Planet Fitness (PLNT) Q2 2023 Earnings Call Transcript

Planet Fitness (PLNT 0.65%)
Q2 2023 Earnings Call
Aug 03, 2023, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Planet Fitness Q2 quarterly earnings call. I would now like to turn the call over to Stacey Caravella, vice president, investor relations. Please go ahead.

Stacey Caravella -- Vice President, Investor Relations

Thank you, operator, and good morning, everyone. Speaking on today's call will be Planet Fitness chief executive officer, Chris Rondeau; and chief financial officer, Tom Fitzgerald. Chris is traveling today and will be joining us remotely. Both will be available for questions during the Q&A session following the prepared remarks.

Today's call is being webcast live and recorded for replay. Before I turn the call over to Chris, I'd like to remind everyone that the language and forward-looking statements included in our earnings release also applies to our comments during the call. Our release can be found on our website investor.planetfitness.com, along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Now, I will turn the call over to Chris.

Chris Rondeau -- Chief Executive Officer

Thank you, Stacey, and thank you, everyone, for joining us for the Planet Fitness Q2 earnings call. With all that's going on in the economy today, we feel really good about the demand that we are seeing for our brand. Our second quarter results reinforce that our judgment-free, high quality and affordable fitness experience continues to resonate with consumers. We ended the quarter with more than 18.4 million members and 8.7% systemwide same-store sales growth.

We added 26 stores, bringing our global store count to 2,472. I'm going to cover two topics today: first, our second quarter results that confirmed that the fundamentals of our business continue to be strong; and second, our continued belief in our long-term growth opportunity despite near-term external headwinds. During the second quarter, we grew net membership by more than 300,000. All generational groups surpassed their pre-pandemic population penetration levels in the U.S., with the Gen Z continuing to lead the way in terms of membership growth.

At the end of June, 3.5% of boomers, more than 6% of Gen Xers, and more than 9% millennials and Gen Z were members of Planet Fitness. We also launched the third year of our high school summer pass on May 15th. Leading up to it, we already had more than 400,000 teens joined from last summer's program. We had more than 2.8 million high school age teens sign up for the 2023 program so far, 70% of which are first-time participants.

It's incredible to me that over the past three years we've run this program. We've impacted the lives of more than 6 million teens. We're focused on building life-long brand loyalty with this generation by giving them free access during the summer so they can develop long-lasting, healthy habits and experience, all the benefits of fitness. This program further strengthens our appeal with the Gen Z population as we want to be the brand they think of when they're ready to join a gym.

We also continue to realize the benefits of consumers prioritizing their health and wellness in the appeal of our differentiated, nonintimidating experience. About 35% of our new joins in Q2 were previous PF members compared to about 20% in 2019. We believe it's a great sign that former members are rejoining faster than they did pre-pandemic. We again experienced improvement in our cancel rate as it continues its year-over-year decline for the eighth straight quarter.

We also continue to see higher overall visits per member, as well as all age groups visiting more frequently year over year. More usage should continue to bode well for our cancel rate because nonuse is the No. 1 reason why members cancel. And lastly, we're seeing our average tenure continue to increase on both of our memberships, which we believe demonstrates the increased priority people are placing on fitness.

Longer term, we believe that the Perks platform can also support retention, as well as being a differentiator versus other competition. During the quarter, we saw that approximately 25% of the members who engage with the Perks platform hadn't visited a physical location in more than 90 days. demonstrating the value the Perks program brings to our members. Our large diverse membership of more than 18 million continues to attract consumer-favorite brands, such as Nike and Garmin.

Both of which offer Perks discounts in Q2. For the quarter, the average redemption savings through Perks was well above $10, exceeding the cost of our monthly classic card membership. It's still a small percent of our overall membership that engages with the Perks platform, and we continue to explore ways to unlock its power. Now, it will take a few minutes to discuss our long-term store growth opportunity, where our brand differentiation, combined with our size and scale advantage, make it difficult for the competition to catch up.

I believe the most important factor in our sustainable growth is that our brand resonates with all generations, with each newer generation increasing in penetration. This drives our continued positive sales, most of which is driven by membership growth. Even if we'll cost space, no competitor is offering a nonintimidating, judgment-free atmosphere. This continues to appeal to first-timers with approximately 40% of our new joins never having belonged to a gym before.

We plan to invest more than $250,000 this year to drive our marketing flywheel and get more people off the couch to join Planet Fitness. Convenience is frequently cited as a reason for choosing a gym, and more members will drive the need to open more stores. We need to continue to be a convenient, accessible fitness option for the 80% of the population who currently just do not have a gym membership. To this end, over the past 12 months, we've opened three times the number of new locations in the next 17 low-cost U.S.

competitors combined, making our store count more than 60% greater than their collective total. but we want to expand our lead against competition even further. We're kicking off a study to reevaluate the 4,000 total domestic store opportunity that we established at our IPO in 2015. We believe there could be higher, given our ability to achieve a greater penetration of each successive generation, the ability to add even more stores to area development agreements than initially thought, as well as a significant industry consolidation caused by COVID, during which nearly 25% of brick-and-mortar fitness locations permanently closed.

However, our franchisees are still facing headwinds to building new stores, many of which are secondary impacts from the pandemic. The issues have been talking about, the need to linger, and recently, our franchisees are feeling the compounding effect of others. There are four headwinds that are making it more challenging for our franchisees to build at the pace we originally expected. First, the cost to build a new gym remains 25% higher than pre-COVID, and we're hearing from some franchisees that it's still increasing slightly.

Persistent inflation and construction costs isn't unique to Planet. We're also hearing it from other growing concepts in the broader retail space. Second, the rapid increase in interest rates over the last 12 months, which has impacted our franchisees and particularly a few of the PE-backed groups that have more aggressive capital structures. And recently, we're seeing that 16% decline in the vacancy rate of retail space versus pre-pandemic, making it slightly more difficult for our franchisees to find the right space in the right location.

Lastly, although our system has learned to navigate it, we have not seen any relief on the HVAC supply. Therefore, we are bringing down our new store equipment placement outlook for 2023, and Tom will discuss our updated outlook shortly. We continue to explore ways to support our franchisees as they face these challenges, like we did when we secured production on the HVAC manufacturing line. We consider our franchisees our partners, given that most of our operators have been with us for more than a decade and many upwards of 20 years.

