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Planet Fitness Inc (PLNT -1.18%)
Q2Â 2019 Earnings Call
Aug 6, 2019, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon. My name is Josh and I'll be your conference operator today. At this time, I would like to welcome everyone to the Planet Fitness Second Quarter 2019 Earnings Call. [Operator Instructions] Thank you.
Brendon Frey with ICR, please go ahead.
Brendon Frey -- Managing Director
Thank you for joining us today to discuss Planet Fitness' second quarter 2019 earnings results. On today's call are Chris Rondeau, Chief Executive Officer; and Dorvin Lively, President and Chief Financial Officer. A copy of today's press release is available on the Investor Relations section of Planet Fitness' website at planetfitness.com.
I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Planet Fitness' judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Planet Fitness' business. Accordingly, you should not place undue reliance on these forward-looking statements.
For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements included in our second quarter 2019 earnings release, which was furnished to the SEC today on Form 8-K, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
In addition, the Company may refer to certain adjusted non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today.
With that, I'll turn the call over to Chris Rondeau, Chief Executive Officer of Planet Fitness. Chris?
Chris Rondeau -- Chief Executive Officer
Thank you, Brendon, and thank you everyone for joining us today. We delivered another quarter of strong results, highlighted by systemwide same-store sales growth of 8.8% and adjusted earnings per share of $0.45, an increase of 32.4% over the prior year period. Our same store sales performance was once again primarily volume driven, as approximately 75% of the increase came from net new member growth.
On a two and three years stack basis comps are up 19% and 28% respectively. Planet Fitness Judgement Free affordable approach to fitness continues to resonate with consumers. We added approximately 400,000 net new members during the second quarter to end the period with more than 14 million members an increase of approximately 16% over last year. We also opened 53 new franchise locations in Q2 ending the quarter with 1859 stores systemwide as our group of sophisticated well capitalized franchisees continue to successfully execute their extension plans.
Planet business continues to leverage its size and scale to capitalize on current real estate trends and dominate the markets, where we operate. A perfect example of this is our partnership with Gold's. We are tracking to open five new Planet Fitness stores adjacent to existing closed locations by the end of 2019, with more to follow in 2020. Four of the five stores are set to open this year, our franchise locations, while one is a new corporate store.
One highlight from me. From the second quarter was a kick-off of the Teen Summer Challenge. I cannot be more pleased with the results, we've seen nationally rolling out this initiative, which invites teens ages 15 to 18 to work out for free in our 1800 plus locations in the U.S. and Canada from May 15th through September 1st.
On top of our 14 million members, approximately 900,000 teens have signed up for this program and completed over 4 million work outs. Not only have we introduced members of Gen Z to our brand, we believe we have also made meaningful impact on making teens healthier this summer at a time when teens' physical activity significantly declines due to decreased access to organized sports and fitness.
Providing youth with free access to fitness, not only helps teens to get active and increase their overall health and wellness, we believe it is also a great opportunity for the long term to build brand loyalty and affinity with this demographic. In addition to introducing teens to Planet Fitness, the Teen Summer Challenge has also enabled us to introduce their parents to our brand with approximately 75% of teen sign ups coming from non-PF households.
In from mid May through July more than 30,000 parents have joined Planet Fitness with limited marketing efforts. With a few weeks left the summer remaining, we look forward to encouraging as many teens as possible to keep up the great work and supporting them in their fitness journey.
Now for a brief update on our technology initiatives. We plan to officially launch version one of the mobile app this month. We have soft launched it internally within our system and segments of our member population over the past few months, with significant positive feedback on the enhanced features of functionality, such as ability to upgrade our classic White Card membership to black card membership, workout tracking and new features like custom workouts. We look forward to building upon that functionality in future releases and continue to enhance our members experience.
Looking ahead, in September we have our systemwide franchise conference with more than 1300 franchisees and team members expecting to attend. We conduct these meetings biannually in between our smaller franchise galleries as an opportunity to strengthen our relationships with our franchisees enhance our collective momentum. Get our system excited about our strategy, and what lies ahead for the brand to engage on a variety of topics, including marketing, development, technology, operations, training, recruitment, and more. It always proves to be an educational, fun and inspiring event. And I look forward to spending time with both our franchisees and our team members on the frontlines of our businesses each and every day.
In closing, it has been a strong first half of 2019, with Q2 marking our 50th consecutive quarter of positive same store sales. More Planet Fitness locations opened during the first six months than any year in our history. Our passionate franchisees are increasingly eager to reinvest in expanding their footprint evidenced by the increase in projected new store opens to a range of 250 to 260, up from a previous outlook of approximately 225.
We have added close to 1.5 million net new members at January 1st. We provided free fitness to approximately 900,000 teenagers to date across the country. At the same time, we delivered significant top and bottom line growth and generate a significant free cash flow would provide the company with great financial flexibility. I am proud of the tremendous work being done across our system by our franchisees, our corporate staff, and store team members. Their efforts have me excited about what's in store for Planet Fitness over the remainder of 2019 and the longer term.
I'd now turn the call over to Dorvin.
Dorvin Lively -- President, Chief Financial Officer
Thanks, Chris. Good afternoon, everyone. I'll begin by reviewing the details of our second quarter results and then discuss our full year 2019 outlook. For the second quarter of 2019, total revenue increased 29.3% to $181.7 million from $140.6 million in the prior period. Total systemwide same store sales increased 8.8%, from a segment perspective, franchisees same store sales increased 9% and our corporate store same store sales increased 5.8%.
Approximately 75% of our Q2 comp increase was driven by net member growth, with the balance being rate growth. The rate growth was driven by 100 basis points increase in our Black Card penetration to 61.5% compared with last year combined with the $2 increase in Black Card pricing for new joins that was put in place systemwide on October 1 of 2017. During the quarter, the increased Black Card pricing drove approximately 200 basis points of the increase in same store sales.
Our franchise segment revenue was $71.8 million, an increase of 23.5% from $58.2 million in the prior year period. Let me break down the drivers for the quarter. Royalty revenue was $48.9 million, which consists of royalties on monthly membership dues and the annual membership fees. This compares to royalty revenue of $38.3 million in the same quarter of last year, an increase of 27.7%.
