Planet Fitness CEO: Gym membership ‘at an all-time high’ as Gen Z joins in droves

Planet Fitness CEO Chris Rondeau joins Yahoo Finance Live to discuss company earnings, the impact of COVID-19, competition, and the outlook for growth in the fitness space.

Video Transcript

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JULIE HYMAN: Fitness is back, at least fitness out in the world, as consumers shift away from a digital work-from-home model back to brick-and-mortar gyms. And companies like Planet Fitness have been reaping the benefits in revenue and memberships. Joining us now to discuss is Planet Fitness CEO Chris Rondeau. Chris, it's good to see you, as always. You guys have almost 16.2 million members now in almost 2,300 locations. And it looks like, by a lot of metrics, you guys are back to where you were pre-pandemic. Give us a sort of status report here.

CHRIS RONDEAU: Yeah, sure. We have 16.2 million members at the end of the first quarter in over 2,200 stores here. You know, we couldn't be more happier. We're at an all-time high for membership. We've seen people come back in droves. And the Gen Z population, in particular, is joining quite a bit higher than we've ever seen in the past-- about 180% of pre-COVID levels, which is really great to see the younger generations here gravitating towards the gym.

And same-store sales in the first quarter are at 15.9%. So we are firing on all cylinders now and glad to be reopened.

BRIAN SOZZI: Chris, Brian here. How much longer can you hold that sacred $10 price point in this inflationary environment?

CHRIS RONDEAU: I'll tell you, Brian. It's sacred to us. It's something we've built on. We've been here for 30 years. This year is our anniversary. Our Black Card membership, which is now, today, $24.99, is really what we try to do. It's, really, put a bunch of perks and benefits into our Black Card membership. Reciprocity. You bring a guest for free, hydro massage beds, or so on. And people, believe it or not, even though we advertise $10 a month, and that's what you mostly see us on TV, 60% of those people end up buying the Black Card membership at $24.99, so more than double the price.

And I look at it this way, is that, 80% of the population doesn't have a gym membership, Brian, right, and we talk about that a lot. And there's 140 million people around our current footprint of stores. And, get this, 140 million people over the age of 14, they don't have a membership at any gym anywhere, right. So there's so many more people to get off the couch and do the right thing. Raising the price is something I don't think is going to do it.

I think keep it at $10 a month. Get you off the couch. Check us out.

BRIAN SOZZI: As a percentage of your business, Chris, how many Black Card members do you have?

CHRIS RONDEAU: Yeah. So 60% of 16.2 million members. So we're upwards of-- 9 million of those are Black Card memberships today. And that Black Card percentage keeps going up about 100, 200 pips a year. So, as we increase the footprint of stores, reciprocity is the number one use. So you can use any club in the country. And one out of every five workouts, people are visiting a different club. So it's a huge benefit.

BRAD SMITH: I mean, look, as one of those Black Card memberships-- and honestly, Chris, I'm sorry. I haven't even been to a location in months, and even prior to that, it had been a while before that. It's almost stickier than the "set it and forget it" kind of Apple services model, because there is that benefit of being able to go to a location elsewhere. But when you think about being able to get some of the existing members into a Black Card, what is that conversion rate like for you guys?

CHRIS RONDEAU: Yeah. Believe it or not, is mostly at point of sale. It's very seldom that somebody joins as a White Card and then upgrades down the road. Usually, when they come in and see the benefits of the reciprocity, the bring a guest, the massage beds, massage chairs, and so on, it's usually point of purchase where they make that decision. But we're always constantly trying to expand the perks, right. We're just starting to put in meditation pods in clubs.

So every new build and every remodel puts in meditation pods in the clubs, where people go in, you can choose rejuvenate, energize, and so on. So we're always trying to increase the offerings for perks, so hopefully more of the White Cards find one of the perks that really fits their needs and upgrades. And that's kind of something we've always been able to do over the years.

JULIE HYMAN: And how are you doing on staffing, Chris? As you hold the line, whether it's on that Black Card membership or on the $10 membership, you know, your costs, presumably, are going higher, right? You've got to pay your people more. You've got to get them in the door. You've got to pay for equipment, et cetera. So how are you navigating all of that?

CHRIS RONDEAU: Yeah, that's a good question. So it's definitely a little easier now than it was six months ago, a year ago. Luckily with our staff and model, we only require about 12 to 15 employees per store. So not a ton. And we really are competing for generally a QSR employee, for the most part. And quite frankly, we've done some surveys, and when you look at working in our environment as opposed to a QSR, for example, you're in a gym around people having a good time, you're not going home smelling like fries later, right, and you're making good pay, and you're wearing shorts and workout gear, right. So it's, really, a lot of them just come to us because it's a better atmosphere to work in.

But if you go back to pre-COVID, we were 53 straight quarters of positive comps over 13 years, and that averaged 12%. So our comps actually outpace inflation, and always have. 15.9% in comp in first quarter, and that is mostly member growth, believe it or not. So back to the 140 million people to get off the couch. As long as we continue same-store sales and the margin flow-through, if we add more members, we don't need more staff, because we don't have the classes, and the pools, and the basketball courts, and daycare. It's tons of fitness equipment, right. It's first come, first serve, come as you are. Most clubs are open 24 hours a day.

So the margin expands. It's $0.84 in the dollar. It flows right to the bottom line with increased members per store.

BRIAN SOZZI: Chris, you've been in this gym industry, I think, since the 1990s. You've seen a lot of different cycles. Do you think the working-from-home "thing" during the pandemic was just simply a fad?

CHRIS RONDEAU: Yes. I think-- I always look at home fitness. It's been there forever. Go back to Richard Simmons and Jane Fonda, then you fast forward to Tae Bo and P90X, and then you keep going down the road here. And these experiences have become better, yeah, but everything's getting better, right? But when you think of it, if home fitness was really a replacement, it would have been prior to the pandemic. The pandemic wasn't going to change that, right. And it's always been second fiddle to a real gym experience.

And here, we are seeing it really unfold in front of our eyes. What's happening here today is people are just driving back to the gym. They're going back. They want to be around others. And at $10 a month for a $2 and 1/2 million facility, the best equipment money can buy, you just can't beat that experience, right. It's like people deciding never to go to a restaurant again. It's just, it's a better experience.

BRAD SMITH: I wonder as well, given that, you've told me in the past that it's also like a marketing engine, that Planet Fitness is, at the beginning, of kind of, really, ramping up new locations for some of the new franchisees that you're working with. What are some of the headwinds that they've discussed, that they've brought back to you, especially in an environment where consumers, quite frankly, are choosing what their services are that they're buying into right now?

CHRIS RONDEAU: Yeah. I think the-- the marketing engine, you're right. 9% of every single member that joins, their monthly due is-- 9% of that goes right back into marketing, and it fuels more members to come in the next day, right. So even our oldest stores in the system still have positive comps because the marketing budget is forever growing, right. So it's really important. The headwinds today really is, you get some increased costs on buildouts. HVAC-- believe it, of all the things that we struggle with right now, HVAC is the big one, believe it or not. It's like that and baby formula.

But we're working through that today, and we're making some really good arrangements with one of the leading manufacturers of HVAC. But that's really the only thing. Real estate's a great situation right now. We're filling the Office Depot boxes, the Toys "R" US boxes, all those Sears that have closed. I mean, like, so real estate's not an issue at all. It's really just finding a site to negotiate getting these things open.

BRAD SMITH: HVAC and baby formula is not a pairing that I have expected to hear today, but you delivered. Chris Rondeau, Planet Fitness CEO, joining us here. Chris, appreciate the time, as always.