They have been through various economic cycles, including the temporary COVID shutdowns. They live and breathe Planet Fitness and have proven to be strong operators and great developers and have helped make us the leader in the industry. Looking to the future, I'm confident that we will continue to be a differentiated and disruptive force in health and wellness space, as we have been for over 30 years. I believe that we have the right team in place to lead us through the next stage of growth, both in the U.S.

and globally. We're excited that Fred Lund, our new vice president of international recently joined us to drive international unit growth in the new and existing markets. He will lead the strategy for our future market expansion opportunities outside the U.S. Our industry leadership position in purpose of enhancing people's lives and creating a healthier world sets us, our franchisees, and our shareholders up for long-term success.

Now, I'll turn the call over to Tom.

Tom Fitzgerald -- Chief Financial Officer

Thanks, Chris, and good morning, everyone. First, I'm going to address how the headwinds Chris talked about are impacting our new store development. Then, I'll cover our second quarter results and, lastly, our current 2023 outlook. The cumulative effect of higher cost to build and higher interest rates has caused us to lower our outlook for equipment placements in new franchise stores to approximately 140 versus our previous expectation of approximately 160.

To provide better insight and clarity into our business, we are also going to provide a new store opening outlook in addition to our standard franchise new store placement metric. For 2023, we expect to open approximately 160 new locations, which reflects our expectations for new franchise stores and corporate store openings this year. This also includes the franchise stores in which we placed equipment in 2022, but opened in 2023. While our new store returns are still strong, they are not back to their pre-COVID levels due primarily to higher construction costs that have stubbornly remained up 25%.

To put it in perspective, the amount of capex required to build six stores per year in 2019 will now only build four or five, depending on the situation. As Chris noted, this isn't unique to us as many multi-unit brick-and-mortar concepts are also experiencing this inflation. Additionally, the rapid increase in interest rates over the past year has had a cumulative impact on our franchisees' ability to invest in new store growth. Initially, franchisees didn't see the increase in rates as a significant dampener to their new store development plans.

However, they are more recently feeling the lag effect of higher debt service. Finally, vacancy rates grew 15,000 to 25,000 square foot boxes are tighter, down about 16% versus COVID. At our investor today last year, we projected that our system would open at least 600 new stores by the end of 2025. We believe the fundamentals of our business remain strong.

And therefore, the next 600 units are still achievable in the relative near term. However, it may take more than three years for them to open depending on how long the current headwinds persist. With the current challenging macro environment making it increasingly difficult to predict new store development, we will reevaluate our three-year target and provide an update with our 2024 guidance rather than speculate at this time. While these challenges are impacting the pace of our store growth, we believe that the 4,000 total domestic store opportunity remains the floor, not the ceiling.

The primary reason for this belief is that our four-wall margins and new store economics are still attractive, both on an absolute and relative basis. We have a largely fixed cost, limited labor model, with the only variable costs largely being marketing and royalties. Adding new members doesn't require us to increase staff, and we don't have any cost of goods. So, roughly, 84% of every new member's dues flows to a store's bottom line.

Additionally, with our continued strong same-store sales growth, four-wall margins, and new unit returns continue to expand even more rapidly than many other business models due to our strong profit flow-through. For example, on a relative basis, we estimate that a typical QSR needs to drive two times the average unit volume growth to achieve the same four-wall EBITDA dollar improvement as a Planet Fitness store. Now, I'll cover our second quarter results. All of my comments regarding our quarter performance will be comparing Q2 2023 to Q2 of last year, unless otherwise noted.

We opened 26 new stores compared to 34 last year. We delivered same-store sales growth of 8.7% in the second quarter. Franchisee same-store sales grew 8.6%, and our corporate same-store sales increased 10.2%. As a reminder, the same-store sales for the Sunshine Fitness stores that we acquired last February were included in our corporate same-store sales for the full quarter.

Approximately three quarters of our Q2 comp increase was driven by net member growth, with the balance being rate growth. Black Card penetration was 62.4%, a decrease of 110 basis points. The decrease primarily reflects the continued strength of our Gen Z membership growth. which drove about half of the mix decrease.

For the second quarter, total revenue was 286.5 million compared to 224.4 million. The increase was driven by revenue growth across all three segments. The 19.7% increase in franchise segment revenue was primarily due to an increase in royalties, national ad fund revenue, and equipment placement revenue. The royalty increase was primarily driven by same-store sales growth, royalties on annual fees, and new stores.

For the second quarter, the average royalty rate was 6.5%, up from 6.4%. The 12% increase in revenue in the corporate-owned store segment was primarily driven by same-store sales growth and new store openings. We also acquired four stores in Florida from one of our franchisees that were adjacent to some of our current corporate stores. Equipment segment revenue increased 83%.

As a reminder, there was a delay in reequip sales driven by the COVID shutdowns in China that pushed reequip sales into the second half of 2022. We completed 26 new store placements this Q2, which was in line with the prior-year period. For the quarter, replacement equipment accounted for 79% of total equipment revenue. We ran our typical first half of the year equipment promotion that drove strong sales and will create some timing impact for the rest of the year that I'll discuss shortly.

Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee-owned stores, amounted to $59.5 million compared to $32.5 million. Store operations expense, which relates to our corporate-owned store segment, increased to 58.9 million from 56.4 million. SG&A for the quarter was 32.6 million compared to 28.2 million. National advertising fund expense was 17.9 million compared to 18.9 million.

Net income was 44.2 million, adjusted net income was $57.7 million, and adjusted net income per diluted share was $0.65. A reconciliation of adjusted net income to GAAP net income can be found in the earnings release. Adjusted EBITDA was 118.9 million and adjusted EBITDA margin was 41.5% compared to 89.1 million and adjusted EBITDA margin of 39.7%. A reconciliation of adjusted EBITDA to GAAP net income can also be found in the earnings release.

By segment, franchise adjusted EBITDA was $69.4 million, and adjusted EBITDA margin was 70.2%. Corporate store adjusted EBITDA was $49.2 million, and adjusted EBITDA margin was 43.2%. Equipment adjusted EBITDA was $17.6 million, and adjusted EBITDA margin was 23.8%. Now, turning to the balance sheet.