This year-over-year increase had three drivers. First, we ended the quarter with 239 more franchise stores compared to the second quarter of last year. Second, as I mentioned our franchisee owned same store sales increased from 9%. And then third, a higher overall average royalty rate. For the second quarter, the average royalty rate was 6%, up from 5.5% in the same period last year, driven by more stores at our current royalty rates, including stores that have amended their franchise agreements.
Next our franchise and other fees for $4.2 million compared to $4 million in the prior year period. These are fees received from online new member sign ups, the recognition of fees paid to us for new franchise agreement, area development agreement and the transfer of existing stores and fees received from processing dues to our point of sale system.
Also within franchise segment revenue is our placement revenue, which was $5.1 million in the second quarter, compared with $3.1 million a year ago. These are fees we received for the assembly and placement of equipment sales to our franchisee-owned stores within the U.S. During the second quarter of 2019, we placed equipment at 50 new stores compared with 38 in the year ago period.
Our commission income, which are commissions from third-party preferred vendor arrangements and equipment commissions for our international new store openings was $1.1 million compared to $1.6 million a year ago. And then finally, our national advertising fund revenue was $12.5 million compared to $11.2 million last year. Our corporate own store segment revenues increased 15.9% to $39.7 million from $34.3 million in the prior year period. The $5.4 million increase had several drivers including the 12 stores opened or acquired since the first quarter of last year, corporate owned same store sales increase of 5.8% and increased annual fee revenue.
Turning to the equipment segment. Revenue increased by $22 million, or 45.7%, to $70.2 million from $48.1 million. The increase was driven by higher replacement equipment sales to existing franchise owned stores, and hire a new store equipment sales versus a year ago. Our cost of revenue, which primarily relates to the direct cost of equipment sales to the new and existing franchise-owned stores, amounted to $54.4 million, compared to $36.7 million a year ago, an increase of 48%, which was driven by the increased equipment sales during the quarter.
Store operation expenses, which are associated with our corporate-owned stores increased to $20.2 million compared to $18 million a year ago. The increase was primarily driven by costs associated with the 12 stores opened or acquired since the first quarter of last year.
SG&A for the quarter was $18.9 million, compared to $17.2 million a year ago. This increase was primarily related to incremental payroll to support our growing franchise operations in our infrastructure. National advertising fund expense was $12.5 million offsetting the aforementioned net revenue we generate in the quarter.
Our operating income increased 33.7% to $65.3 million for the quarter compared to operating income of $48.8 million in the prior year period, while operating margins increased approximately 120 basis points to 35.9% in the second quarter of this year.
Our GAAP effective tax rate for the second quarter was 22.2% compared to 23.3% in the prior year period. As we stated before, because of the income attributable to the non-controlling interest and not taxed at the Planet Fitness corporate level, an appropriate adjusted income tax rate would be approximately 26.6%.
On a GAAP basis for the second quarter of 2019, net income attributable to Planet Fitness Inc. was $34.8 million, or $0.41 per diluted year compared to net income attributable to Planet Fitness Inc. of $25.9 million, or $0.29 per diluted share in the prior year period. Net income was $39.8 million compared to $30.4 million a year ago.
On an adjusted basis, net income was $42 million, or $0.45 per diluted share, an increase of 26.6% compared with $33.2 million, or $0.34 per diluted share in the prior period. Adjusted net income has been adjusted to exclude non-recurring expenses and reflect the normalized tax rate of 26.6% and 26.3% for the second quarter of 2019 and 2018, respectively. We have provided a reconciliation of adjusted net income to GAAP net income in today's earnings release.
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 are not considered in the evaluation of ongoing operating performance, increased 31.1% to $76.5 million from $58.4 million in the prior year period. A reconciliation of adjusted EBITDA to GAAP net income can also be found in the earnings release.
By segment, our franchise segment EBITDA increased 24.5% to $49.9 million driven by royalties received from additional franchisee-owned stores not included in the same store sales base and an increase in franchisee-owned same store sales of 9%, as well as a higher overall average royalty rate. Our franchise segment adjusted EBITDA margins increased by approximately 20 basis points to 69.7%.
Corporate-owned store segment EBITDA increased 23.7% to $18.1 million, driven primarily by the 5.8% increase in corporate same store sales, higher annual fees, the four franchise stores we acquired last August and four new stores opened in 2018. Our corporate store segment adjusted EBITDA margins increased by approximately 180 basis points to 46.5%. Our equipment segment EBITDA increased 46.4% to $16.8 million, driven by higher replacement equipment sales to existing franchisee-owned stores and higher new store equipment sales versus a year ago. Our equipment segments adjusted EBITDA margins increased by approximately 10 basis points to 23.9%.
Now turning to the balance sheet. As of June 30, 2019, we had cash and cash equivalents of $330.5 million, compared to $147.8 million on the same date last year, an increase of 123.7%. Total long term debt, excluding deferred financing costs was $1.2 billion at June 30, 2019, consisting solely of our whole business securitization.
Now to our full year 2019 outlook. For the year ending December 31, 2019, we are adjusting our guidance as follows. Total new store equipment sales will be in the range of 250 to 260 new stores up from approximately 225, including approximately 25 International new equipment sales. Same store sales will be approximately 8% in line with our previous guidance of high single-digits.
The total revenue will increase by approximately 18%, up from approximately 15%. Total adjusted EBITDA will increase by approximately 22%, up from approximately 20%. Adjusted net income will increase approximately 20%, up from approximately 18%. And adjusted EPS will increase by approximately 26%, up from approximately 25%.
Now we will turn the call back to the operator for your question.
Questions and Answers:
Operator
[Operator Instructions] And your first question comes from John Heinbockel with Guggenheim Securities. Your line is open.
John Heinbockel -- Guggenheim Securities -- Analyst
So, a couple things, Chris. Let me start with, you guys for a while there had purposely held unit growth down, I think because you thought real estate was going to get better. Clearly, the system can handle more openings, right financially, and operationally. You know, is this sort of a shift in the algorithm right, where, the 252 to 260 goes, 270, 280, then to 300 and so on. Or, is this a blip that you don't see repeating?
