Cybex revenue just remained consistent from Q1 of 2017,” Brunswick Chairman and CEO Mark Schwabero said in a call with analysts.
European and Asia Pacific sales had strong growth, a trend that Schwabero said he anticipates will continue for the year.
Still, executives noted that they expect the second half of the year to improve for the Fitness segment resulting in projected revenue to grow in the low single-digit percent range over 2017 levels as recently introduced new products take hold, even though the company projects that margins would decline. However, Schwabero said that year-over-year margin comparisons would stabilize toward the end of the year as the recent new product launches and cost management actions make an impact.
“In our Fitness segment, we also continue to execute against our digital strategy, as demonstrated by our release at IHRSA of the Halo Fitness Cloud, a dynamic software platform for club operators that both enhances the exerciser experience, while simplifying facility management,” Schwabero said in the analyst call. “In the quarter, the business experienced improving demand in certain European and Asian markets which drove top line growth, while margins remained under pressure.”
The new Life Fitness, Integrity and Cybex cardio products are now fully available, with two remaining updated console options to be released in the second quarter, Schwabero said, adding that these products, along with the Halo suite of digital solutions launched in March, will continue to accelerate global demand.
The Fitness segment had faced and continues to face are higher national transportation rates as well as complexities around the shipment and installation of products, issues the company is trying to resolve, William Metzger, Brunswick CFO, said on the analyst call.
The future of the Fitness segment’s relationship with Planet Fitness, Hampton, New Hampshire, is uncertain as several companies have submitted requests for proposals (RFP) to Planet Fitness to be their preferred partner. Life Fitness currently is the company’s preferred partner, but Schwabero noted in the call with analysts that he expected the two companies would no longer have an exclusive arrangement. Instead, Planet Fitness is expected to offer more preferred partner options to its franchisees—although Planet Fitness has not yet made an announcement.
“We've provided an aggressive response to the Planet Fitness RFP, and we believe we are the leading partner to support Planet Fitness' goals for growth, technology and development, and improve club operator and user experience,” Schwabero said in the call. “…We continue to have a very strong relationship with Planet Fitness and feel we're best positioned to satisfy their equipment needs on a go-forward basis.”
Despite uncertainty with Planet Fitness, Schwabero noted that the company inked a three-year agreement with Orangetheory Fitness, Boca Raton, Florida, to equip its international locations with specialized equipment and a unique user interface to motivate and connect members.