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Why Town Sports International Holdings, Inc. Shares Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Town Sports International Holdings  (NASDAQ: CLUB  ) were looking out of shape today, dropping as much as 22% after a weak fourth-quarter earnings report. 

So what: The parent of New York Sports Clubs and other similarly named health clubs in the Northeast saw key numbers moving in the wrong direction, as total member count fell by 10,000 in the quarter to 497,000 and revenue dropped 0.3% to $113.9 million. Comps were also down 1.3%, and adjusted profit came in at breakeven, below estimates of a $0.03-per-share profit. CEO Robert Giardina said the company was "not satisfied with 2013 results," but he was optimistic about the future, noting advancements in personal training, its new BFX Studio brand, and pricing improvements.

Now what: Declining membership is never a good sign for a business, especially one that depends almost entirely on membership dues for its revenue. With 108 gyms in New York alone, Town Sports may have reached the saturation point in many markets it's entered. Its 7.3% dividend yield and a well-known brand name make it potentially appealing as an investment, but I'd like to see membership moving in the right direction first. Management expects falling revenue and break-even profits -- against an estimate of $0.17 -- for the current quarter, so shares could slide more before they bounce back. 

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  • Report this Comment On February 21, 2014, at 12:26 PM, dukebruno wrote:

    As one who was a member of a suburban NJ NYSC location for 10 years I can give you my take on why membership numbers are down.

    1) NYSC has removed about 50% of the equipment that the majority of dues-paying members want. The cleared floor area is now occupied by the UXF Zone that is designed purely to increase personal training revenue. Anyone not interested in PT is expected to use the garbage equipment that remains and to just shut-up about it.

    2) The NYSC location that I formerly belonged to is disgustingly filthy. The shower area would make a normal person vomit and then the vomit would remain since no one cleans.

    3) This same location is run by inexperienced individuals barely out of their teens. That a corporation would give the responsibility of a multi million dollar facility to someone who still lives with mommy and daddy is mind numbing. Work for $ 8.50 an hour? Here are the keys!

    4) At least in suburbia, NYSC is being attacked from the low end and attacked at the high end. Within 10 miles of here Retro, LA Fitness, Fitness24, Blink and Fitness 19 have all opened locations. A slew of small/independents also exist. These places charge $ 15 to $ 40 per month vs. NYSC's $ 70 and up. What does NYSC offer that the less expensive places don't have? Answer: Nothing (unless you like broken equipment and filth). On the high end, both Equinox and LifeTime I happily pay double my NYSC dues at LifeTime because the place is well run, the equipment EXISTS and WORKS and the facility is pristine.

    Where NYSC has little competition they can continue their mediocre ways. In the burbs NYSC hasn't got a chance. They should shut down or sell off these locations and hunker down in NYC.

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Jeremy Bowman

Fool since 2011. I write about consumer goods, the big picture, and whatever else piques my interest. Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market.

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Related Tickers

9/2/2015 3:59 PM
CLUB $2.51 Down -0.03 -1.18%
Town Sports Intern… CAPS Rating: **