As of June 30, 2023, we had total cash, cash equivalents, and marketable securities of $418.9 million compared to $472.5 million of cash and cash equivalents on December 31, 2022, which included $62.5 million and $62.7 million of restricted cash, respectively, in each period. During the second quarter, we began investing a portion of cash on hand in short-term marketable securities that have an overall weighted average life of less than six months with various maturity dates. We ended the second quarter with $120.3 million of marketable securities. Year to date through June, we used $125 million to repurchase shares, which includes $25 million in Q1 and an additional $100 million in Q2.

Total long-term debt, excluding deferred financing costs, was $2.0 billion as of June 30, 2023, consisting of our four tranches of fixed rate securitized debt that carries a blended interest rate of approximately 4%. Finally, to our current 2023 outlook. To reiterate, we expect approximately 140 equipment placements and new franchisee locations and approximately 160 total new store openings for both franchise and corporate stores. We continue to expect systemwide same store-sales growth to be in the high single-digit percentage range, given our strong membership trends.

As we previously discussed, we expected the same store sales growth rate to reduce across the year as we were lapping last year's weaker Q1 when omicron was surging, followed by record Q2 member growth. We now expect that reequip sales will make up approximately 60% of total equipment segment revenue. Let me address the cadence of placements in new franchise stores and reequips for the balance of the year. For Q3 and Q4 placements, we expect a similar number this year to each quarter last year.

We expect that Q3 reequip revenue will be approximately in line with Q3 last year, with Q4 significantly lower than last year. reflecting the timing of the COVID disruptions in China earlier in 2022, as well as the strength of our reequip promotion this year. Importantly, our franchisees continue to invest in their existing stores, as evidenced by the fact that we expect our full year reequip revenue to be in line with what was originally provided in our targets. As we are halfway through the fiscal year, we have greater clarity on the balance of 2023 and now expect the following targets over our 2022 performance: revenue growth of approximately 12%, full year adjusted EBITDA growth of approximately 17%; adjusted net income growth of / and adjusted earnings-per-share growth of approximately 34%.

We also now expect shares outstanding to be approximately 89 million, which is inclusive of the repurchase of nearly 1.7 million shares through June. And we now expect our net interest expense to be in the low $70 million. Lastly, we expect capex to be up approximately 40%, and D&A up in the high teens percent range. In closing, despite our reduced outlook for new store growth, we believe our brand differentiation and industry leadership position, our experienced and proven franchisee base, along with our asset-like model and strong balance sheet set us and our shareholders up for long-term sustainable growth.

I'll now turn the call back to the, operator, to open it up for Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of John Heinbockel from Guggenheim Partners. Please go ahead.

John Heinbockel -- Guggenheim Partners -- Analyst

Hey, Chris, I want to start with the openings that the franchisees are going to do this year and maybe the -- your visibility on to early next year, I'm curious where that stands relative to their commitments under the ADAs, right? Because they had built more and then they've come back to, I think to their commitments. Is it still, do you think, kind of around their commitments? And if, if it were to fall below that, I'm curious, you know, sort of what happens. You basically say, "Look, you get a grace period for a while." You can't really force people to open. So, I'm curious about that.

And then, does that -- do you sort of have confidence that next year in the year after, right, we should see higher, right, unit expansion? We don't know how much higher, but higher than where we are this year. 

Chris Rondeau -- Chief Executive Officer

Thanks, John, and, Tom, feel free to add to it. I think what we're seeing now is what was more unexpected is that more of the franchisees are using the grace period to your point. We're kind of waiting to see if costs do come down next year. Now, you know, they do have the ability to earn a grace period back, which is a good thing because that means it develops in stores faster again.

But again, once they use them up, then they use them up, and they have to start opening stores again. So, it does kind of come back to that point you just mentioned that, once they use them up, then they are obligated to do it, or they do lose their ADA. And like we talked about, once you lose the ADA, the value of that business is quite a bit lower than one with runway. But, Tom, do you want to add to that?

Tom Fitzgerald -- Chief Financial Officer

Yeah, John, I would just say to your question about the following years, what does it mean? You know, we're not really going to comment on that at the moment as we talked about, you know, the thing -- and the principal reason for that is, you know, we stepped back. We feel good about the model at a store level, the ability to earn strong four-wall margins. You see that in our corporate store segment, how those margins are improving, the flow-through from the same-store sales growth. All that is really quite good and sustainable because a lot of the -- the vast majority of the top line growth is member-driven, and we don't see anything really staining in the way of that continuing.

But clearly, you know, costs are higher, as we've talked about. They've stayed higher, although some have thought they would be lower by now, or the inflation would have moderated by now. And it is a tighter real estate market. So, I think we just want to take some time and let it play out, monitor those sort of external headwinds, and also see how our pipeline comes together before we project further.

So, we think it makes sense to take a more thoughtful approach, see how that plays out, and when we provide our outlook for next year to then update how we see the following years to sort of come back to that investor day target that we put out. So, that's how we see it, and, you know, it is kind of a volatile situation. And part of the reason why we're providing the new store metric is to help provide some clarity there, both in terms of placements, new stores, and the timing of both.

Randy Konik -- Jefferies -- Analyst

All right, maybe just as a follow-up, right? Because you're at about 10% corporate ownership, right? I think you're comfortable going higher, right? Probably a good amount higher than 10%. What's the thought philosophically near term and I guess more intermediate to longer of stepping up your own growth? Because obviously, you have the ability to fund it, maybe that some other that the franchisees don't. Is that a thought? Or are you limited sort of geographically because you can -- you're not going to go into new markets, so it's really only filling for you.

Chris Rondeau -- Chief Executive Officer

I'll take that, Tom, if you want to add to it. When we bought Sunshine, John, as you recall, one of the reasons for that purchase is they had a lot more runway than we did with our old legacy market, especially the Northeast. So, that does give us some more runway to go. As you said, we opened about 15 this year, which is about the same as Sunshine was typically opening before we owned it.

So, yeah, we have the capital. But again, real estate is tight. We're up -- you know, same issues franchisees are. But you're right, if we find sites, then this isn't enough waiting to do them either, right?

John Heinbockel -- Guggenheim Partners -- Analyst

OK, thank you.

Operator

Our next question comes from the line of Randy Konik from Jefferies, please go ahead.

