Planet Fitness' Torrid Growth Continues
Popular gym chain Planet Fitness (NYSE: PLNT) reported second-quarter financial results on Aug. 9, delivering strong gains in revenue and profits as its member base topped 12 million people.
Planet Fitness results: The raw numbers
Metric | Q2 2018 | Q2 2017 | Year-Over-Year Change |
|---|---|---|---|
Revenue | $140,550,000 | $107,316,000 | 31% |
Operating income | $48,811,000 | $38,250,000 | 28% |
Earnings per share | $0.29 | $0.16 | 81% |
Data source: Planet Fitness Q2 2018 earnings press release.
What happened this quarter?
Rapid store count expansion combined with strong same-store sales growth can be a powerful formula for explosive profit gains. The challenge, of course, is being able to do both at the same time, as new stores often cannibalize sales of existing locations.
Yet Planet Fitness has been able to find the balance that leads to growth.
Its systemwide same-store sales increased by an incredible 10.2%, even as the company opened 44 new Planet Fitness locations during Q2 and a total of 205 locations over the past year. The combination helped drive revenue 31% higher to $140.6 million.
"Our second quarter results reaffirm that Planet Fitness is a high growth company," CEO Chris Rondeau said in a press release.
Planet Fitness is growing rapidly. Image source: Getty Images.
I should note, though, that 10.4 percentage points of growth was from advertising revenue, which Planet Fitness began reporting this year in connection with its adoption of a new U.S. GAAP revenue recognition standard, and which the company uses to fund marketing campaigns for franchisees. But even if we adjust for this, Planet Fitness' greater than 20% revenue growth is still impressive.
Moreover, the company continues to grow more profitable as it expands. Adjusted EBITDA -- or earnings before interest, taxes, depreciation, and amortization -- jumped 21.8% to $58.4 million. And adjusted net income, which benefited from the lower corporate tax rates brought about by the Tax Cuts and Jobs Act, leapt 53.3% to $33.2 million, or $0.34 per share.
Looking forward
These strong results prompted Planet Fitness to boost its full-year financial forecast. The company now expects:
Total revenue growth of approximately 26%, up from a prior estimate of 20%.
Systemwide same-store sales growth of 9% to 10%, up from an estimate in the "high single digit range."
Management did, however, lower its guidance for adjusted net income and adjusted EPS growth to 33% -- down from 40% -- due to higher interest expenses related to its recent debt refinancing.
Still, management noted that the capital raised from the debt offering would allow Planet Fitness to create value for shareholders via other means, such as funding its long-term growth initiatives and its share repurchase program, which was recently increased to $500 million.
"There are numerous expansion opportunities for our high value, low-cost non-intimidating fitness concept in the U.S. and internationally, we are pursuing exciting ways to enhance the member experience, and our strong cash generation and recent debt refinancing provide us with a high level of flexibility to return capital to shareholders," Rondeau said.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Planet Fitness. The Motley Fool has a disclosure policy.
