Release Date: September 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Closing membership increased by 4% and yield by 9%, with revenue up 12% year-on-year.
- Strong cash generation with free cash flow up 73% to $24.5 million.
- Net debt reduced by GBP11.8 million since December 2023.
- Refinanced bank debt with improved interest rates and strong support from UK banks.
- On track to open 10 to 12 new sites in 2024, with seven already opened this year.
Negative Points
- Central costs grew ahead of revenue growth due to higher annual salary inflation and investments.
- Net financing costs remained flat year-on-year despite a reduction in net debt.
- Expected like-for-like sales growth revised down to 5% to 6% from the initial 45%.
- Higher than usual annual salary inflation increases impacting central costs.
- Site costs increased due to inflationary pressures from national minimum wage and rateable value rating period.
Q & A Highlights
Q: Given the strong yield performance, do you expect the industry to remain inflationary in a lower macro inflation environment over the next 18 months?
A: (William Orr, CEO) We believe our competitors are rational and will likely look at similar data sets as we do. The strong perception of value for money in this category suggests that the opportunity for price increases remains in the near term.
Q: Can you quantify the improvement in retention rates in terms of weeks?
A: (William Orr, CEO) The average tenure of our members is around 17 months. We are starting to see a modest pickup from the numbers reported.
Q: How do you expect staff costs to inflate in the next year or so?
A: (Luke Tait, CFO) We are planning for a minimum wage increase at the higher end of the publicly available range, around 6% to 6.5%. Our operating model allows some mitigation of this inflation.
Q: What does the success of your data capability investment mean for future investments?
A: (William Orr, CEO) Data is critical and will drive our decision-making. We have made some investments in this capability and currently have a good team in place. We are well-invested in terms of data capability and will continue to build on it.
Q: Can you provide an update on CapEx costs per site and expectations for next year?
A: (Luke Tait, CFO) We expect CapEx per site to be around GBP1.4 million to GBP1.5 million, depending on size and location. London sites are more expensive due to local wage rates and complexity.
Q: How do you perceive competition from PureGym, especially after their recent capital raise?
A: (William Orr, CEO) We see PureGym as a rational competitor in terms of pricing and site selection. We haven't observed any significant changes in their approach.
Q: Can you provide more color on new sites outperforming and potential club exits?
A: (William Orr, CEO) New sites are tracking ahead of our membership volume appraisals. We expect to exit one or two clubs per year, but not a material number. (Luke Tait, CFO) We are not ready to give inflation guidance for next year but expect a similar benefit in utility rates as seen in 2024.
Q: Are there additional levers you can pull on the cost side without negatively impacting customer experience?
A: (William Orr, CEO) We are continuously looking at ways to build great sites cost-efficiently. Being thoughtful about cost is hardwired into our culture.
Q: Can you comment on the strength versus cardio mix and its impact on CapEx?
A: (William Orr, CEO) There is an evolution towards strength and functional training, but cardio equipment still plays a role. (Luke Tait, CFO) The overall equipment spend is around GBP253,000 per gym, and the shift towards strength equipment, which lasts longer, is positive for us.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
