Planet Fitness has seen a strong recovery from the pandemic, with the first quarter setting an all-time record for membership, reaching 16.2 million. To continue driving the growth of the store itself, Planet Fitness is looking to connect with teens.
“Generation Z was the fastest growing demographic of our membership in 2021, bringing our total share of this generation, aged 15 and over, to nearly 8 percent, which is exciting because only half of Generation Zs are looking forward to the next generation,” Chris said. Rondo, CEO of Planet Fitness, on the fitness chain’s first quarter conference call.” Research shows that Generation Zs, like millennials, prioritize an active lifestyle more than previous generations. We are focused on building lasting brand loyalty with both generations to capitalize on our appeal to these groups.”
To reach the demographic, Planet Fitness is bringing back the summer high school ticket, a brand new Teen Summer Challenge program, after a two-year hiatus. Under the pass program, high school-aged teens can work out for free at all Planet Fitness gyms all summer long.
The program first launched in 2019, and has resulted in nearly one million teens participating. Of these participants, over 11 percent are currently Planet Fitness members.
“We think the high school summer ticket is very timely and extremely important to the disturbing adolescent mental health crisis in the United States,” Rondeau said. “according to the Journal of the American Medical AssociationLess than 15 percent of teens met the recommended daily physical activity guidelines during the pandemic, while teens’ screen times doubled from pre-COVID estimates, not including virtual learning.”
Rondeo said Planet Fitness recently commissioned a nationwide study that found that the majority of teens who exercised agreed that fitness makes them feel healthier, stronger, and happier. Nearly half of them admitted to having mental health issues for the first time since the pandemic.
Rondeo said the program also introduces parents to Planet Fitness if they are not already a member.
“We want to be the fitness brand that people think of first when they are ready to lead a healthy and active lifestyle,” Rondeau said. “We understand that fitness can be intimidating. We focus on breaking down barriers for all ages. More than five percent of parents who joined the Summer Challenge Program for Teens are still members today.”
Rondo also said Planet Fitness’s value pricing is a key differentiating factor for its business and is expected to continue to support same-store growth.
“Our pricing model is another way that we are a disruptive force in the fitness industry,” Rondeau said. “It’s a major driver of 53 consecutive quarters of positive companies before the pandemic.”
The standard membership plan costs $10 per month, which is widely advertised, but six out of ten members choose to join the Black Card premium membership level, more than double the price. After testing it successfully this summer across key metrics like acquisition and retention rates, average monthly dues per member and margins, the black card is priced at $24.99 for all new members who join the gym.
Since the last price increase in 2019, a Black Card Membership Includes access to any of more than 2,000 locations worldwide, bringing a guest every time you work out, massage chairs, hydromassage, tanning, and more.
“We think there is a huge untapped opportunity for our brand in the long-term in the United States to get people off the couch,” Rondeau said. “Within 10 miles from the current Planet Fitness store, there are approximately 140 million people who are ready enough to join a gym but don’t want any gym. With fewer competitors due to greater industry consolidation, we think it might be our store. The potential over 4,000 stores in the US is the floor, not the limit for store growth.”
Planet Fitness currently has 2,291 stores in 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia.
Overseas, Planet Fitness recently signed a licensing agreement in New Zealand to replicate the chain’s success in Australia, “where our growing fleet of clubs has been doing very well since it reopened last year,” according to Rondo. Eighty percent of New Zealand’s population does not belong to the gym.
Planet Fitness also recently opened its first doors in Mexico under a new development agreement signed last summer for at least 80 new door stores over the next five years. Roughly 97 percent of Mexico’s population does not have a gym membership in a country where more than 70 percent of the population is considered overweight.
Generation Z efforts and international expansion come with system-wide sales increasing 25.6 percent in the first quarter to $961 million. The growth is attributed to the growth of same-store sales, new stores and stores that opened this year and that were temporarily closed last year. In the first quarter, the chain added 37 new stores, an increase of nearly 70 percent over Q121. System-wide same-store sales increased 15.9 percent.
Rondeau said the Omicron surges affected usage in the early quarter. In January, gym use fell below the 90 percent 2019 benchmark the chain had achieved for most of the past year, with higher member utilization historically consistent with higher join activity. As the quarter progressed, join and use both wore off.
While net membership growth in February and March 2022 outpaced the 2019 rate, that wasn’t enough to offset January’s softness. However, by the end of the quarter, nearly 30 percent of its mature stores had reached pre-pandemic membership levels. In the last week of the first quarter, usage was back above the 90 percent index for 2019. “We continue to see that people who exercise are doing it more frequently,” Rondo said.
Planet Fitness’ total revenue increased over the same period last year by 66.9% to $186.7 million. In the first quarter, the average royalty rate was 6.4 percent, up from 6.3 percent.
In addition to higher royalty revenue, the growth reflects a 100 percent increase in revenue in the corporate-owned convenience store segment, driven by the acquisition of 114 Sunshine Fitness stores. Equipment segment revenue increased 206 percent due to higher sales to new and existing franchisee-owned stores. For the quarter, replacement equipment accounted for approximately 40 percent of total equipment revenue.
Net income in the first quarter jumped 195 percent to $16.5 million, or 19 cents, from $5.6 million, or 7 cents, a year earlier. Adjusted net income rose 218 percent to $29.0 million, or 32 cents a share, compared to $9.1 million, or 10 cents, in the same period last year.
Adjusted earnings before interest, tax, depreciation and amortization jumped 76.9 percent to $77.3 million from $43.7 million in the same period last year.
Planet Fitness has reiterated its 2022 guidance which calls for:
- Increase revenue in the middle of the 50 percent range;
- EBITDA rate of increase in the high 50 percent range;
- net income adjusted for the increase in the lower 90 percent range, and;
- Adjusted EPS to increase in the middle of the 80 percent range, based on outstanding diluted diluted shares of approximately 91.1 million, including the issue of shares as part of the acquisition of Sunshine.
When asked about competitive pressures in the question-and-answer session, Rondo said he believes home fitness will continue to play the “second fiddle” role in personal fitness as a “key driver of health and wellness.” Not only are the findings reflected in recent findings by Peloton and others in the home fitness space, he said, consumption of Planet Fitness digital content remains above pre-pandemic levels but not “close to where consumption was when” it was closed.
He also said Gen Z’s are joining “only at an astronomical rate” to underscore the allure of a personal gym experience.
Finally, he said, the Planet Fitness model has proven resilient during the pandemic, as Planet Fitness hasn’t had to permanently close a single location while 25% of gyms and fitness stores in the US have closed in the past two years. He added that inflationary concerns would make Planet Fitness’s value proposition more prominent.
“Overall, perhaps fewer people are looking to join gyms,” Rondeau said. “But the problem is, those who look at Planet Fitness only because they can afford it, right? Or are they smarter with their money. So we win in those times. And some of our highest sales were from the same store in history during the 2009/10 era. So. I think people won’t be any healthier. Since I think they will continue to choose it, they will be more cost-conscious at the end of the day.”
Photo courtesy Planet Fitness