Chris Rondeau -- Chief Executive Officer
I think I'll answer that, Dorvin add to it. I think from our last call, in Q1 I think, as we continue to say, the sophistication within the franchise system, whether it's private equity involved, or just more sophistication within the current franchisees adding to their own infrastructure. You know, with the 230, we opened last year and the 225, we approximately this year. I think we're seeing more of the benefit. Is this a little bit more than we probably would expected? Yes. But I think it's evident by the commitment to the brand and the model, and really the sophistication that built that it's, you know, they couldn't be more excited about the brand. And I think it's great momentum that we're seeing for sure.
Dorvin Lively -- President, Chief Financial Officer
Yeah, I think, John, the other thing I'd add is that, we've talked about over the last probably last 12 months or so, how we've added incremental resources to really assist the franchisees and it's kind of in all facets. But one thing, which I've mentioned on different calls is how we put real estate people in the field, where we're not, if you go back maybe three or four years ago, we were basically letting franchisees bring sites to us that we would approve.
And in many cases, we would decline sites and you've heard us talk about that. I'd say over the last 12 months or so, under the leadership of Ray Miolla, our Chief Development Officer, we've started -- we've put more boots on the ground, where we're working with the commercial real estate brokers for the landlords, REIT, et cetera. And at the same time then, the franchisees to Chris's point, have invested more resources as well, because many of these guys are larger and they have territories, you know, kind of spread out.
And so I think it's the collective effort of all three groups. It's us, it's the franchisees and then just frankly, it's the brand awareness of the national brand, where people like Kohl's, which we've talked about in the past and others that reach out that four or five years ago, they weren't. We weren't the number one call in the list, when something was coming up. So, I think it's a combination of those, the private equity backed guys, as well as some of the larger guys clearly have the capital to be able to invest. And, a lot of it is timing, it's coming down to, finding those great locations, but the environments is as good as it's ever been in terms of finding real estate, and we feel good about the pipeline.
John Heinbockel -- Guggenheim Securities -- Analyst
And just as a follow up to that. How do you guys think about the balance between you or the franchisees right, between densifying some of these markets, driving more total membership, and maybe accepting a little bit of cannibalization of existing clubs? That trade off and obviously that drive systemwide sales and marketing flywheel. I assume that's a good trade off, right? And you're OK with a step up in cannibalization, is that fair?
Chris Rondeau -- Chief Executive Officer
I think what we're seeing and the franchisees are seeing with more analytics and data is that we keep out using the same thing is the more we open, the more we can open. And, in markets that we expected more cannibalization years ago that we may have not approved a site, call three, four or five years ago. Today, we look at very differently than we did back then in the sense that we've learned a lot more in the last few years, I think we have opened upwards of almost 500 stores in last couple of years. We learned a lot to approve every site and have a date on every site. So, I think the franchisees as well as us just more comfortable densifying these markets.
John Heinbockel -- Guggenheim Securities -- Analyst
Okay, thank you.
Brendon Frey -- Managing Director
Thanks, John.
Dorvin Lively -- President, Chief Financial Officer
Thanks, John.
Operator
Your next question comes from Randy Konik with Jefferies. Your line is open.
Randal Konik -- Jefferies -- Analyst
Yeah, thanks a lot. So, I just want to kind of come back to the densification of the markets. You know, when you look at the data, is there any kind of way to think about potential instead of thinking about. Traditionally, the thought process has been opening more stores near each other. There's no cannibal -- potential cannibalization. But now, if we've learned something from I don't know, Starbucks or other names, the idea has been more about the closer to the consumer, where they work or lives. You actually kind of grow the market.
So, I guess the New Hampshire market is kind of evident to kind of suggest that you are almost actually gaining more consumers that would potentially go to your box, because they're -- you know that much more closer to where they potentially live or work. Any kind of evidence or data you're seeing on that in that dynamic?
Dorvin Lively -- President, Chief Financial Officer
Yeah, I think, Randy, it's we're still early in the game in some markets versus and in others to your reference of maybe New Hampshire, or maybe even like Massachusetts, where we have a lot of stores and started up in this area. But there's clearly markets, where you've heard us talk about it, where we might have 4% or 5% of the market penetration today in a decent metropolitan area, but in other markets, we may only be at 2.5%.
And so, it's a combination then of literally getting closer to people, as well as then, building out I guess, I would say in markets, where we're not at -- we're not at 80% or 90% of it, but we're getting more in the market, from a market planning perspective, that then provides for more opportunities for Black Card usage, the reciprocity et cetera.
And, so then there is some of that kind of, home or work or meeting your friends or work out, et cetera. But it's still combination of both. I mean, there are markets, where we're setting you're realizing there's still a lot of stories that can be built, where there's a significant amount of population that we're not within a 12, 15 minute drive time because still, you have the 80% of population don't have a gym membership.
Randal Konik -- Jefferies -- Analyst
That's helpful. And, if you think about amenities one thing that is started kind of pop up on the radar is, it seems to be there's more and more announcements of partnerships between Planet and other third parties, if you will, where there's all these benefits that Black Card or even all Planet Fitness members can kind of sharing. So, what are the learnings of any kind of statistics or data that show that's increasing engagement or utilization on a more frequent basis of the Planet gym.
I guess what I'm trying to get at is, is are you starting to see the increase of amenities, I'm sure you're getting a lot of inbounds of people want to work with you third-party brands that want to associated with Planet. It seems like there's an opportunity to increase that engagement, further reduce potential churn over time. Just curious on how you're trying to think about strategically utilizing these partnerships to either increase that engagement or reduce churn over a long period of time? Thanks.
Chris Rondeau -- Chief Executive Officer
Yeah, we've done some studies that is one thing that members are looking forward is content to whether it's in club, or out of clubs, that stuff we're investigating with the launch of the app, this week actually. We'll give the ability to pipe in that ability. But you're right on like, we just had a recent partnership with Integral [Phonetic], where Black Card members get a discount on vacations, which is outside of really fitness and wellness, but it is giving, a Black Card member other benefits and perks just for being a member of be it like AAA, three month trial on Audible, which you have seen once a while as well. And Reebok discount was done a long time.
So, we are getting a lot more inbound calls and I think it's our size and scale now, which is opening more and more doors for us, which is great, because something that competition is so far behind that they're not going to have probably [Phonetic] that ability. So, I think any way we can give our members more experience and more benefits the better for value.
