<span style="color: #a3a3a3;">Planet Fitness Inc. only saw a modest decline in membership across its open facilities through the end of its June quarter as new member “joins” for the quarter outpaced the rate in the year-ago quarter. In its report for the second quarter ended June 30 the company said that for the 1,409 stores that were opened by the end of the second quarter, overall member joins nearly offset total cancels for the period even as PLNT reduced levels of local and national advertising.
The number of visits per store reportedly continued to climb consistently across stores the longer they were open, with visits in some stores reaching levels comparable to Q2 last year. Upon reopening its stores in early May, PLNT had approximately 15.4 million members. At the end of June, total membership was down a little over 1 percent to 15.2 million. But the trends are clearly reliant on reported COVID-19 cases.
“As the third quarter got underway and consumer settlement begins to shift with the uptick of COVID-19 cases across the country, we are seeing a pent-up demand taper off and joint starting to stabilize as clubs have been open longer,” explained CEO Chris Rondeau. “For July, joins have been generally flat to prior-year, except when we were up against the July sale period. At the same time, we also saw an uptick in cancels, with much of the increase concentrated in states that experienced a resurgence of COVID-19. Usage has remained strong, particularly in stores opened the longest. After growing consistently each week, usage has plateaued at about 60 percent average compared to prior-year.”
For the second quarter, total revenue was $40.2 million compared to $181.7 million in the prior-year period. Franchise segment revenue was $21.0 million compared to $71.8 million in Q2 last year. Equipment segment revenue decreased to $9.8 million from $70.2 million.
<span style="color: #a3a3a3;">The biggest driver of the Q2 top- and bottom-line was the decline in royalty revenue and corporate store revenue related to monthly membership dues that weren’t collected as the result of the company’s decision to freeze member accounts while stores were closed due to COVID-19. There were 297 stores that drafted dues in May and 1,357 that drafted in June. However, due to the issued credits, only three stores had a full draft in May, and 340 had a full draft in June. Partially offsetting this decline was the recognition of $11.2 million in deferred revenue related to monthly membership dues collected in March before stores closed, made up of $9.4 million from franchise royalty and $1.8 million from corporate-owned stores monthly dues. PLNT also recognized $3.1 million of NAF contributions in the second quarter that were also deferred from the first quarter.
In explaining the shifting revenue flow CFO Tom Fitzgerald said 1,875 of their 2,039 stores drafted monthly membership dues in March and then closed shortly thereafter. Those members who were drafted and collected in March had a 30-day credit to utilize once their home store reopens.
Of the 340 stores that had a full dues draft in June, only 279 were in the comp store base due to how PLNT tracks comps. These stores had a same-store sales increase of 4.4 percent, with approximately 80 percent of the increase due to net member growth and the balance being rate growth. For comparison purposes, these stores delivered same-store sales growth of 9.3 percent in Q1 of this year, 490 basis points higher than June’s results. Of the decline in growth in June from Q1 levels, approximately 85 percent was due to a drop in net member growth and the balance being a decrease in rate growth. Membership per store in the 279 comp stores dropped by approximately 1 percent or 70 members in Q2 of this year. In last year’s Q2, membership per store reportedly increased by approximately 3 percent or 190 members. This factor contributed approximately 400 basis points of the difference in comps between Q1 and Q2 of this year. The remaining gap in the comp performance compared with the first quarter was said to be due to the decline in Black Card penetration, which PLNT attributes to the fact that they were unable to repeat a Black Card national promotion in mid-March due to the COVID store closures.
Fitzgerald explained that when stores are closed and they don’t draft monthly membership dues or don’t execute a full draft upon reopening because members have credits to utilize from prior periods, they are not included in the comparable store base and therefore, are not included in the same-store sales calculation for that month. Because none of their stores drafted in April, and only a portion of stores drafted in May and June, they are not reporting a consolidated same-store sales figure for the second quarter.
The systemwide Black Card penetration rate in the second quarter was 61.1 percent, a 40 basis point decrease compared to the prior-year comp period versus a 30 basis point improvement in the first quarter. Membership Joins over-index compared to last year reportedly due to overall demand early on after reopening. Cancels also indexed higher than last year.
“Since mid-June, the combination of the resurgence of COVID-19 and corresponding media coverage and increased consumer concerns, in general regarding the virus, and the resumption of the billing of monthly and annual membership dues, joins are now in line with prior-year levels for stores that have reopened and cancels have continued to index above prior year,” explained Fitzgerald.
The CFO also said the year-over-year performance was significantly impacted by the decline in equipment sales, as they were unable to move forward with planned new and replacement equipment sales due to COVID-19. “We did place equipment in 14 stores in Q2, some of which were originally scheduled to be placed in late March, but were delayed until the second quarter,” he explained.
Planet Fitness now has 1,477 stores opened in 46 states, D.C., five provinces in Canada and Australia. Of that number, 1,426 of the stores are franchisee locations and 51 are corporately owned stores. Total membership is now reported at 14.8 million people, a 4 percent decrease from the 15.5 million members at the end of the first quarter.
Photos courtesy Planet Fitness
