Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Planet Fitness Inc (PLNT, Financial) surpassed the 2,600 store mark and grew same-store sales by 4.2%.
- The company delivered a 5.1% revenue growth and increased adjusted EBITDA by 7.2%.
- The franchise model is strong, with a solid base of about 100 franchisees and more than 19 million members.
- International expansion is underway, with the first European club opened in Barcelona, Spain.
- The company has a significant marketing budget, spending over $300 million in 2023, which dwarfs competitors.
Negative Points
- The cost to build a new location increased by more than 30% in 2023 compared to 2019.
- Equipment segment revenue decreased by 8.4%, driven by lower revenue from equipment sales to new and existing franchisee-owned stores.
- Store operation expenses increased to $70.2 million from $58.9 million due to higher operating expenses in existing stores.
- The company opened only 18 new stores in Q2 2024 compared to 26 in the same period last year.
- Net member growth was below expectations, partly due to a softer early January and an incident in March impacting joins and cancels.
Q & A Highlights
Q: Colleen, can you give us some perspective on your prior leadership roles and how you're going to apply those learnings to Planet Fitness? Also, could you elaborate on the emphasis on the HV over the LP in HVLP?
A: Randy, nice to hear from you. My background in the hospitality industry, particularly with Starwood and Intercontinental Hotels Group, has many similarities to the fitness space. Both focus on delivering experiences that make people feel better. At Planet Fitness, we aim to provide a high-value experience in a clean, friendly environment. Additionally, we plan to extend the experience outside the club through our app, loyalty programs, and partnerships. Regarding HVLP, I emphasize the high-value aspect, ensuring our members receive exceptional value for their membership.
Q: Can you elaborate on the Black Card pricing tests and the impact of the $15 classic card price increase?
A: We have two Black Card tests running at $27.99 and $29.99, effective since June 28. These tests will run through Q3 and possibly into Q4. If successful, we may implement the price change. The $15 classic card price applies to new members and will gradually impact our financials over time. We'll provide more details on its effect in 2025.
Q: Any initial learnings from the price hikes on the rest of the business? How is the Black Card penetration for new members facing the higher price?
A: It's too early to provide detailed insights on the price hikes, but we'll have more to share next quarter. Regarding equipment, we've optimized the mix to include more strength equipment, which lowers costs for franchisees and improves margins. The cost per placement for franchisees is down, and the margin improvement is around 300 basis points.
Q: What are your early views on opportunities for leveraging Planet's scale for new growth?
A: We're focusing on unit growth by refining our growth plan and infrastructure. We're also expanding into new geographies, like Spain, where we aim to achieve real scale and density. On the member growth side, we're enhancing the member experience and refining our brand and marketing to stay relevant and attract new members.
Q: How do you view the current 2-7 national-local marketing structure split?
A: The most important aspect is having an integrated approach with our franchisees. We're refining our brand promise and ensuring our marketing is effective. This includes digital marketing, especially as Gen Z is our fastest-growing segment. The 2-7 split should align with our integrated strategy to highlight our value proposition.
Q: How do you plan to take advantage of retail space availability given recent bankruptcies and closures?
A: We have a playbook for selecting new sites, focusing on population density and growth. Despite recent price escalations in real estate, our economic model remains strong. The resilience of our business, with no club closures during the pandemic, positions us well to secure prime retail spaces.
Q: What are your thoughts on the ceiling for Black Card pricing and improving member experience to allow for more pricing power?
A: We're optimizing the equipment mix and adding low-cost amenities to enhance value. Leveraging our app and perks program, we aim to provide additional value both inside and outside the club. This approach will support higher pricing while maintaining a high-value experience for our members.
Q: Can you provide an update on the progress of rolling out the Media Network?
A: We're still in the early stages of evaluating the Media Network opportunity. We want to ensure we do it right and are not yet ready to project its impact. However, we see it as a potential enhancement to our economic model.
Q: How do you view the impact of the new growth model on unit development timing?
A: The new growth model, which franchisees opted into earlier this year, aims to improve unit economics. While it may not significantly impact 2024, we expect it to drive growth in subsequent years. The model targets a 10% reduction in build costs and enhances IRRs, making it attractive for franchisees to expand.
Q: How do you view the current member growth trends and the impact of recent challenges?
A: Membership growth has been below expectations due to a soft Q1 and some challenges in March. However, we saw an increase in joins in late June, partly driven by the last-chance sale. We're focusing on refining our marketing and brand promise to drive joins in Q4 and Q1 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
