Life Fitness Reports 5.6 Percent Decrease in Q4 2018 Revenue, Amid Spin-Off

Life Fitness reports its Q4 2018 results
Brunswick did not divulge any further details about Life Fitness' forthcoming spin-off in its recent earnings report. As of October 2018, the corporation was tentatively aiming to complete the spin-off by March 31, 2019.(Photo courtesy Life Fitness.)

Life Fitness, Mettawa, Illinois, reported a 5.6 percent decrease in fourth quarter 2018 net sales ($287.7 million) as well as virtually flat 2018 year-end revenue ($1.03 billion), according to financial earnings released by its parent company, Brunswick Corp., on Jan. 31.

Brunswick CEO David Foulkes said Life Fitness' revenue reflected a decrease in sales to value-oriented health clubs.

"The decline in operating earnings resulted from ... an unfavorable impact from changes in sales mix, additional inventory cost adjustments primarily related to product transitions, increased freight costs, and other cost inflation and inefficiencies," Foulkes said.

For the same reasons, Life Fitness' sales are expected to decline in the "mid-single-digit percent" range during 2019, Foulkes said.

"While we anticipate gross margin levels to remain consistent with 2018 levels, the plan reflects operating margin declines due to planned investments in new products and modernizing information technology platforms, offset by certain cost reduction initiatives, which are intended to position the Fitness business to succeed as an independent entity," he said.

During the fourth quarter, Life Fitness' commercial cardio sales ($158.2 million) and consumer fitness sales ($106.2 million) both decreased by 13 percent and 5 percent, respectively, while commercial strength sales ($106.2 million) increased by 8 percent. Life Fitness' operating earnings also decreased to a loss of $2.7 million, versus a positive $7.9 million during the same period last year.

Life Fitness experienced a series of significant changes in 2018.

In March 2018, Brunswick announced its board of directors had approved a "spin-off" of the company's Life Fitness Division into an independent, standalone, publicly traded company, temporarily known as "FitnessCo." The division includes the Life Fitness, Cybex, SCIFIT and Hammer Strength brands. The decision came on the heels of a Jan. 30 letter by Brunswick activist investor Owl Creek Asset Management arguing "all Brunswick stakeholders would benefit significantly from a spin-off of the fitness equipment business."

In July 2018, Life Fitness announced it would no longer be the exclusive preferred vendor for Planet Fitness after the health club chain's decision to offer broader equipment choices to its franchisees starting in the year’s third quarter. (In 2018, Precor, Woodinville, Washington, signed a two-year, $30 million vendor agreement with Planet Fitness.)

In October 2018, Brunswick announced three further updates: the retirement of longtime Brunswick CEO Mark Schwabero; the creation of a management board that will oversee the corporation's spin-off of Life Fitness; and the appointment of Jason Worthy as president of Life Fitness, replacing Jaime Irick.

As of October, Brunswick was tentatively aiming to complete the Life Fitness spin-off by the end of 2019's first quarter (March 31). The corporation did not divulge any further details about the spin-off's timeline in its recent earnings report. However, Brunswick did affirm that, in 2019, Life Fitness' primary strategic focus is to prepare for its spin-off, followed by reducing costs and improving efficiencies, developing new products, and bolstering its digital offerings.

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