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IPO Outlook: Planet Fitness Bargain Gym Memberships Growing Strong

Charles Enser

Planet Fitness Inc (NYSE: PLNT) expects to begin trading Thursday, August 6. Between its class A and class B shares, the company will have a $1.5 billion market cap, if its 13.5 million share offering prices at the midpoint of its $14 to $16 range.

The company heavily promotes its "judgement-free zone" in advertisements. Its goal is to be more than just another gym, creating a comfortable atmosphere for members to work toward their individual fitness goals. One way it does this is by removing heavy free weights from its gyms to discourage people who train that way to join.

The company sees itself as having three main competitive advantages: differentiated member experience, nationally recognized brand and scale advantage.

Planet Fitness is one of the fastest growing franchisor and operator of gyms in the United States. It feels its model of offering a clean, quality environment with free small-group fitness instruction for $10 per month is a bargain value for members looking to be active and healthy without feeling judged by regulars.

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Its brand is recognized as a leader in being a relatable gym for average people; one way it accomplishes this mission is by lightheartedly poking fun of die-hard gym goers, referring to them as "lunks."

The company’s national size and rapid growth rate affords it the opportunity to buy equipment in bulk at reduced prices. It also believes that its scale causes it to attract high-quality franchisee partners. According to its S-1, part of its brand strength is due to "our requirement that franchisees spend 5 to 7 percent of their monthly membership dues on local advertising."

Financial Data

Since 2010, the Planet Fitness location count has grown 24 percent per year, from 389 stores to 918. Its membership rate is growing at a similar rate of 27.6 percent per year, from 2.3 million members to 6.1 million.

Its balance sheet is simple. Cash on hand is steadily growing, while its debt and lease obligations remain manageable relative to its income from operations. Operation income at the end of 2014 was $61.6 million and expenses on debt and leases were $23.1 million.

Sales have compounded by 30 percent per year, growing $774 million to $1.2 billion since 2010. Its sales increase translates to a net income for 2014 of $37.3 million, a growth of 22.6 percent per year.

Revenue comes from franchisees, corporate-owned stores and equipment sales to new franchisees.

The company’s biggest risks are related to its franchisee relationships. If franchisee royalties decline, it would hurt the company’s profitability. If an operator begins acting in a rogue manner outside Planet Fitness’s policies and guidelines, it could cause legal repercussions for the company or damage the value of its brand.

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Underwriting Information

Underwriters for the offering are JPMorgan, Bank of America Merrill Lynch, Jefferies and Credit Suisse. Planet Fitness is offering 13.5 million shares between $14 and $16. It expects to begin trading on Thursday, August 6. Investors can begin looking for pricing details the evening of Wednesday, August 5.

Other Offerings For The Week Of August 3

Wednesday

  • Amplify Snack Brands Inc (NYSE: BETR): Expect 15 million shares between $14 and $16 through Goldman Sachs, Jefferies and Credit Suisse.
  • Benitec Biopharma Limited (NASDAQ: BNTC): Expect 5 million ADSs to price through BMO Capital.
  • SunRun Inc (NASDAQ: RUN): Expect 17.9 million shares between $13 and $15 through Credit Suisse, Goldman Sachs and Morgan Stanley.
  • Zynerba Pharmaceuticals Inc (NASDAQ: ZYNE): Expect 3 million shares to price between $13 and $15 through Jefferies and Piper Jaffray.

Thursday

  • Aimmune Therapeutics Inc (NASDAQ: AIMT): Expect 8.3 million shares to price between $14 and $16 through Bank of America Merrill Lynch, Credit Suisse and Piper Jaffray.
  • GC Aesthetics plc (NASDAQ: GCAA): Expect 5.4 million shares to price between $13 and $15 through Bank of America Merrill Lynch, Deutsche Bank and Cowen and Company.
  • Philadelphia Energy Solutions Inc (NYSE: PESC): 15.2 million shares expect to price between $15 and $18 through Bank of America Merrill Lynch and Credit Suisse.
  • Planet Fitness Inc (NYSE: PLNT): Expect 13.5 million shares to price between $14 and $16 through JPMorgan, Bank of America Merrill Lynch, Jefferies and Credit Suisse.

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