Randy Konik -- Jefferies -- Analyst

Yeah, thanks, guys, and good morning. I guess, Tom, really, I guess everyone wants to understand is just, you know, with the 160 number, is that kind of the floor from your perspective? Like we don't need to get specifics on the actual, what we should see in the out years, but would you anticipate that the 160 is kind of like the actual floor, close to the floor? Give us your thoughts there.

Tom Fitzgerald -- Chief Financial Officer

Yeah, Randy, it's kind of similar to maybe how we thought about it last quarter. And as you know, in our business, by now we have a much clearer picture of what's going to happen, what's not going to happen, and we did see some deals that we thought were going to go to lease just didn't materialize. So, I think we feel good about the approximately 160 new stores across our entire system for the year and then the similar view on placements. And it's, you know, with our best guess and all of our hours and the individual franchisees who are building the stores, you know, long the permitting takes.

So, you know, it's -- things can always happen with an individual store. But I think when we look at the collective view based on where we sit now versus where we were three months ago, it's what all of our experience tells us will materialize in our pipeline and in the new environment that we're in. So, I wouldn't say it's a floor. I wouldn't say it's a ceiling.

I think it's our, it's our best guess of what it will be, and we're saying approximately 160. So, might be a couple above and a couple below, but it's our best guess of what we think will happen.

Randy Konik -- Jefferies -- Analyst

And then, just to follow up on that, would you anticipate -- again, we know that we're going to get an updated guide in a couple quarters for the out year. But if we had to think about just in the years ahead, would we be thinking around this number as more of a four per year? I guess that's what the market's trying to figure out. There's no questions around the business model at all. It's just people are just trying to get a handle or try to get a sense of how many units are kind of going to be opened per year over the next few years.

So, just getting your sense of where we are versus this current guide of 160 would be very helpful.

Tom Fitzgerald -- Chief Financial Officer

Yeah, Chris, I can start that, and you may want to add. But I think part of it, too, Randy, is what's happening in the broader context of real estate. We all probably see the same kind of information of where vacancy rates are and what the builds have been in strip centers and the kind of spaces we target. And they're kind of at their historic lows.

Does that accelerate, you know, now going forward? Does that pace pick up or does it remain the same? You know, I think those are some of the things we want to factor in. So, we're not really, you know, providing any updates or outlook at this time. But I think if you could look back and say, geez, we opened quite a few stores, you know, during the worst of the pandemic, and there was a lot more uncertainty then. Now rates were lower, but, you know, costs were starting to climb.

And we still took down a bunch of real estate. And we talked about even for 2022, if you look at the total real estate that was leased, at least the work we've done with some outside help, I think there are only two brands who leased more total square footage than us, you know, Dollar General and TJX. So, we're still taking down a lot of real estate. It's just kind of hard tower, you want to see how some of these other factors play out before we really recast what we think the outlook is for new store growth.

But to your point, the model's strong, the generational trends that we're seeing, it's just a little more difficult to predict in this environment than it was pre-COVID. And we just want to make sure we're thoughtful and take an approach that is as informed as possible versus doing a quick update to it that may not be as informed as we'd like it to be. We're just not going to do that.

Randy Konik -- Jefferies -- Analyst

Understood. Thanks guys.

Tom Fitzgerald -- Chief Financial Officer

OK. Thank, Randy.

Operator

Our next question comes from the line of Max Rakhlenko from TD Cowen. Please go ahead.

Unknown speaker

Hey, good morning, guys. This is Bradley on for Max. So, looking at that long-term 600 number, can you please remind us how many of those are contractually obligated under the ADA versus the mix of those that might have been franchisees opening ahead of schedule?

Chris Rondeau -- Chief Executive Officer

Tom, you want to take that?

Tom Fitzgerald -- Chief Financial Officer

Yeah, sure thing. Hey, Bradley. So, I think -- or to answer your question directly, what we said historically was -- in the K, is over the next three years, this being year one, there was over 500, there were over 500 obligations that franchisees had in their ADAs. And then, you add to that, you know, corporate stores.

And then, plus any further international expansion that is not currently -- in countries we're currently not in.

Unknown speaker

Excuse me, that's how we thought about the 600?

Tom Fitzgerald -- Chief Financial Officer

Well, I think -- and to your question before, or the other part of your question, pre-COVID about 15% to 20% of the new units that were built were built ahead of schedule. So, as we said on the last call, we didn't see very much of that, if any, happening this year where people are building ahead of their schedule. You know, that may change next year and the following year, but at least that's how we see it today. And to Chris' point earlier, within that over 500 franchise obligations, they do have the ability in the current year and the future years to use grace periods that they haven't used to push obligations forward.

And we're seeing more of that usage now than we had previously. So, that's a little bit of why we want to, you know, take some time and see how this plays out for the next few months before we recast it. But that's the long and the short of it in terms of the numbers and how the grace periods could affect that both this year and in the future years.

Unknown speaker

Great, thanks. And then my follow-up is, can you speak to some of the ways that you guys can continue to help out franchisees given the difficult macro backdrop at the moment? And then, what would your thoughts be on reopening the system to either new franchisees or potentially former partners who have sold out?

Chris Rondeau -- Chief Executive Officer

Sure, Max. This is Chris. Yeah, so we, as you know, that the one franchisee that we the exclusivity that they had in some territories. They sold a good amount of those units already.

And all but one were two existing franchisees in the system, which is a great sign for everybody to know because franchisees are so bullish about the business, because they see the business itself trends are great. So, they've already bought some of those units. We did have one, ex-franchisee has now reentered the system and bought some of those units as well. So, now bringing a complete newbie to the system, we're not opposed to that naturally, if we feel the need to it.

But again, to grow with our existing franchisees or our next franchisee that was a proven partner of ours. And we really look at them as partners, and they know the business, they know the system, they know how to run the playbook. And let's face it, they've helped us grow exponentially over the last, you know, five, six, seven years here. So, it's better to grow with them than without them.

So, I'd rather try to grow with them in the future, but not that I'm not that I'm actually opposed to bringing new blood in.

Unknown speaker

Great. Thanks for the color, guys.

Tom Fitzgerald -- Chief Financial Officer

Thanks, Bradley.

Operator

Our next question comes from the line of Simeon Siegel from BMO Capital Markets. Please go ahead.

Simeon Siegel -- BMO Capital Markets -- Analyst

Thanks, everyone. Morning. Hope you're having a nice summer.

