Gyms have been one of the business models hurt most by the pandemic. Lockdowns had forced most gyms to shut down, and some simply never reopened. For gyms open today, strict capacity restrictions provide yet another temporary headwind for success.
Considering all of this, it's no wonder that Planet Fitness (NYSE:PLNT) had such a bad quarter. Regardless, it is a strong long-term buy.
How is the company is doing today?
In Planet Fitness' most recent quarter, it posted a 36.8% year-over-year decrease in revenues and a 5.6% year-over-year decrease in same-store sales. Its adjusted EBITDA was cut in half to $32 million, and the company reported its first GAAP net income loss in years -- ouch. Encouragingly for investors, management believes brighter days are ahead.
In the same report, CEO Chris Rondeau pounded the table on his conviction in long-term market share gains for Planet Fitness. The structure of its operations deserves a lot of the credit for that.
Fortunately for the company, its franchisee business model creates an asset-light approach to operating gyms. Rather than owning the vast majority of Planet Fitness locations, the company collects rent from franchisees owning roughly 75% of stores. This approach allows Planet Fitness to enjoy EBITDA margins double that of competitors like Crunch Fitness, and enabled staying-power for Planet Fitness while others like Gold's Gym declared bankruptcy due to the pandemic.
The profile of a typical Planet Fitness franchisee is also ideal. Company franchisees own, on average, 20 locations in multiple states. This fosters durability among Planet Fitness location-owners, which also served the company immensely well during a tough 2020.
It's nice that Planet Fitness can survive turbulent times, but how will it perform as the world begins to recover? Early signs are positive.
Today, 95% of Planet Fitness locations are open once more. Usage rates at the open locations are surprisingly in line with pre-COVID levels, and its membership of 14.1 million is flat from before the pandemic. Ideally, member count would be growing -- but considering the global pandemic, status quo is just fine.
In September, Planet Fitness resumed national marketing for the first time since the pandemic began. The early results have been solid, with a chunk of locations actually returning to positive year-over-year membership growth during the quarter. Based on the early advertising success, the national gym chain decided to increase funds allocated to marketing for the rest of 2020. This does not sound like a struggling company.
While the pandemic has been a massive demand shock for gym chains, people will likely still want to work out when they feel it's safe to do so. With Planet Fitness' industry-low $10-a-month membership -- and the economic pain cause by COVID-19 -- it's reasonable to believe the company could emerge out of the pandemic even stronger than before.
More growth to come
Through all of the chaos, Planet Fitness opened 29 new locations during the quarter and began to capitalize on the industry consolidation it has been predicting since March. Rondeau frequently reiterates his view of real estate opportunities continuing to create better options to expand, and it appears that process is now playing out.
The traditionally brick-and-mortar company is also finding success with its mobile app. New joins for the software shot up 60% during the quarter, and 30% of Planet Fitness members have adopted the app. Peloton gets a lot of love for its digital fitness presence, and deservedly so. Perhaps Planet Fitness is beginning to capture some of that growth.
The success has prompted Planet Fitness to create a digital-only subscription (called "PF Plus") for $5.99 a month that will debut in the future. The company views this product offering as a gateway to its brick-and-mortar membership. As we slowly emerge out of the pandemic, this omni-channel strategy will be the approach for Planet Fitness realizing more success.
What's next for Planet Fitness
The road to recovery will be slow for Planet Fitness, but I strongly believe it will take place. Its slick business model, fantastic value proposition, and growing digital presence all bode well for the future, and the company looks to have weathered the worst of the pandemic. Despite hauntingly intimidating times, Planet Fitness is a strong long-term investment.