Randal Konik -- Jefferies -- Analyst
Okay, thanks. Last question, I guess, for Dorvin. One question we get a lot of is people thinking about the differential in return characteristics on the I guess smaller box format versus the regular box. Kind of anything can share on any differentials you see and any learnings from some of these different box sizes that we can share as, I think the market can get really comfortable about these smaller boxes really taking hold, it really gives the market a potential deep thought process of many more thousands of units being able to be put through the system both domestically and even potentially internationally, I'm just curious there. Thanks.
Dorvin Lively -- President, Chief Financial Officer
Sure. I mean, we have a number of locations that -- and some of them are older stores, that we've had for a while, but clearly in the last couple of years or so, where we've gone into cities that are call it under 40,000 to 50,000 in population within a 15 to 20 minute drive time versus kind of the traditional, more Metropolitan suburbian locations that have a lot of population.
And one of the initiatives we're working on is can there be a different size box in some of the smaller towns and then therefore, less capital invested, more than likely fewer members per store, but yet still get that economic return that someone's willing to invest the money to, to build out those stores.
And, I think that what we're seeing is that the return is there. And it will be obviously depended upon over time on whether, what's the right size of box because we want the brand that we put out there today as a Planet Fitness store that's got the reciprocity benefits, it's got the other things that we think drive value, particularly in selling our top membership, we want you to be able to still have some of that look and feel, albeit maybe in the smaller box. And I think in some cases, population and then size could drive it to a point, where maybe it does represent the brand we want it to be. So, that's what we're working on today.
And looking at some different size configurations, most of all of our boxes we built in the last couple of years in the 20,000 square foot box, but we built some smaller than that. We've built some in the 15,000 range. We've built some even smaller than that. I think at the end of the day, we'll probably circle around somewhere around 10,000 square foot box is probably on the small end and you're probably going to need in that call it 30,000 to 40,000 population to be able to drive that or to be able to drive the kind of return. And the one thing that's different is drive times, because if we're in suburbian Atlanta or Chicago or Dallas we'd be looking at call it at 12 minute drive time, whereas you get into some of these outlying
smaller towns, it maybe a 20 to 30 minute drive time that makes it work because people are driving 25, 30 minutes to go to the grocery store, go to the drugstore.
So, those are the things we're looking at. And the franchisees that are building those stores and we have a couple corporate stores. The returns are they fit the profile of someone wanting to invest in it. I guess I'll put it that way.
Randal Konik -- Jefferies -- Analyst
Understood. Thanks, guys. Appreciate it.
Chris Rondeau -- Chief Executive Officer
Thanks Randy.
Dorvin Lively -- President, Chief Financial Officer
Thanks Randy.
Operator
Your next question comes from Sharon Zackfia with William Blair. Your line is open.
Sharon Zackfia -- William Blair -- Analyst
Hi, good afternoon. A couple of things.
Chris Rondeau -- Chief Executive Officer
HI Sharon.
Sharon Zackfia -- William Blair -- Analyst
Hi. I think you were testing an increase to the Black Card pricing and just wondering what you saw from that, and whether or not you're planning on rolling out any kind of increase to new members, later this year, early next?
And then secondarily on equipment Dorvin, if you wouldn't mind letting us know, kind of what percent was replacement versus new units? And I think at one point, you had said that you expected equipment revenue to be down in the fourth quarter, I didn't know if that was still the case?
Chris Rondeau -- Chief Executive Officer
Sure. Sharon it's Chris. On the Black Card price test, yeah, we're testing $1 increase so, $22.99, we're testing that right now, and virtually the same hundred stores that we did the last test, which was two years ago. We are going out the rest of the summer, and then probably make a decision toward the end of the summer here. So far it has been very promising. The acceptance of the increase has been virtually the same results as the last time.
So, you know, no push back, and it's been, as far as the Black Card percentage acquisition as well as, adopting the dollar increase. So, you're right, it will be new members going forward. I don't see anything now. It doesn't say, we probably won't move forward second half of the year. But we're still evaluating next week or two.
Dorvin Lively -- President, Chief Financial Officer
Yeah, sure. And only equipment so for the quarter, I mean, we -- I think I'd be remiss to say that our franchisees are, -- they continue to believe in this brand and really reinvest. And we think that's a key differentiator that we've had, -- you've heard us talk about it. And for the quarter 60% of our total equipment revenue was from replacement equipment. So, it shows you that and we had a good quarter on new equipment sales as well. We still expect the full year, which I gave it, -- when I gave guidance for the year, I said it would just be bit shy of 50%. We still think it'll be a little bit under 50% on a full year basis, even with our updated guidance on equipment sales, but it continues to show that they'll be willing to invest on the equipment side.
The way we're thinking about the balance of the year is, still a bit similar to the way it was back earlier in the year. It looks like that probably our year-over-year, Q4 over Q4, the equipment revenue will be down a little bit versus, where it was last year. One given just kind of where we're at year to date. And then just the cadence between Q3 and Q4 to get up into that 250 to 260 range. But we do believe it will be down slightly in the fourth quarter.
Sharon Zackfia -- William Blair -- Analyst
Thank you.
Operator
Your next question comes from Rafe Jadrosich with Bank of America Merrill Lynch. Please go ahead. Your line is open.
Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst
Hi, good afternoon. Thanks for taking my questions.
Chris Rondeau -- Chief Executive Officer
Hi Rafe.
Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst
I was wondering, if you could talk a little bit about the mix of your online sign ups versus in store? And then how that changed over time?
Chris Rondeau -- Chief Executive Officer
Right now it's about 30% join online. It is about 25% in the past year, so it's up slightly from a couple years ago, I'd say.
Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst
Again then in terms of owned can you just give us an update on international the kind of trends you're seeing in Mexico and Latin America? And then are there any new markets that you're looking at going forward?
Chris Rondeau -- Chief Executive Officer
So, the Mexico we had one store opened, there is couple slated to open the remainder of this year. In Panama as well, we opened that one store about 18 months ago and is three or four there are now. Still the same results have been, you know, high demand form as I mentioned in South America, the bigger hurdle that we figure out and work through is more EFT and how that translates in the banking world down there.
