Planet Fitness (PLNT -0.29%) keeps pumping iron. The company behind the fast-growing chain of budget-priced gyms posted better-than-expected quarterly results after Thursday's market close.
Revenue for Planet Fitness' fourth quarter clocked in at $105.8 million, 10% ahead of the prior year's holiday quarter. Double-digit percentage growth on the top line was fueled by franchisees opening more gyms -- 84 opened during the fourth quarter alone and 209 for all of 2015 -- and comps climbing 6.2%.
This is a scalable model, so it's not a surprise to see profitability grow even faster. Adjusted net income soared 25% to $17 million or $0.17 a share. Wall Street was holding out for a profit of $0.15 a share on just $96 million in revenue.
How can Wall Street get Planet Fitness so wrong? Then again, the market itself has gotten Planet Fitness wrong. The stock has been a dud since going public at $16 last summer, and it was still trading as a broken IPO as of yesterday's close.
If anything, Planet Fitness' quarter was actually stronger than the numbers suggest. Revenue was held back by a mere 7% uptick in equipment sales for new gyms and replacement gear. That may not seem to be so bad, but when equipment sales account for more than half of revenue, it will hold back the 17% spike in franchisee royalties and the 11% uptick at its handful of company-owned locations.
Planet Fitness has grown its empire to 1,124 largely franchised locations, and it's grown quickly as a result of its compelling value proposition. Unlike traditional fitness centers with stiff initiation fees and high monthly dues, Planet Fitness offers monthly rates for as little as $10 and the initiation fee is also a mere $10. It's a gym focusing on the roughly 80% of the country who don't currently have a gym membership. It's able to shave the price by doing away with the group classes, juice bars, day care centers, swimming pools, and racquetball courts. It simply offers a large collection of treadmills, elliptical machines, and other workout gear. It's a gym for the person who realizes that spending $400 on a stationary bike is better spent by just signing up to Planet Fitness for a few years and letting someone else maintain and store the workout machines.
This would seem to be a model ripe for dissatisfaction, but Planet Fitness has now come through with 36 consecutive quarters of year-over-year comps. In other words, we've now seen quarterly comps move higher for nine years. Clearly, Planet Fitness is doing something right.
That streak is likely to continue in the near term. Planet Fitness initiated its outlook for 2016, and it's targeting $355 million to $365 million in revenue, or 7% to 10% in top-line growth. It plans to get there as a result of comps rising in the mid-single digits, keeping the impressive streak of perpetually improving gym-level sales moving higher. It's looking to have franchisees open between 210 and 220 new stores this year. That will push the store count past 1,300, a third of the way to its goal of 4,000 locations. Once again it sees pro forma adjusted net income growing even faster. It's targeting $59 million to $62 million in adjusted earnings this year, or an 11% to 17% advance on the bottom line.