Tom Fitzgerald -- Chief Financial Officer

Good morning.

Simeon Siegel -- BMO Capital Markets -- Analyst

So, might be a weird question -- morning. So, it might be a weird question, but any of you can provide on details of the name of the previously planned opening that won't be happening. So, just trying to think through within the reduction, is it a specific region? Is it specific partners? Because you're not going to zero. You sold 140.

That's a lot of new franchisee openings. So, I'm just trying to think through the common denominators between the stores that you do still expect to be opened versus those that you don't. And again, I don't know if it's regional, if it's a partner, if it's contractually committed versus not. Just thinking out loud that obviously this is going to be a focus for investors, so any further context you want to provide is probably helpful.

Chris Rondeau -- Chief Executive Officer

Sure, Simeon. Thank you. And, Tom, feel free to add to it as well. Yeah, I think like I mentioned earlier, most of it now is we have more visibility now for the rest of the remainder of the year, which three months ago we don't have quite as much visibility, especially in the fourth quarter, which we do today.

And we're quite sure where the franchisees were as far as using the grace period. Because they, generally in the past, they're going to do ground-up, which takes a lot longer than they anticipated. So, they use the grace period for something like that, or they really were holding out in a particular market for like a real eight-eight plus space. So, generally, their grace periods are considered like gold to them.

So, they weren't really using them for, you know, seeing cost come down, for example, or now there's a little bit of lack of real estate. So, I think now we're just seeing that they're just using grace periods to see if costs come down in the future and putting them off to the next year or two. So, that's more what it comes down to today. So, I don't see -- it's not like a lack of bullishness about the business at this point.

And I guess how they see the business trend. It's more -- it sounds like they're budgeting a certain amount of money, and now it's costing -- you know, it's costing them on the sixth store to build five stores. And a lot of these franchisees were building -- some of them are building, you know, eight, 10, or 15 stores a year, which that's like building 20 almost today, you know. So, I think it's just more like how fast they bring up the cash.

And again, you know, the system's not 100% back yet to pre-COVID membership or revenue. So, it's a little bit of that as well.

Tom Fitzgerald -- Chief Financial Officer

And, Simeon, we're not seeing anything regionally or anything in particular other than that one franchisee that we discussed where they lost some exclusivity that Chris gave an update on. You know, that's playing its way through. It won't affect this year, should affect next year and potentially the following year.

Simeon Siegel -- BMO Capital Markets -- Analyst

Right. That's very helpful, guys. And then just Tom, how you thinking about Black Card penetration going forward? Is that mid-62% range? Is that a fair way to think about it?

Tom Fitzgerald -- Chief Financial Officer

You know, I think we're definitely seeing the impact, as we've discussed, from the generational shift with Gen Z's being a big part of the joint mix. You know, we think it -- and for the first time, Simeon, we're seeing a little bit of softness across all the age generations year on year. you know, that might be a little bit of, it's not so much on the cancel side, but more on the join side. So, the biggest impact by far is the Gen Z mix within our membership base increasing more dramatically.

The second piece is a little bit of softening in the other generation. So, it may be just, you know, a little bit of external macro environment inflationary recessionary pressure on the consumer. I don't know, we'll see how it plays out. But, you know, I think we just need a little bit more time because we weren't seeing those kind of results when we were testing it.

And we certainly didn't see it, you know, after rolling it out in May of last year where Black Card penetration was continuing to increase. So, we need, you know, we're monitoring that and thinking about ways to boost Black Card penetration with promotional activity as well. But It was the first time we really saw that in the quarter.

Simeon Siegel -- BMO Capital Markets -- Analyst

Thanks a lot guys. Best of luck for the rest of the year.

Tom Fitzgerald -- Chief Financial Officer

OK. Thank you.

Chris Rondeau -- Chief Executive Officer

Thanks, Simeon.

Operator

Our next question comes from the line of Sharon Zackfia from William Blair. Please go ahead.

Sharon Zackfia -- William Blair and Company -- Analyst

Hi, good morning. Kind of going back to the franchisee unit level profitability, are there other kind of strategies you're exploring to maybe bolster that profitability, whether it's, you know, implementing other member tiers or, you know, potentially even giving back some of the ad fund contribution? As you talked about before, you're very efficient with your ad fund now. Just trying to think of ways that might help them feel better about the profitability that then would translate to accelerated growth.

Chris Rondeau -- Chief Executive Officer

Tom, do you want to try that and then let me add to it?

Tom Fitzgerald -- Chief Financial Officer

Sure thing, Sharon. Thank you for the question. I think the best enhancer of profitability is member growth. And we're seeing that in our own corporate stores, and particularly the mature stores.

So, now we have a full quarter of the Sunshine stores in this year and last year. And we're quite pleased with the way the same sort of sales growth is translating to four-wall growth and margin expansion. It's pretty healthy because you know the model is -- and in that, we treat ourselves like a franchisee with a synthetic royalty, so it's more of an apples-to-apples comparison. The margin expansion is quite healthy.

So, that's the primary one. And I think while our marketing spend has gotten -- we've gotten some learnings, I think we'll be on a never-ending quest to make that money be more efficient and drive more membership growth. I think we're also, you know, experiment with how do we get more credit for the value that we offer in our promotional messaging and different things. And also, as Chris has said, what are we not saying to people to get them off the couch, the 140 million people who live near a gym that don't -- they live pretty close to a Planet Fitness but don't belong to any gym.

You know, we think the actions we took to increase the annual fee to 49 is certainly accretive to the franchisees. We're not really considering that we should reduce the local ad spending that franchisees contribute. There's still so many more people to get off the couch, and the payback on those investments is so great. The contract value of somebody who joins is many orders of magnitude greater than the cost of acquiring that member.

So, we think just more time, but we're certainly not close-minded to the ideas. But we think overall, the model is strong, and more member growth will really drive that margin improvement. So, Chris, I don't know if there's anything else you want to add to that?

Chris Rondeau -- Chief Executive Officer

Yeah, I think the only other part just reiterating is, you know, the corporate stores, as you see the same-stores of the corporate stores. We generally spend a little bit more than the 9% that's required from franchisees. And some franchisees do as well, Sharon. And, you know, even though not all franchisees are all back to pre-COVID revenue or membership.

