Planet Fitness opened a record 65 new health clubs in first quarter 2019 and expects to open 225 new clubs by the end of the year, according to financials released May 2 by the Hampton, New Hampshire-based company.
Revenue in first quarter 2019 increased to $148.8 million, a 22.7 percent increase compared to the same period in the previous year, and the company expects a 15 percent increase for the full year.
"Fiscal year 2019 is off to a great start,” Chris Rondeau, Planet Fitness CEO, said in a media release from the company.
The 65 new clubs was the most the company had ever opened in a quarter and increased system-wide total stores to 1,806 and members to 136 million as of March 31, 2019. System-wide same-store sales increased 10.2 percent.
“We once again demonstrated the attractiveness of our high-value, low-cost, welcoming fitness concept and the power of our business model with our diversified revenue streams and strong free cash flow,” Rondeau said in the release. “As we move forward, we believe we can continue to deliver significant growth and increased shareholder value through robust unit expansion, increased national and local advertising spending, and membership enhancement initiatives. The future for Planet Fitness looks extremely bright, and I am confident that with our great group of experienced franchisees, the company is well positioned to capitalize on the many opportunities that lie ahead."
Those opportunities could include clubs with a smaller footprint. The company recently tested an 8,000-square-foot club in Texas that Rondeau said was “very successful for us.” However, 10,000 to 12,000-square-foot models might make for a better customer experience, he said, noting that the models are being looked at for smaller markets where the company has not typically gone, although the density needed for these clubs has not yet been determined.
What has been determined is that the company entered an agreement in March with Kohl’s to open up to 10 Planet Fitness locations adjacent to select Kohl’s stores in 2019 to introduce new members to Planet Fitness and to benefit Kohl’s. Research shows that Planet Fitness members tend to fulfill daily needs near their clubs and stay nearby for shopping, Rondeau said in a May 2 call with analysts about the financial results.
Seventy-six percent of Planet Fitness members combine their gym visit with other shopping, 89 percent shop at other retailers within their club shopping center, and 59 percent do so at least once per week, according to Planet Fitness research.
“And 26 percent of our members reported that they would never visit their close shopping center if Planet Fitness were not located in it,” Rondeau said. “In today's retail landscape, we believe our differentiated approach to fitness continues to drive traffic to our shopping centers across the country, which is why partners like Kohl's and recent landlords in general are interested in looking at a PF to become tenants in their centers.”
Rondeau also said the company’s Teen Summer Challenge initiative, which allows teenagers from 15 years old to 18 years old to work out for free in all Planet Fitness clubs, will help with the long-term outlook for the company. The program, which runs May 15 through Sept, 1, will introduce members in Generation Z and their parents to the brand as well as build loyalty and affinity, Rondeau said.
“Teens today are under increasing pressure to succeed academically, socially, battling a growing list of the responsibilities both inside and outside the classroom and become well-rounded members of their community,” Rondeau said. “At Planet Fitness, a healthy, active lifestyle should never be a challenge, which is why we're flipping that notion on its head for teens this summer and giving them a free place to work out in a comfortable Judgement [sic] Free Zone.”
In a survey of teens and their parents asking how teens would prefer to spend their time this summer, 36 percent of respondents said they wanted to exercise more or work out more, which is greater than the number of teens who want to spend more time playing videogames (27 percent), watch TV (16 percent) and browse social media (15 percent).
More First Quarter Results
For the first quarter, net income attributable to Planet Fitness Inc. was $27.4 million, compared to net income of $19.9 million during first quarter 2018. Net income increased 34.7 percent to $31.6 million, compared to net income of $23.5 million in the prior year period. Adjusted EBITDA increased 29.9 percent to $63.4 million from $48.8 million in the same period last year.
Franchise segment revenue increased $11.2 million or 20.4 percent to $65.8 million from $54.6 million in the prior year period, driven primarily by higher royalty revenue, which increased as a result of new stores opened since Dec. 31, 2017, a 10.3 percent increase in same store sales, and a higher average royalty rate.
Corporate-owned stores segment revenue increased $5.3 million or 16.3 percent to $38 million from $32.7 million in the prior year period, $2.4 million of which is from new corporate-owned stores opened or acquired since Jan. 1, 2018, and another $2 million of which is from same store sales growth.
Equipment segment revenue increased $11 million or 32.3 percent to $45 million from $34 million in the prior year period, driven by an increase in equipment sales to new stores and an increase in replacement equipment sales to existing franchisee-owned stores.
System-wide same store sales increased 10.2 percent. By segment, franchisee-owned same store sales increased 10.3 percent and corporate-owned same store sales increased 8 percent.