A few blips here and there, but they figured it out and it's working relatively good. So, for now just really focusing on Mexico getting that rolling and we'll be looking for more international in the future. But for right now really focused on the U.S. growth and Canada and getting Mexico off the ground.
Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst
Okay. And then I think you finished the buyback authorization in the quarter just going forward, how are you thinking about capital allocation? And then are there any changes to your approach to leverage, or the priorities for cash?
Dorvin Lively -- President, Chief Financial Officer
Yeah, on net of cash basis we are at about 4.6 times leverage at the end of Q2. We have the $1.3 billion outstanding on the securitization. I think that, in terms of where we're at with respect to our longer term strategy is the same. We believe that our model is strong enough to continue to generate a lot of cash flow, and return cash to shareholders. We chose the share repurchase plan last year, as a way to do that. We have about $150 million or so left under the $500 million approved repurchase plan by our Board. And I think we'll continue to work with our Board over the balance of the year as we continue to delever down to look at ways to return cash to shareholders.
Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst
Okay Thank you.
Operator
Your next question comes from Jonathan Komp with Baird. Your line is open.
Jonathan Komp -- Baird -- Analyst
Yeah, hi, thank you. First question, I just wanted to ask about the same store sales outlook, and very strong first half above 9% on the system comps. I just want to ask them clarify, to get down to 8% for the year, I think implies closer to 7% in the back half. And that's very good, but maybe the slow -- on the slower end of what we see in the last few years, I just want to maybe ask about your confidence there? And what you see is the ongoing same store sales drivers?
Dorvin Lively -- President, Chief Financial Officer
Sure, Jon. As we have guidance for the full year, and then kind of reiterated that in at the end of Q1, we saw our comps coming in the mid single-digit range, kind of that 7% to 9% range. Given, we're halfway through the year, we decided to narrow that to say at approximately 8%. So, still within the range. I'd say there's two or three things that go into the way I would describe your call. You're right in that with given where Q1, Q2 are and then a full year kind of guide to 8% implies that the back half would be moderate in the first half.
And if you go back to the beginning of the year, in fact, that's the way we gave our guidance, we said that it assumed that the growth would moderate throughout the year, and I think I said quarter-by-quarter. So, a couple of things on that. One is, as I've said in the past, that the older mature stores, they comp up in that kind of low to mid-single digits. And the base of those stores just continues to grow into that more mature state. And you start to see a lessening impact from the newer stores over time.
Now, that's been somewhat offset if you go back certainly last year, and even frankly, first couple of quarters this year, that's been somewhat offset by the fact that we had the $2 price increase that took effect back on October 1. And so just to give you a sense for that, that so Q1 impact on same store sales in terms of the bike hard pricing was about 240 basis points. And the 2Q impact was about 200 basis points of this year. And that's down about 50 bps from last year's Q2, it's about 250 last year in Q2.
And as we look at Q3 and Q4, we see the Black Card pricing continued to decline as we continue to cycle. And all of this assumes there's no incremental pricing to the question earlier on the call. But as an example, last year's Q3 drove about and Q4 drove about 300 basis points of same store sales in Q3 and Q4, whereas this year, it's going to be more in the 190 range for Q3, probably 170 range for Q4. So, you're starting to see over 100 bps plus and increasing, yeah, as I just mentioned from Q1 to Q2, we dropped about a 40 bps increase just quarter-to-quarter.
And then finally, I guess I'd say just, I think, our new joins in the first half of the year been just a touch lighter than, what we would have forecasted, and what we thought for the year. But still, when you sit back and think about it, given, an 8% comp, we're still in that kind of high, single-digit range. And really, pretty much in line with where we thought we would be back at the end of Q1, when we last talked about comps.
Jonathan Komp -- Baird -- Analyst
Yeah and understood. And when you think about the drivers going forward of the new joins, any thoughts, per se Dorvin just if you look to the marketing plans and the set of drivers that you have lined up, what we should expect going forward, as you look out a few quarters?
Dorvin Lively -- President, Chief Financial Officer
Yeah, I think, in hindsight, looking at you may recall earlier this year, we had mentioned that we increased our digital marketing spend by about 50% over the previous year. And I think as the national ad fund has grown, I think maybe a disproportionate amount had been put into digital, which I think maybe over digitize our marketing, where traditional marketing really is what drives what we're seeing more volume. So, I think there's probably some changes we will look to retool some of this year and for 2020, as well going forward.
Jonathan Komp -- Baird -- Analyst
Okay, great. And then if I could follow up the -- on the Black Card penetration, it's really accelerated pretty nicely in the last couple of quarters. Any thoughts does that inform kind of your thoughts on what the ultimate pricing ability is? And I know you're testing the dollar increase, but now that you're back adding more than 100 basis points of Black Card penetration year-over-year it seems like if anything quite a bit of pricing power. So, just curious to get your thoughts more broadly on that?
Chris Rondeau -- Chief Executive Officer
Yeah, I think, the reciprocity was the reason that this make the question that may move again, as even a couple years ago, we already added 400, some more stores here. So, quite a big increase in the last two years which why we decided this dollars. I think, as we continue to provide more service and open more stores, whether it's either content or more amenities within the store, or just more locations for reciprocity that, it's probably a lever that will, will always have in our back pocket to constantly look to see if it gives the ability to raise.
Jonathan Komp -- Baird -- Analyst
Okay, great. Thank you very much.
Chris Rondeau -- Chief Executive Officer
Thanks Jon.
Dorvin Lively -- President, Chief Financial Officer
Thanks Jon.
Operator
Your next question comes from Oliver Chen with Cowen and Company. Your line is open. Oliver Chen with Cowen and Company, please go ahead, your line is open.
Jonna Kim -- Cowen and Company -- Analyst
Hi, sorry this is Jonna [Phonetic] on for Oliver today. Just quick questions. How do you think about the competitive landscape as you open more stores and other concepts are also riding the health and wellness trend? And have you seen any noticeable change in the churn rate that you've notice recently? Thank you so much.
Dorvin Lively -- President, Chief Financial Officer
Yeah, no, nothing's happened with churn at all. I mean, as we've mentioned in the past attrition is slightly better, little bit slightly better last couple of years. I think if anything Jonna I'd say that although you see more specialized boutiques that are kind of pop up in different concepts come around. I think if you look at more of the -- I guess lower costs, high value clubs like us like whether it's Retro or Youfit or so on, the other one is really grown at any amount would be crunch, which is, I think, last year they were 50 or 60 stores.
