It pays to advertise. Planet Fitness (Nasdaq:PLNT) said same-store sales at its discount gyms grew 6.8 percent during the first-quarter 2016, leading to an 8.3 percent gain in total revenue, thanks to a national advertising campaign and initiatives to raise brand awareness.
The company also raised its outlook for the full-year 2016.
“In 2015, over $26 million was spent to support national marketing campaigns that include running advertising nationally throughout the year, and, for the first time, being the presenting sponsor for Times Square New Year’s Eve celebration in New York City,” Planet Fitness President and CEO Chris Rondeau said. “Our powerful national advertising fund continues to grow as our franchisees open new stores,” he added, noting that franchises invest 5 to 7 percent of member monthly dues to support additional local advertising on top of the national campaign.
Planet Fitness added more than 1 million net new members during the crucial first quarter for fitness gyms (coming off New Year’s resolutions), surpassing 8.3 million members, as of March 31, 2016, an increase of 17 percent compared with the same date a year ago.
For the first quarter, total revenue increased to $83.3 million versus $76.9 million in the prior year period.
By segment, franchise revenue, which includes commission income, increased 27.2 percent to $27.7 million. Planet Fitness officials are aggressively moving to increase this part of the business and added 194 new franchises in the past year. Thanks to those additions, royalty revenue rose 33.8 percent in the quarter, compared to the same period a year ago, to $14 million. Same-store sales at franchise locations increased by 7 percent, primarily driven by higher members per comp store, as well as slightly higher dues per member.
Corporate-owned store segment revenue increased 9.1 percent to $25.7 million as same-store sales here grew by 4.9 percent from the same period a year ago.
Equipment segment revenue, in which Planet Fitness provides the equipment to its franchisees, decreased 5.2 percent to $30 million as the company went against tougher comps from a year ago, and a discount in pricing, which will expire this summer. Fewer-than-anticipated new store openings versus a year ago, partially offset by higher re-equipment revenue were other factors.
“As we said on our last call, our new store openings would be down in the first quarter,” said Planet Fitness CFO Dorvin Lively. “We actually opened two more stores than we planned; 48 versus 46, which compares to the strong first quarter in 2015 of 61 stores. We are confident in our 2016 plans, and we are still on track to open between 210 to 220 stores in 2016, compared to 209 stores in 2015 and therefore projecting our equipment sales to accelerate over the back half of the year.”
SG&A expenses for the quarter came in at $11.8 million compared to $14.1 million a year ago. The decrease was primarily related to lower nonrecurring expenses in the quarter in connection with Planet Fitness’ initial public offering and lower cost in connection with a point-of-sale upgrade.
On an adjusted basis, taking into account the prior-year IPO and POS upgrade, the company’s adjusted operating margin was 31.4 percent
during the first quarter versus 26.9 percent in the prior-year quarter, an increase of 450 basis points. This was primarily due to revenue growth and higher margins from the company’s franchise segment.
On a pro-forma adjusted basis, excluding prior-year IPO costs, net income was $15.2 million, or $0.15 per diluted share, an increase of 21.6 percent, and up from $12.6 million, or $0.13 per diluted share, in the prior-year period.
Based on the company’s first-quarter performance, company officials raised its full-year 2016 guidance, with expected revenue in the $360 to $370 range, up from its previous projection of $355 to $365 million. Pro-forma adjusted net income is now projected to range $61 to $64 million with pro-forma adjusted EPS between $0.62 and $0.65, up from the previous pro forma adjusted EPS guidance of $0.60 to $0.63. Comp-store sales growth projections remained unchanged at mid-single digit growth.
As of March 31, 2016, Planet Fitness had cash and cash equivalents of $38.3 million and borrowing capacity of $40 million under its revolving credit facility. Its total bank debt at the end of March was $491 million.
Planet Fitness’ board of directors authorized the company to repurchase up to $20 million of common stock. “This program reflects the board’s confidence and the strength of the Planet Fitness brand, the significant cash generation of our business model underscores our commitment to return the value to shareholders,” Lively said. “The timing and amount of repurchases will be determined by the company at its discretion based on a variety of factors, such as the market price of the common stock, corporate and legal requirements, general market and economic conditions.”
Photo courtesy Planet Fitness
