Planet Fitness reported net earnings tumbled 67.2 percent in the first quarter as sales fell 14.5 percent.

“We entered 2020 with very good momentum and the new fiscal year got off to a strong start,” said Chris Rondeau, chief executive officer. “The outbreak of COVID-19 in the U.S. has significantly disrupted our business as well as everyday life. In an effort to protect our members, team members and communities, we and our franchisees made the decision to temporarily close all Planet Fitness stores mid-March. We also took several actions to further strengthen our financial liquidity and flexibility during these unprecedented times. We are working closely with our franchisees and assessing recommendations from state and local governments and health authorities on plans for safely reopening our stores. While there is still uncertainty about the ultimate impact COVID-19 will have on our industry and the overall economy, I am confident that Planet Fitness will emerge from this period well-positioned to further expand its leadership role in the fitness industry.”

COVID-19 Update
The majority of stores remain temporarily closed and will reopen when local authorities issue guidelines authorizing the reopening of fitness centers, which has begun to happen in certain localities. Below is a summary of the current status of Planet Fitness and the actions taken to mitigate the financial impact of COVID-19 and preserve liquidity to-date:

  • Board of Director and Executive Compensation — The company’s chief executive officer, president, chief financial and chief digital and information officers have significantly reduced their base salaries. In addition, the base salaries of other members of senior management were reduced in graduated amounts. The Board of Directors has suspended payment of the annual cash retainer to non-employee directors.
  • Corporate-owned stores — Planet Fitness has temporarily furloughed all employees except the store manager at each corporate-owned store location while the store remains closed. These employees are able to continue receiving benefits from the company.
  • Corporate Office — Planet Fitness’ corporate headquarters remains closed and its employees are working remotely to ensure their well-being.
  • Credit Facility — Planet Fitness fully drew down its $75.0 million Variable Funding Notes to provide additional liquidity.
  • Share Repurchase: Planet Fitness said it has suspended share repurchases to preserve liquidity and flexibility.
  • Capital Expenditures — Capital expenditures have been deferred, including new corporate-owned store openings and investments in existing corporate-owned stores.

Planet Fitness said it has not recognized first-quarter revenue related to monthly membership dues collected in March before stores closed due to COVID-19 because as previously announced, members will be credited for any membership dues paid for periods when its stores were closed. Planet Fitness said it expects to recognize franchise revenue and corporate-owned store revenue associated with those membership dues as stores reopen. Those deferrals have had a significant impact on its first-quarter financial results. In addition to these first quarter impacts, it expects decreased new store development and remodels, as well as decreased replacement equipment sales for 2020 as a result of the COVID-19 pandemic.

First Quarter Fiscal 2020 results

  • Total revenue decreased from the prior-year period by 14.5 percent to $127.2 million.
  • System-wide same-store sales increased 9.8 percent.
  • Net income attributable to Planet Fitness, Inc. was $8.6 million, or 11 cents per diluted share, compared to net income attributable to Planet Fitness, Inc. of $27.4 million, or 32 cents per diluted share in the prior-year period.
  • Net income decreased 67.2 percent to $10.4 million, compared to net income of $31.6 million in the prior-year period.
  • Adjusted net income(1) decreased 56.0 percent to $14.4 million, or $0.16 per diluted share, compared to $32.7 million, or $0.35 per diluted share in the prior-year period.
  • Adjusted EBITDA(1) decreased 26.6 percent to $46.5 million from $63.4 million in the prior-year period.
  • 39 new Planet Fitness stores were opened during the period, bringing system-wide total stores to 2,039 as of March 31, 2020.
  • Cash and cash equivalents as of March 31, 2020 was $547.5 million.

(1) Adjusted net income and Adjusted EBITDA are non-GAAP measures.

Operating Results For The First Quarter Ended March 31, 2020
For the first quarter of 2020, total revenue decreased $21.6 million or 14.5 percent to $127.2 million from $148.8 million in the prior-year period which included system-wide same-store sales growth of 9.8 percent. By segment:

  • Franchise segment revenue decreased $7.2 million or 11.0 percent to $58.5 million from $65.8 million in the prior-year period, and franchise segment same-store sales increased 10.0 percent. The $58.5 million of franchise segment revenue for the first quarter 2020 does not reflect $18.7 million of deferred royalty and national advertising fund revenue that was collected but not recognized as a result of temporary store closures related to COVID-19;
  • Corporate-owned stores segment revenue increased $2.5 million or 6.5 percent to $40.5 million from $38.0 million in the prior-year period, and corporate-owned store same-store sales increased 7.3 percent. The $2.5 million increase was driven by higher revenue of $5.5 million from corporate-owned stores opened or acquired since January 1, 2019, partially offset by lower revenue of $3.0 million from corporate-owned stores included in the same-store sales base. The $40.5 million corporate-owned stores revenue for the first quarter of 2020 does not reflect $5.9 million of deferred revenue that was collected but not recognized as a result of temporary store closures related to COVID-19; and
  • Equipment segment revenue decreased $16.8 million or 37.4 percent to $28.2 million from $45.0 million in the prior-year period, due to lower equipment sales to new and existing franchisee-owned stores in the three months ended March 31, 2020 compared to the three months ended March 31, 2019. Included in the decrease is $10.0 million of lower revenue due to COVID-19.

For the first quarter of 2020, net income attributable to Planet Fitness, Inc. was $8.6 million, or 11 cents per diluted share, compared to net income attributable to Planet Fitness, Inc. of $27.4 million, or $0.32 per diluted share in the prior-year period. Net income was $10.4 million in the first quarter of 2020 compared to $31.6 million in the prior-year period. Adjusted net income decreased 56.0 percent to $14.4 million, or $0.16 per diluted share, from $32.7 million, or $0.35 per diluted share in the prior-year period. Adjusted net income has been adjusted to reflect a normalized federal income tax rate of 26.8 percent for the current year period and 26.6 percent for the comparable prior-year period and excludes certain non-cash and other items that Planet Fitness does not consider in the evaluation of ongoing operational performance.

Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain non-cash and other items that it does not consider in the evaluation of ongoing operational performance, decreased 26.6 percent to $46.5 million from $63.4 million in the prior-year period.

Segment EBITDA represents its Total Segment EBITDA broken down by the company’s reportable segments. Total Segment EBITDA is equal to EBITDA, which is defined as net income before interest, taxes, depreciation and amortization.

Franchise segment EBITDA decreased $10.6 million or 22.4 percent to $36.7 million. Franchise segment EBITDA for the first quarter of 2020 does not reflect $18.7 million of deferred royalty and national advertising fund revenue that was collected but not recognized as a result of temporary store closures related to COVID-19.

Corporate-owned stores segment EBITDA decreased $3.6 million or 22.9 percent to $12.0 million. Corporate-owned stores segment EBITDA for the first quarter of 2020 does not reflect $5.9 million of deferred revenue that was collected but not recognized as a result of temporary store closures related to COVID-19; and

Equipment segment EBITDA decreased by $4.0 million or 38.8 percent to $6.4 million driven by lower equipment sales to new and existing franchisee-owned stores. Included in the decrease was approximately $2.5 million due to COVID-19 related closures and travel restrictions.

2020 Outlook
For the year ending December 31, 2020, the company previously withdrew guidance as a result of uncertainty due to the COVID-19 pandemic. The company is not providing an update at this time.

Photo courtesy Planet Fitness