Club Industry is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Life Time Surging During Tough Economic Times

CHANHASSEN, MN -- Despite the continued struggles of the economy that have affected most of the club industry, Life Time Fitness continues to experience steady growth, reflected in the second-quarter results that the company announced today.

Life Time’s revenue grew 18.7 percent to $192.4 million in second quarter 2008 compared to $162.1 million during the same period last year. Net income in second quarter 2008 grew 20.3 percent to $19.8 million, compared to $16.5 million in second quarter 2007.

“We saw further proof of our ability to perform in a challenging environment in the second quarter,” Life Time CEO Bahram Akradi said in a conference call today.

Life Time’s increased revenue is driven by growth in membership dues, which experienced an 18.2 percent increase compared to the same period in 2007, and in-center revenue, up 22 percent in second quarter 2008 than in the same period last year. The in-center increase is spearheaded by the growth of personal training.

Memberships, which were at 489,489 on June 30, 2007, increased 11.9 percent to 547,497 on June 30, 2008. That’s ahead of the company’s initial plan for a 10 percent increase during that time, Akradi said in the call.

“This positions us very well to accomplish our goal of 13 to 14 percent membership growth in the second half of the year,” Akradi said.

However, Life Time did experience a 38 percent attrition rate, according to Life Time Chief Financial Officer Michael Robinson, which was slightly higher than anticipated.

“We’ve seen a few more people leave our centers in the current environment, but at the same time, we’re seeing more people join,” said Robinson. Life Time experienced a net membership increase of 26,000 in the second quarter 2008 compared to 15,000 during the same time last year.

Akradi told analysts on the call that the attrition rate was due to increased activity in membership price changes in the first half of the year as well as economic factors. When asked if Life Time planned to implement one- or two-year membership contracts to combat the attrition, Akradi was emphatically against the notion.

“Philosophically, we think that’s a very, very bad way of doing business with the customer,” Akradi said. “The customer should be at your club because you are keeping them satisfied and they want to be there, not because their ankles are tied up because of a contract.”

Factoring in membership growth, the construction of new centers and presale activities, the total operating expenses for Life Time during second quarter 2008 totaled $152.5 million compared to $128.6 million in second quarter 2007. The year-to-date operating expenses totaled $301 million compared to $253 million for the same period last year.

Robinson recounted in the call that in June, Life Time brought in $104 million in variable rate funding by increasing a borrowing facility from $400 million to $470 million and by obtaining a $34 million mortgage loan to provide financing for its headquarters in Chanhassen, MN, as well as a club in Overland Park, KS. The company is expected to close deals with two companies in the third quarter to acquire additional capital with financing of $160 million, Robinson said.

Life Time had 74 open centers on June 30, 2008, compared to 64 open on June 30, 2007. Three new facilities and one acquired club are expected to open in the third quarter.

Of the 74 centers, 54 are owned by Life Time. Akradi was asked in the call about the advantages of owning club locations compared to leasing property.

“All along, we told our shareholders that we like to own our real estate for flexibility and to give us equity in our company that gives us the ability to grow in just about any type of economic challenge,” Akradi said.

And in these challenging times, Akradi is aware of the struggles other companies are having. Akradi said the full effects of those struggles may not show up for another year.

“Typically, during the prolonged, tougher consumer environment, it takes maybe as much as a year or so for some of the clubs that are struggling to actually come to the grips that they want to close their doors or quit going through the struggle,” Akradi said. “We are seeing some of that around the country. Occasionally, we talk to those people to see if we can help them out in any shape or form by providing a place for their members. Because this tougher consumer environment has been longer than initially expected, I think we’re going to see more of those start to surface in the next six to 12 months. We’re well prepared to do what we can to benefit from it.”

Some of the new features Life Time plans to introduce in the third quarter include a member communication program, an LTF Vision in-house television network, a new member connectivity program and a member advantage program. Robinson said the company expects 20 percent growth in net income and 20 percent growth in revenue during the third quarter.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.