So, net-net closest after that, where Youfit hasn't really grown it all, Retro hasn't really grown at all. So, I think on the lower cost one, I don't see anything change there at all. And even more I guess the mid box, mid size box at the LA Fitness, 24 Hour Fitness is have really seen them grow any clip either. They've been kind of stuck at that LA Fitness has been at that 700 mark give or take for a while. And 24 Hour Fitness has been between the 450 or 500 for five plus years.
So, I think, inside the boutique world, where different concepts come up, I haven't seen anything change in that realm, which a lot of ways the boutique, whether they're higher price in the very different consumer.
Operator
Your next question comes from John Ivankoe with JPMorgan. Your line is open.
John Ivankoe -- JPMorgan -- Analyst
Hi, thank you. The question that earlier was asked about range of square -- square footage per box. And I'd like to reask that maybe in a different way. What was kind of the range of square foot by box for fiscal '19, what was it in '18?
If there is an average gym per square foot, you look at between the two years. And I guess we think about 2020, as you begin to narrow things in and have a different range of experience. I mean, what do you think the appropriate return on investment range that's you are going to give the right amount of service to the designed amount of customers? What is that level of box that you think you're going to hone in on, as you think about in fiscal '20, relative to the previous years?
Dorvin Lively -- President, Chief Financial Officer
I would say, John, that in '18, and even this year, and probably '17, the size of the box really hasn't changed a lot. I mean, you think about it, we're opening, you know, call at the last three years, 200-plus, counting this year, it's going to be in, right between probably 19,500 and 20,000 square feet. Now, there is a few little outliers to that because happened to be a box in a certain place, you wanted to put it and it was, 16,500 or something like that. You've heard us talk about the store we built corporate store in Berlin, Vermont, it's about 155 in a very small town up there. We opened a small store down in a small town in Texas, of just shy of 8,000 square feet last year, but that's a big outlier.
So, the far majority of all the stores, you know, '17, '18, '19 are right around 20,000. And we have some over that. So, that helps in terms of the average, but far majority bread and butter right down the fairway is 20,000. What I was trying to allude to the question earlier, at least the way I thought the question was being asked was, as we get more and more penetration into markets, and opened more and more stores, and then as franchisees start to kind of look toward the fringes, let's say, of their development agreements, or, and just, frankly, more rural states. You know, maybe how small can small be? And then, will they build them and get a return on it? And, that's where I was alluding to us looking at, anywhere from, say, 10,000 to 15,000 square feet. If it's a small enough market, then we're looking at that and saying, can that drive the return? " And I think affirmatively I said, yes.
Clearly there is no doubt that the far majority of all of our franchisees is if there's enough people there, they're going to put that 20,000 square foot box, because it can and we've said this before, I mean, it can handle anywhere from call it 5500 to 6000 members, and maybe a more cheaper real estate environment in some markets all the way upto, 12,000 to 15,000 members in some markets too. And we believe that brand and the size of the box, and the usage patterns of our members can handle that.
But if it's in markets, where we have not saturated the market with the maximum number of stores, it's most likely going to be a 20,000 square foot box. Even in markets, John where, we want to box, and there's enough people, and there's no real estate, we're building some -- I'd say we on the system, we're doing some ground ups, and we're doing 20,000 square foot, because we think that's the right profile, it gives us the best perception from a customer, the best layout, the right mix of equipment, et cetera.
And then when you get out to that fringes of OK, it's just a small town and it -- maybe I can't grab the same type of membership to drive the economics. I think the way that most people are looking at this is, if they can get that, on the low end 20% kind of cash-on-cash returns, they're willing to do it? And clearly anything above that they're willing to do it. And so far, we haven't had that kind of a problem of trying to struggle to get to that 20% of cash on cash returns.
John Ivankoe -- JPMorgan -- Analyst
Yes, of course. And maybe even more succinctly. I mean, it sounds like you're not expecting a material change in square foot per boxes, certainly in '19 or '20. And if it is, it would be, slight to not even be worth mentioning, I think that's (Multiple Speakers)--
Dorvin Lively -- President, Chief Financial Officer
[Technical Issues]
John Ivankoe -- JPMorgan -- Analyst
Okay. That's the important point. And then secondly, just talking about, the Black Card pricing, obviously you have it at $19.99 for a long time, you went to $21.99 in October '17. Certainly in restaurants, there's always kind of a big philosophical debate of you're taking pricing when you have to because there's cost pressure and the franchisees are really asking for that or keeping pricing basically what it is because you have such an excellent value perception. The amount of member growth can maintain at a fairly high level. So, I mean, I guess it's, do you think about, taking that price, I mean what is kind of the balance between the franchisees are asking for it, because they want more profitability, and they want to cover some of their costs increases, maybe a labor, verses, hey, we keep pricing like it is, and we're just keep the flywheel of member growth really going. I mean what's I mean, I guess, at this point really driving that need? And maybe, the answer is, hey, what it's profitability and shareholders love that? And that's, the answer just in and of itself.
Dorvin Lively -- President, Chief Financial Officer
Yeah, I think it's, we look at, we still only really solely advertise $10 a membership, which is really the sacred get you off the couch and curiosity factor. And so, a large portion of our members are the $10 members, and that's what's what they want to pay and that's what they're willing to pay. So, I think the Black Card, the Black Card membership is pretty unique in this sense, it's not really giving more or less access to fitness, it's more or less access to a Black Card spas and benefits that are kind of outside of the -- outside of a treadmill, if you will. And some people are just willing to pay more for that product. So, I think it's something that we will look at in the future as well. But I think you're right, too, is I think it's you definitely the one thing I never want to do is use that to muscular issue. Sure, you know.
John Ivankoe -- JPMorgan -- Analyst
Okay, thank you.
Dorvin Lively -- President, Chief Financial Officer
Thanks, John.
Chris Rondeau -- Chief Executive Officer
Thanks, John.
Operator
Your next question comes from Peter Keith with Piper Jaffray. Your line is open.
Peter Keith -- Piper Jaffray. -- Analyst
Hi, thanks. Good afternoon, and good results, guys.