Some are quite a bit ahead of where that is. So, it's just time. And in some ways, you can buy time by just spending more marketing dollars to get more people off the couch and get people to join. And the fact that our same-store sales, just like pre-COVID, is majority member growth, which means it's working and it's doing exactly what it should.

And I think with the business itself, we don't want to cheapen the brand or the experience to the member. And being in a $10 membership club forever, essentially at this point, you know, we've been value-concentrated forever as far as how do we build things better but still keep value. And we don't want to really cheapen the brand. But we're always looking at ways to cut costs if we don't ruin the member experience ever.

Sharon Zackfia -- William Blair and Company -- Analyst

That's very helpful.

Tom Fitzgerald -- Chief Financial Officer

Sorry, Sharon, maybe one other thing I'd add is, you know, as you know, over the years, we basically have had three price tiers in our business, the $10. We've had a $15 option that people can offer, and then the Black Card option, and we continue to price and test things. So, we're looking at ways in one of the tests to capture more of that $15 price during the nonpromotional periods, but still be a $10 price during the sale period. So, we're continuing to test those kinds of things, as well as some other things across our markets, as I was referring to before, to try to get more credit for the value that we do offer, and ultimately make our sales more impactful.

It's all with the intent to drive more member growth, which is the name of the game for us. So, it is a multifaceted thing, and we're continuing to experiment with things and take what works to the rest of the system. So, hopefully that helps add a little more color.

Sharon Zackfia -- William Blair and Company -- Analyst

Yeah, and I know that you kind of talked about the uncertainty with the U.S. franchise growth, but I think that 600 target also included accelerating international expansion. I mean, how much of that 600 was overseas? Is that still intact? Are they facing the same headwinds as U.S. development?

Chris Rondeau -- Chief Executive Officer

I think, Sharon, we didn't give any guidance on how much that would be international, but we were going from doing maybe one a year or one every two years as far as a new country and now are hopefully looking to do at least two to three maybe a year going forward. So -- but if we do it internationally, do we sign it today? You know, it certainly takes at least a year to really get it rolling and probably really start to contribute in 2025 at this point.

Sharon Zackfia -- William Blair and Company -- Analyst

OK, thank you.

Tom Fitzgerald -- Chief Financial Officer

Thanks, Sharon.

Operator

Our next question comes from the line of Jonathan Komp from Baird. Please go ahead.

Jon Komp -- Robert W. Baird and Company -- Analyst

Yeah, thank you. Good morning. It's a bit of a follow-up question, but I wanted to just ask maybe a little more directly if you have insight, Tom. Thinking about unit economics, you cited strong levels qualitatively.

But can you be any more specific just how you're thinking about average franchisee cash on cash returns when you think of the 2023 or 2024 class relative to pre-pandemic levels?

Tom Fitzgerald -- Chief Financial Officer

Yeah, Jon, it's a good point. And so, I think what we feel really good about is, as you've heard us say, the stores that were open even in 2019 didn't really have two successive, three successive strong first quarters. So, the ramps of those stores built in those years were 80%, 85% of what we would typically see pre-COVID. What we're seeing this year is the stores that are open this year are much closer to the 2019 ramps, which is really good to see, which certainly helps, you know, some of that cash on cash and how fast they get to maturity and where they get to and so on.

So, clearly it's extended by the increased cost to build and it's very situational-dependent. We look at our own stores, so we really can't speak for the system, but the new stores that approve or don't for our corporate clubs. We still think the returns are strong. The expected maturity, four-wall margins are still very strong.

It's just harder for us to speak to individual franchisees. But it goes back to the four-wall aspects of the model are very strong. The increased cost to build and equipment is a little more expensive. So, when they have to reequip, that's more.

That's going to hurt. the overall returns from where they were pre-COVID and maybe the cash-on-cash, you know, metrics are extended a little bit further in terms of the payback period, but it's still attractive. And you know, we still have quite a bit of -- we've got a transaction in our system now from somebody from the outside, an experienced operator that we may have mentioned last time. It's near closing.

It's still attractive to people externally. I think it's just a bit of an adjustment period for people who are in the system and used to the old returns and smarting from having to pay 25% more for things that they didn't have to. But overall, we feel good about the four-wall margins. But periods of payback and cash-on-cash returns are extended and somewhat lower.

But the other good news, as you know, the store is built this year and prior here since we took the price up on Black Card last May. All those new stores are taking the new members on Black Card at $24.99, and everyone's paying the higher annual fee, which, with our math, depending on the mix of Black Card, is going to add 300 to 400 basis points to what would have been from a four-wall standpoint. So, back to Sharon's question, trying to do things that improve the overall economics for our system, and it's a long-winded answer, but hopefully I answered your question.

Jon Komp -- Robert W. Baird and Company -- Analyst

Yeah, that's really helpful.

Chris Rondeau -- Chief Executive Officer

I think, Jon, the only thing I'd add to it, as you probably recall, I mentioned in the last call is that, to Tom's point, first quarter is so important to us. And the three-year ramp is where a lot of the growth comes from is the three first quarters that come back to back to back, where the stores that opened up in 2019. And during COVID, this past first quarter was the first real one they had fully, right? So -- and I mentioned on the last call that stores that were already mature pre-COVID and already experienced their three-year ramp pre-COVID. Those stores, on average, are all ahead of their pre-COVID membership and revenue on average.

So, it's these stores that opened like just prior to COVID or during COVID that they're just not experiencing that three-year ramp because the first quarters have just been so wacky.

Jon Komp -- Robert W. Baird and Company -- Analyst

Yeah, thank you both for that. Chris, if I could just ask a follow-up on pricing. Obviously, pricing is a nice lever for new unit economics. Just curious, sentiments from franchisees, are they on board with keeping the White Card price where it is and prioritizing volume? Just thinking about all the inflation around you, certainly, other non-GEM concepts that our value have raised prices over the last year or two.

And, you know, even the $15 a month spread between White Card and Black Card is pretty wide these days. Any updated thoughts on $10 a month remaining the floor forever? And if it is, are you concerned about competitive pressures or just any thinking there? Thank you.

Chris Rondeau -- Chief Executive Officer

Yeah, thanks, Jon. I would say I think to Tom's earlier point with that $15 middle tier membership we've offered in the past, and we call it three tier. So, it's the 10, 15, and 24.99. Ten and 15 is essentially the same membership as a White Card.

