The fitness industry has notoriously been a fickle beast, where consumers, eager to get in shape, bounce around from one fad to the next. As a result, it can be difficult for a business to achieve long-term success in the space.
Even Peloton, with its popular line-up of connected-fitness equipment, is starting to see demand wane as the world slowly reopens and moves past the pandemic. What was once the hottest product in the industry has since cooled off significantly, and Peloton stock is down 40% in just the last month.
Planet Fitness (PLNT 1.07%), however, has figured out a successful strategy in this challenging market. The gym stock thrives in a very interesting way.
Image source: Getty Images.
Skipping your workout
In the third quarter, Planet Fitness returned to posting same-store sales growth of 7.2%. The company's 2,193 locations have largely reopened, and the business saw the highest sequential membership adds of any third quarter in its history.
Surprisingly, the key to the company's success is getting new customers to sign up but not use its gyms. That way, Planet Fitness still collects valuable recurring revenue with little effect on capacity or equipment. And the fact the cheapest membership costs just $10 a month decreases the chance a casual gym-goer will cancel, instead believing that he or she will work out more in the future.
"We're seeing about 30% to 40% of our members using the club in a 30-day period," CEO Chris Rondeau highlighted on the latest earnings call. So, of the more than 15 million members Planet Fitness has, roughly 5.3 million visit at least once in any given month right now. Rondeau pointed out that historically, 50% of customers use the fitness clubs in a 30-day time frame. That means there's a massive user base that pays but rarely shows up.
This is the exact opposite of the health insurance model, a situation in which healthy individuals subsidize the unhealthy people. Usually, having customers actively use a company's products or services is a positive sign, as higher engagement is valued. But in the fitness industry, people often quickly lose interest or the motivation to stick with their diet and exercise goals. This works in the company's favor.
Raising guidance
Management was so pleased with the quarter and the company's continued pandemic recovery that they upgraded guidance. For full-year 2021, Planet Fitness is now forecasting sales of $570 million to $580 million, up from the previous estimate of $530 million to $540 million. This would make 2021 the company's highest-revenue year besides 2019.
And Planet Fitness will now open 110 to 120 net new stores in the year. "We've continued to say that we believe we're going to get back into that 200-plus range," CFO Dorvin Lively said. According to the International Health, Racquet & Sportsclub Association (IHRSA), more than one out of five fitness centers permanently closed their doors because of the pandemic. Not a single Planet Fitness location failed during this time, a clear sign of franchisees' financial strength and willingness to stay committed to the brand.
If we use the latest quarter as a guide, it's looking like Planet Fitness will resume the impressive growth it was registering before 2020 came and disrupted the world. Investors should look at the stock to bulk up their portfolios.
