Wall Street is taking a keen interest in fitness and wellness, with quite a few companies in the space beginning to trade and others planning their Initial Public Offering (IPO). Planet Fitness, Inc., also known as the low-cost fitness center, is the latest to join the health and wellness-related IPO bandwagon. It is preceded by Fitbit Inc. FIT and MINDBODY, Inc. MB, which have already begun trading.
While CrossFit Gyms and Chelsea Piers are high-end fitness centers, Planet Fitness focuses on basic amenities and has a no-frills approach. It primarily caters to first-time or occasional gym members rather than fitness fanatics and calls its gyms Judgment Free Zone. It lets people feel comfortable and enjoy their fitness experience. It provides Tootsie Rolls at the front desk and offers other membership appreciation gestures such as monthly Pizza Mondays and Bagel Tuesdays at no additional cost.
The company recently filed an S-1 form with the Securities and Exchange Commission (SEC) to raise $100.0 million for Initial Public Offering (IPO). This fitness center intends to get listed on the New York Stock Exchange (NYSE) under the symbol “PLNT.” (Read: Planet Fitness Warms Up for NYSE Debut, Files with SEC).
What’s Driving Planet Fitness?
To begin with, Planet Fitness has experienced 33 consecutive quarters of system-wide same store sales growth. It also has a strong store development pipeline. The company has grown drastically over the past four to five years. From 2010 – 2014, the number of stores grew more than 100%. Per media reports, Planet Fitness opened its 1000th store in Jun 2015.
Moreover, the company has stated in its S-1 filing that it has the opportunity to more than quadruple its store count to over 4,000 stores in the U.S. itself. The company has entered into an area development agreement with its franchisees wherein the latter have agreed to open more than 1,000 additional stores.
Per market analysts, the popularity of a fitness chain is gauged by its membership base. As of Mar 31, 2015, Planet Fitness had 7.1 million members, up approximately 25% year over year and more than double since 2010. Its low membership fee is the key growth driver. Both cards offered by the company — standard as well as PF Black Card membership — cost less than the industry average, especially when compared to centers like Downsize Fitness and East Bank Club.
Problems for Planet Fitness
This 94% franchised fitness center is burdened with debt, reportedly after being taken over by the private equity firm TSG in 2013. Its total debt as of Mar 31, 2015 was $506.4 million compared to equity of only $12.4 million. The debt burden restricts the company from distributing dividends and keeps it away from investors’ preferred list.
Per market analysts, despite the higher number of members and store count, the company lags in terms of revenues when compared to other fitness chains like LA Fitness, 24 Hour Fitness and Equinox. This implies that Planet Fitness has low profit margins on a per store basis.
Moreover, there is stiff competition among operators in the discount gym industry. Discount gyms offer affordable memberships and endless rows of cardio machines. Planet Fitness faces tough competition from Retro Fitness and Anytime Fitness.
3 Stocks in Focus in View of Planet Fitness IPO
Besides these privately held fitness centers, Planet Fitness has to battle it out with the following health and wellness chains that are already trading on the Street.
Based in Dallas, TX, ClubCorp Holdings, Inc. MYCC, carrying a Zacks Rank #3 (Hold), is an operator of large, upscale sports clubs plus golf clubs, country clubs and dining clubs. Year to date, share price of the company has gone up approximately 35%. Earnings are expected to grow 9% over the long term.
Based in Fort Washington, PA, Nutrisystem, Inc. NTRI, currently sporting a Zacks Rank #1 (Strong Buy), provides weight loss programs for women, men, and seniors in the U.S. that keeps them healthy. The company’s earnings have been beating the Zacks Consensus Estimate for the past four quarters. It has a positive average earnings surprise of 31.88%. Share price of the company has grown by an impressive 32% year to date. Earnings are expected to grow 10% over the long term.
GNC Holdings Inc. GNC based in Pittsburgh, PA is a special retailer of health and wellness products and offers vitamins, minerals and herbal supplements, sports nutrition products, diet products, and other wellness products. Earnings for the company are expected to grow 11.4% over the long term. The company presently has a Zacks Rank #3.
Bottom Line
We don’t know how Planet Fitness will perform. Given its impressive track record, the company is expected do well when it goes public. For the time being, we can only wait for it to begin its journey on the stock exchange.
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