The 10 would have a commitment, the 15 would have no commitment, or the 10 would have a bigger enrollment fee than the 15, so people can either pay up front to get a cheaper membership monthly if they choose to make that kind of investment, right? So, I think it's a little bit more maybe disciplined around that pricing structure so that hopefully we can, during off-sale periods, drive a little higher average ticket with the 15, which is still a great deal for a White Card membership anyway, right? But I think the beauty with our business is that the amount of people without gym memberships, for example, we're not always trying to steal customers from competitors and we need to get as much from every member as we can because there's no more to go get off the couch, which with this business and this industry, the fact that 80% of the U.S. population doesn't have a gym membership, for us it's always the market share. And for every $10 membership I have, or member I have, it's another $20 or $30 or $40 membership my competition doesn't have. And I believe truly threatened to do and with the judgment of rezoning, getting people off the couch and getting them healthy, and again, almost 40% of our members are first-time gym members, I still think it's really the right thing to do to drive volume, but, you know, use some of the pricing structure that I talked about to drive some average ticket over the course of the year.

Jon Komp -- Robert W. Baird and Company -- Analyst

And is that something that could benefit 2024 already? And that was my last question, thank you.

Chris Rondeau -- Chief Executive Officer

Yeah, I think it's something we're looking at now. We always have it out there, but I think we're getting more disciplined now maybe with how to use it during off-sale periods to drive some average tickets. So, it could take some time to just have influence with the 24.99. But again, every additional member with an extra couple bucks here does help.

Operator

Our next question comes from the line of Joe Altobello from Raymond James. Please go ahead.

Unknown speaker

Good morning. This is Martin on for Joe. Most of my questions have been answered, but I just wanted to bring in a little bit of updates about the share repurchases for the remainder of the year, considering how many you've done for this quarter.

Tom Fitzgerald -- Chief Financial Officer

Yeah, Martin, thanks for the question. So, we had, as you may know, at our investor day, we committed to, over the three-year period, this being year one, that we would purchase a minimum of 1 million shares a year, just so people could count on a consistent level of repurchases. And so, we're well above that for this year, and so we're not necessarily. guiding on what we're going to do for the rest of the year.

But we'll see how things play out. The good news is we have plenty of cash. But we thought it was appropriate, given what was happening with the stock price, to move, to buy more on the early side of it and above that minimum. So, we feel good about where we are, and we feel good about our ability to take action if we think it makes sense, or, you know, sit out the rest of the year.

We'll just have to see how things play out.

Unknown speaker

Understood. Thank you.

Tom Fitzgerald -- Chief Financial Officer

Of course. Thanks, Martin.

Operator

Our next question comes from the line of Rahul Krotthapalli from JPMorgan. Please go ahead.

Rahul Krotthapalli -- JPMorgan Chase and Company -- Analyst

Hey, guys. Thanks for taking my question. Chris, can you elaborate further on your comment around the white spaces from the retail availability standpoint? You said it's becoming a little difficult for the franchises. Is it because they're unable to meet the return threshold, given competition wouldn't really be a reason, right? So, I'm just curious if you have any more comments that elaborate.

And also, it would be great if you can give us a sense of what's the total time from identifying the site to store opening today versus, say, pre-COVID.

Chris Rondeau -- Chief Executive Officer

Sure, thanks, Rahul, and Tom can add, too, as well. I would say on the real estate availability, it's more -- it's just that there's not as much inventory out there to go negotiate. So, it's not that they're not the right deal. It's just lack of available space to get it.

Now, Bed Bath & Beyond situation does help us some, but more of that would be better beneficial. This is less inventory today than it was pre-COVID. The timeline today, I'd say, to negotiate leases and get store open, pre-COVID, it was about, call it, five, six months or so. So, it'll take two or three months to negotiate the lease.

Once you sign the lease, it would take you about three or four months to get it open. Today, with what's going on, you negotiate the lease once you find the location, which is the bigger issue, find the location first, negotiate the lease. Negotiating the lease is about the same timeline. And then, the construction issues, we have HVAC, which they have to plan on, which they have gotten better for sure in planning that ahead of time.

Before, they'd send a leasing in order of the HVAC for that location. Today, because of the 30- or 40-week lead time on HVAC, they actually have to order a lease. They have to order HVAC before they even know where they're going to put it, which is a little bit odd, naturally. And I guess the other thing, too, with the municipalities, even in permanent, for example, even though COVID seems like it was quite a fun time ago, the municipalities, the building inspectors, for example, they still work from home where there's just not as much -- they're not around as much in getting these permits assigned to COs, typically, in occupancy issues.

So, it's just -- everything just takes longer than it did pre-COVID. So, now it's, yeah, I'd say -- I don't know, Tom, it's probably more than nine to 12 months -- nine-month time frame, probably, nine to 12.

Tom Fitzgerald -- Chief Financial Officer

I think from -- when you first see the site, and to your point, there are situations where, certain jurisdictions, it's much longer, either on the permitting side or even the local. I guess, the local requirements of what needs to be done locally versus through the GC. 

Rahul Krotthapalli -- JPMorgan Chase and Company -- Analyst

Understood. And just on following up here, on the franchisee cash flow conversion, I think you guys talked about some levers around ad fund contribution and other things earlier. I'm just curious on one of the items I was going through on FTDs is the mandated remodels spend. Is there any color you can provide there? I think the document talks about having $250,000 to $1 million every five years.

Is there any discretionary component here that can be flexible on your end to just reduce the capital intensity on the franchise system as more of the system will be up for remodels for the next five to 10 years?

Chris Rondeau -- Chief Executive Officer

Tom, do you want to take that?

Tom Fitzgerald -- Chief Financial Officer

Sure thing. Yeah, thanks, Rahul. So, I think typically what happens is in the lifecycle of a store, as you know, now if they're built after five years, there's a cardio reequip. After seven years, there's a strength reequip.

Then typically at the end of the 10 years, there's a remodel requirement. Now, in some cases, folks will want to relocate and get a better location because the, you know, that's just the right thing to do. We do some of that in our corporate stores. Or alternatively, it is a good location and want to stay in it.

Then, there's a remodel requirement. So, it's not so much in the -- and maybe the language in the FDD is a little bit more general, so to speak, in terms of that. But that's typically what happens, what I'm describing. And we are looking at ways to make that remodel, you know, less capital-intensive.