Chris Rondeau -- Chief Executive Officer
Thanks Peter.
Peter Keith -- Piper Jaffray. -- Analyst
I want to maybe follow up on one of the earlier questions, just regarding the step-up to the overall unit growth. I guess, you probably don't want to guide us to next year, but it seems like all the tools and assets are in place to maintain a run rate of this 250 to 260 going forward. Is this potentially maybe at least kind of a rough baseline and how we could think about the total number of absolute openings, at least for the next couple of years?
Dorvin Lively -- President, Chief Financial Officer
I don't think we want to get into giving any early guidance into 2020. But, the we have over 1000 still in the pipeline that are under area development agreements are committed. Just to reiterate, what Chris and I were saying earlier, the franchisees are clearly committed to deploying capital. We got a good pipeline of sites in place that are either being negotiate on or certainly getting close to firming up from early 2020. And we are still a few months out from locking and loading, all of stores even in Q1. But there's clearly sites that are, leases are signed, and things in terms of whether it's architectural drawings, or whatever that are in place for early 2020.
And, we feel good about what our franchisees are doing, and how they're not only reinvesting in their existing fleet, but continuing to really beat the ground in the markets that are in to try to -- you'll find the best locations, be the first to market if it's in a kind of, newer market than maybe somewhere there's -- it's a little bit more mature.
And then in the my prepared remarks I made a few minutes ago, I said that out of that, 250 to 260, about 25 of those would be international locations. And just as a data point, I think last year it was 13. So, we're close to doubling the number of sites, albeit it's small, but out of the two call it -- call it 250 for a minute, out of that about we think about 25 of those will be international locations, as Chris was talking about earlier between Canada, Mexico, et cetera. But in any event that we feel really good about, where we're at right now and clearly will give more, more intel toward 2020, when we get to next year.
Peter Keith -- Piper Jaffray. -- Analyst
Okay, fair enough. And maybe also following up on another question from before just regarding the equipment sales. So, the growth in replacement equipment was quite strong. And I'm curious if you're seeing any faster refresh rates beyond the normal, the five years for cardio, seven years for strength, if for whatever reason, franchisees are seeing a good return on that? Or if it's just maybe be a timing dynamic with Q2 that cause that strong growth?
Dorvin Lively -- President, Chief Financial Officer
Yeah, it's always been a bit lumpy. And, we've talked about that with you guys over the quarters, since we've been public, I'd say two points. One is, Q2 is always a good time to do it just because it's a lower usage time period within the gyms, although we added a little bit incremental use this year with the success of the Teen Summer Challenge, but it's a good time to do it.
But no, I'd say they're doing it, you go all the way back to when we first -- we kind of laugh about it, when we first started calling up franchisees and saying, you got to replace the equipment, and it was, you mean, I have to replace the equipment? And all the way till today that they just do it on their own.
And, we've also talked about the fact that when you look at the new stores that have opened up over the last call it five years now, so that kind of that first year cardio coming up, the volume of the two to three years prior to that is significantly less. So, what you've got is now more and more stores are going to be coming up on their first cardio and first strength. And then you've got others rolling into that, that's doing their second or third time around.
So, although I said it'd be about 50% this year, or just shy of 50% replacement. Everything else being equal, that's going to grow at a much faster rate. And I want to say it again, I think, it's what differentiates our brand, and you go into clubs that are 8, 9, 10 years old, and they don't look like a 10-year-old club. And it's a testament to the franchisees willing to continue to reinvest in their business.
Peter Keith -- Piper Jaffray. -- Analyst
Okay, thanks a lot. Very helpful. Good luck with the back half, guys.
Dorvin Lively -- President, Chief Financial Officer
Thanks, Peter.
Chris Rondeau -- Chief Executive Officer
Thanks, Peter.
Operator
Your next question comes from Joe Altobello with Raymond James. Your line is open.
Joseph Altobello -- Raymond James -- Analyst
Thanks. Hey, guys. Good afternoon.
Chris Rondeau -- Chief Executive Officer
Hi.
Joseph Altobello -- Raymond James -- Analyst
So, first question, to Dorvin I just want to go back to something you mentioned earlier, you said that you saw membership growth was a bit lighter than you thought, probably the reason, why you're seeing a little bit lighter comp, I guess in the second half of the year. If we look at membership growth in the last few quarters, it's been in that 15% to 18% range, and it was right in that range this quarter. So, I guess first is what were you expecting? And maybe second is, if it was a bit lighter than you thought, why do you think that is?
Dorvin Lively -- President, Chief Financial Officer
Yeah, a couple of things. One is -- and I said, I think, I want to use the term is a touch lighter. So, it wasn't a significant huge driver in Q2. But it's just another factor that, as we kind of look over the balance of the year, where maybe we were just a tight light, or maybe our budgeting was a little bit aggressive. But so that's point one.
But point two, I'll go back to Chris's comment in that, if you look at our spend of marketing, maybe with 2020 hindsight, maybe we shifted as a -- on a percentage basis of the total marketing spend, maybe we shifted a bit more toward digital spend, as opposed to some of the more traditional media that clearly in the past has been successful in driving new joins. But, it's something that we're continuing to look at the data and we'll look at that as we plan our 2020 marketing campaigns.
Joseph Altobello -- Raymond James -- Analyst
Okay, that's helpful. And then maybe secondly, of the 4000 new members, you signed up this quarter, or net new members I should say. How many of those you think came from the Teen Summer Challenge?
Dorvin Lively -- President, Chief Financial Officer
We have the 30,000 parents had joined so far since May 15th with no real -- very little marketing efforts at this point. Now with this August here, we're rolling up our summer, we will start to target both them and the teens at this point. So, we just see what happens with that in the future. But it was great to see these people, finally actually get in and join after their kids had this free exposure.
Joseph Altobello -- Raymond James -- Analyst
Is it something you're going to do next year as well?
Dorvin Lively -- President, Chief Financial Officer
Yeah, I don't see why we wouldn't be something that we -- we're known for, quite honestly. I think it's a great thing, it's great for society, it's the right thing to do. And for the brand longer term, I think it'll pay dividends in the future. So, I think it's just a great thing to do it over 2 billion impressions. It was just the amount of media exposure we had on this whole thing was just truly remarkable. Not to mention the amount of stories that came through this office with emails and letters to us from parents it was just -- it's a great cause. And I think it's make sense for us to be involved in this way.