We clearly want the store to come up to our current standards in ways that are customer member-facing. Because it's going to be that way for the next 10 years, right? So, you know, we're always looking at ways to try to lessen that burden, but it is an important thing to do, particularly some of the older stores that, you know, may not have had quite a quite as robust of a Black Card spy area. And making an investment in that will enhance the Black Card percentage, and that's very accretive. So, it is a little bit of a case-by-case basis, and some of the stores that are coming up or have come up are some of the older vintage, which there's a bit more spend, where the newer vintage is there would be less of a spend when they come up on their 10 years.

So, I hope that help

Rahul Krotthapalli -- JPMorgan Chase and Company -- Analyst

Understood. That's really helpful. Thanks a lot for that, Tom. On just like one last thing, this could be a stretch but I'm very curious if you guys were ever thinking about like co-investing with franchisees, say new stores or equipment or anything.

Are there any discussions or is there any thought about it at any time, even if not knowing the future?

Chris Rondeau -- Chief Executive Officer

Yeah, I wouldn't think that -- go ahead, Tom.

Tom Fitzgerald -- Chief Financial Officer

No, please.

Chris Rondeau -- Chief Executive Officer

Yeah, I don't think any -- yeah, I wouldn't think that I -- I would say, it's off -- I wouldn't say 100% no, but I don't really see -- you know, with our corporate store portfolio and our management team now that's in place running corporate stores, I don't know necessarily that it would be anything that we would do, but, you know, a lot of them now have some of the private equity groups. And a lot of them are so large now, it's not necessarily that they're lacking capital to do the development. It's not like Wednesday, Tuesday in a lot of situations where if they need capital to take a financing, for example.

Rahul Krotthapalli -- JPMorgan Chase and Company -- Analyst

Understood. Thanks a lot for answering my questions, guys.

Tom Fitzgerald -- Chief Financial Officer

Of course, thanks, Rahul.

Operator

Our final question comes from the line of Chris O'Cull from Stifel. Please go ahead.

Chris O'Cull -- Stifel Financial Corp. -- Analyst

Yeah, thanks for taking my question. Chris, I had a follow-up question on the stores that opened in 2019. Given those gyms have seen low membership levels because they haven't enjoyed that January period until this year, I guess, is the company doing anything to help those gyms build membership or at least improve their profitability?

Chris Rondeau -- Chief Executive Officer

Yeah, I think it's, as I mentioned, I mean, it's really staying sort of sales is the fastest way to get there, you know. And it's -- you can market any way out of it or spending a little bit more than 9%, you know, and the times point a little bit earlier, too. I mean, the cost per joint compared to the lifetime value. It's light years apart.

So it's just a matter of time in order to get there. I mean, as far as anything else, I mean, [Inaudible] equipment margin and so on and so forth. But at the end of the day, it's not fixing the issue. It's masking the issue in our eyes, and which is really just getting the membership back to where it used to be.

And there was nothing, we had 53 straight quarters of positive comps pre-COVID, and everything was still pointing to a situation where that was just going to continue if COVID never happened. And now we're back on-the-scene sort of sales bandwagon that we were pre-COVID. So, it really is just time, and every member has to break even. There's about 84% close, right to the bottom line.

And it's really, it's cost, and all you're really paying is the royalty and add dollars on that incremental number. So, it's really just a matter of time to get there and then exceed those numbers.

Chris O'Cull -- Stifel Financial Corp. -- Analyst

OK. Yeah, Chris, this is -- sorry, Chris, just if I could add one thing, even on our own corporate stores, we have some of those stores that you're describing. And we are spending above the 7% minimum for the year. And some of that money is going to those stores that we want to, you know, sort of boost with additional marketing spend to get them cranked up because they didn't have those periods.

Now, we'd want to probably skew more of that during the key period in Q1, but having some more pressure throughout the year also makes sense to us. So, that's, you know, we think franchisees may want to make the same decision because it is so accretive to invest the incremental dollars to drive the member growth.

OK, that's helpful. Just my last one, Tom. Has the company considered offering or done any analysis to see if it makes sense to offer new development incentives to franchisees to help them prove their new unit returns and encourage more development?

Tom Fitzgerald -- Chief Financial Officer

Yeah, I'll start that one. Chris may add. I think we've looked at some things, Chris, but if you go across a $2.5 million, $3 million build and the number of units that are opening per year, it's hard for us to do anything meaningful that would dramatically affect that initial investment. I think that's the long and the short of it, right? And again, once the stores open, the margins in the four-wall economics are very compelling.

It's just that initial investment of being higher. There's a little bit we could do, but we don't think it would necessarily turn a decision to maybe wait versus go now. So, we'll continue to evaluate that and think about it, but that's how we've analyzed it and come to the conclusions thus far.

Operator

Thank you. I would now like to turn the call over to Chris Rondeau for closing remarks.

Chris Rondeau -- Chief Executive Officer

Thank you, everybody, for joining us today and appreciate all dialing in. I think everybody mentioned in my opening remarks, I'm still extremely excited with the overall fundamentals of the business, the member growth, the member growth in all generations, the improvement in cancel rates for eighth grade quarters in a row on both white card and Black Card even regardless of the price increase. And I think the, unfortunately, the pressures we're filling on construction costs and even cost of capital, unfortunate as it is, but it is also not Planet-specific, and it's not even-industry. I'm just happy that our mode is continuing to grow relative to everybody else's and don't see that slowing down even though it's not back to that 200 plus units a year.

Yet, I think 160 openings still a pretty solid number. It's roughly 3 million square feet of real estate. We're still developing even under today's external pressure. But anyway, I'm really happy everybody dialed in and thank you and look forward to the next call.

Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Stacey Caravella -- Vice President, Investor Relations

Chris Rondeau -- Chief Executive Officer

Tom Fitzgerald -- Chief Financial Officer

John Heinbockel -- Guggenheim Partners -- Analyst

Randy Konik -- Jefferies -- Analyst

Unknown speaker

Simeon Siegel -- BMO Capital Markets -- Analyst

Sharon Zackfia -- William Blair and Company -- Analyst

Jon Komp -- Robert W. Baird and Company -- Analyst

Rahul Krotthapalli -- JPMorgan Chase and Company -- Analyst

Chris O'Cull -- Stifel Financial Corp. -- Analyst

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