We think about two, we had the 9000 kids put that in perspective for a quick second is that, you know, we've been here for 27 years and we have of the entire Gen X population in the country, 5% of members of Planet, of the 15 to 18-year-old teenagers, we achieve 5% penetration of them in 60 days. I mean, that's just -- you just can't make that up.
Joseph Altobello -- Raymond James -- Analyst
Great. Thank you guys.
Dorvin Lively -- President, Chief Financial Officer
Thank you.
Chris Rondeau -- Chief Executive Officer
Thanks Joe.
Operator
Your next question comes from Michael Kawamoto with D.A. Davidson. Your line is open.
Michael Kawamoto -- D.A. Davidson -- Analyst
Hey, guys. Thanks for taking my questions. First can we just get an update on how the tests are going in the 15 stores you placed the connected equipment in? And maybe your plan to expand that going forward?
Chris Rondeau -- Chief Executive Officer
Yeah, the tests are still going -- one of the 15 stores. I mentioned in my last call that we're working with Matrix at this point to retool the -- I guess, experiences and platform that from what we learn from out of segmentation studies and member of consumer studies. And in a fourth quarter, we're going to roll out some of the Matrix equipment in new stores with a complete kind of retool platform and experience based on what we learned.
Out of all the stuff that's on this current screens today, although we talked about Hulu, and Spotify, and Netflix, and so on, and so forth. Netflix was the most used out of all of those, but only 9% of the members used it. So, I think there's almost too much clutter in some ways and more streamline stuff of what the members wanted to do, while they're on the cardio.
And so through some of the -- a lot of consumer studies, what was surprising as they wanted to use that cardio time, for educational purposes around how to exercise better or get more results in nutrition. So, we're going to try to retool some of the newer stuff in the fourth quarter to satisfy those demands as TV get more interaction.
Michael Kawamoto -- D.A. Davidson -- Analyst
That's helpful. So, on the three vendors, are you going to continue work with all three of them or the Matrix is the one year choosing?
Chris Rondeau -- Chief Executive Officer
We are working with all three of them. But just for this test, instead of like getting all three going down a different road, we're going to just focus on Matrix at this point.
Michael Kawamoto -- D.A. Davidson -- Analyst
Got it. Thanks, guys.
Chris Rondeau -- Chief Executive Officer
Yeah, thank you.
Dorvin Lively -- President, Chief Financial Officer
Thank you.
Operator
Your last question comes from Sumit Sharma with Berenberg Capital. Your line is open.
Sumit Sharma -- Berenberg Capital -- Analyst
Hi, thank you for taking my question. I think a lot has been discussed already on real estate, but just to get a sense on how this is being infatuated. I guess, who's -- what's the sort of the development structure you have? I mean, is it like a traditional developed sale leaseback kind of deal, the vast majority that we're looking at, or more leasing situation, where you are the franchisee that get bigger allowances from the landlord, because of your volume and your sort of nationwide identity?
Chris Rondeau -- Chief Executive Officer
Yeah, it's more of the ladder. Most of our franchisees just leased the equipment directly from the landlords, or the REIT across the country. We have a few franchisees that will -- they'll buy the building or they'll buy land and build the building. And it's a little bit of -- kind of a combined real estate play with owning a gym business that goes along with it.
But the far majority of all the stores are just leasing situations and you bring up a good point because, the beauty I guess of where we're at today versus retail in general, is that particularly in that box size, we're looking at, think about this way, it's generally kind of the Toys "R" Us, Staples, OfficeMax, Office Depot, those kinds of boxes, Old Navy, Circuit City, as you go down the list and I mean, if you go back and take the last 5 to 10 years and you add up all those stores that -- those retailers that have closed. There's a lot of those boxes out there that we're in today. And there's some more we'll go into, but a lot of those landlords are -- they're trying to find a way to fill that space.
And in particular in centers, where they're really trying to take an old center that's maybe got a lot of vacancy and try to revitalize it and, new things like that. And we drive a tremendous amount of traffic to a center we will do about 5,000 workouts a week. And so we're bringing people into a shopping center that you know, in all intensive purposes, it may not have ever gone to that shopping center. So, that makes us attractive for that. So, they are getting tentative improvement allowances. I mean it's not unheard of -- if you're going to build a store typical store today. It varies from region to region a bit, but you're talking for a 20,000 square foot box, you're kind of in that $2 million range. It's not uncommon to get, $250,000, $350,000, $400,000 in tenant improvement allowances and so you can, it certainly helps on the return on the cash and with time value of money on the ROI, et cetera. So, but to answer your question, it's mainly leased.
Sumit Sharma -- Berenberg Capital -- Analyst
Thank you so much. I guess I'll -- that's about it from me too.
Chris Rondeau -- Chief Executive Officer
Thank you.
Dorvin Lively -- President, Chief Financial Officer
Thank you.
Operator
There were no further telephonic questions at this time. I'll turn the call back to Chris for any closing remarks.
Chris Rondeau -- Chief Executive Officer
Thank you. Appreciate everybody's time today. Couldn't be more pleased with our results the first half of the year, the second quarter, as well as the commitment by our franchisees and the support of our corporate staff to help them achieve these great results. And really look forward to the second half of the year and carry the momentum. So, thank you. Have a good evening.
Operator
[Operator Closing Remarks]
Duration: 66 minutes
Call participants:
Brendon Frey -- Managing Director
Chris Rondeau -- Chief Executive Officer
Dorvin Lively -- President, Chief Financial Officer
John Heinbockel -- Guggenheim Securities -- Analyst
Randal Konik -- Jefferies -- Analyst
Sharon Zackfia -- William Blair -- Analyst
Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst
Jonathan Komp -- Baird -- Analyst
Jonna Kim -- Cowen and Company -- Analyst
John Ivankoe -- JPMorgan -- Analyst
Peter Keith -- Piper Jaffray. -- Analyst
Joseph Altobello -- Raymond James -- Analyst
Michael Kawamoto -- D.A. Davidson -- Analyst
Sumit Sharma -- Berenberg Capital -- Analyst
