Headquartered out of Hampton, New Hampshire is Planet Fitness Inc (NYSE: PLNT), a franchisor and operator of about 2000 fitness centers in the United States with a market capitalization of $6.5 billion and Mr. Christopher Rondeau serving as its Chief Executive Officer and Director. The company made its public market debut in Q1 2015 and has returned approximately 372% as of August 16, 2015. 

The company recently shared its Second Quarter Fiscal Year 2021 Results on August 9, 2021, with Earnings Per Share of $0.21 missing the street estimate of $0.23. Even though the company missed estimates, identified in its earnings are a historical trend of store additions that muscled up during the pandemic. In an increasingly digital age, with a slew of products targeted directly at the exercise-from-home crowd, it is worth recognizing the brick-and-mortar scale at which Planet Fitness Inc operates across the United States. 

What was Planet Fitness Inc Second Quarter Fiscal Year 2021 Earnings Like? 

For Q2 21, the company registered $137.25 million in Total Revenues with $18.18 million in Adjusted Net Income and $0.21 in Adjusted Net Income Per Share. In Q2 20, the company reported $40.23 million in Net Revenues at an Adjusted Net Loss of $27.94 million and Adjusted Net Loss per Share of $0.32. About 43% ($59.76 million) derived from Franchise Fees, 29% ($40.58 million) from Corporate-Owned Stores, and 17% ($23.82 million) from Equipment in Q2 21 compared to 32% ($58.23 million), 22% ($39.70 million) and 39% ($70.15 million) in Q2 19. In Q2 19, the company generated $181.66 million in Total Revenues with $42.05 million in Adjusted Net Income and $0.45 in Adjusted Net Income Per Share.

How Franchising and Equipment Revenues and EBITDA Tell Different Stories

The following visual shows the breakdown in Revenue streams for Planet Fitness Inc, broken down into three categories- Franchise Revenues, Corporate-Owned Stores, and Equipment

While Franchise Revenues appear linear, the Equipment Segment looks volatile with specific quarters of outperformance. Of the 29 earnings reports, 15 and 22 reports had Equipment segment revenues be more significant than Franchise Revenues and Corporate Segment Revenues, respectively. On average, between Q2 14 and Q2 21, the company generated $41.92 million in Franchise Revenues, $30.22 million from their Corporate-Owned Stores, and $39.55 million in Equipment Revenues. The median Franchise, Corporate-Owned Stores, and Equipment Revenues between Q2 14 and Q2 21 is $37.79 million, $28.29 million, and $33.37 million. Even though the company registered $59.76 million and $40.58 million in Franchise and Corporate Revenues for Q2 21, Equipment Revenues were down 28.62% from the median and 39.77% from the average historical Equipment Revenues

Now for EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization, “a metric used to evaluate a company’s operating performance.” The following visual highlights Segment EBITDA as a percentage of Segment Revenues

Compared to Franchise and Corporate-Owned Stores, Equipment Segment EBITDA has remained consistent and experienced a 9.23 percentage point decline between Q1 20 and Q2 20. However, their most profitable segment, the Franchise Segment EBITDA, fell 67.52 percentage points between Q1 20 and Q2 20. Crediting store closures due to social distancing mandates can justify those declines in performance. Moreover, it should be the uniqueness of the Equipment EBITDA as a percentage of the Equipment Revenue line that looks attractive.  

What is greater than 95%- Number of Franchise Locations compared to Total? 

Understanding that Planet Fitness Inc is heavily reliant on its brick-and-mortar and low-cost participation business model to generate profits, I was curious to see the historical trend of store counts since the company went public. 

In Q4 19, the company broke the 2000 total store mark after starting with around 800 stores in Q2 14. As of Q2 21, the company operated a total of 2,170 stores. What’s more interesting is that the Franchise Store count broke the 2000 mark at the end of Q4 20. Currently, 95.12% or 2,064 Planet Fitness locations are Franchise Operated. Amidst the turbulence, which was 2020, the company added 85 stores, of which 81 were Franchise Operated. 

For a company that relies on its brick-and-mortar strategy, validation in the form of store additions by franchisees should provide credence when evaluating Planet Fitness Inc. A solid corporate to franchisee relationship can be established based on historical trends and increased location count since going public in 2015. The following visual shows the number of Franchise Stores as a percentage of Total Stores against the backdrop of Total store count. 

In Q2 14, 93.4% of stores were Franchise Stores compared to 95.12% in Q2 21. It is worth noting that the trendline peaked in Q3 17 when 95.95% of Stores were Franchisee Operated. The company had maintained a greater than 95% of Franchisee Operated Stores since Q1 16 when the company operated 1,171 Total Stores and 1,113 Franchise Stores. 

My Perspective- More than a B2C, with a significant B2B mix  

The allure of Planet Fitness Inc lies in its low cost of participation, where patrons are provided entry to a mausoleum housing equipment to support healthy habits. As of June 30, 2021, the company had 14.8 million members, down 2.63% year-over-year but up 5.71% and 105.56% from the same period in 2019 and 2015. Consider the following; there is one location available to approximately 6800 members as of Q2 21 compared to around 8900 members in Q2 14. Increasing location counts is possible by increased franchising which in the case of Planet Fitness Inc is a unique concept altogether. I’ve seen Planet Fitness locations in areas of different demographic and spatial nuances ranging from individual sites to being part of a larger ecosystem like malls. 

What unites them is the concept of Judgement Free Zone mixed with the purple and yellow of Planet Fitness Inc proudly displayed on equipment. While members have access to different fitness centers affecting the Business to Customers (B2C) dynamic; Equipment revenues serve as a Business to Business (B2B) portion providing a pool of reliable customers clarified by the percentage of Franchise Stores compared to Total Stores discussed earlier. Additionally, the metrics derived from Franchising and Equipment segments offer a perspective to consider Planet Fitness Inc as an affordable alternative for a population increasingly looking for healthier options. Six years after becoming public, the company has added about 7.60 million members and 1300 stores. On the occasion of expansion into all 50 states and 1500th location in Durhan, North Carolina, Mr. Rondeau in early 2017 said the following, “We are also thrilled to have opened our 1,500th location system-wide and look forward to executing on the long runway for growth ahead of us with a potential footprint of 4,000 stores across the United States alone.” Additionally, the company is expanding domestically and internationally. With locations already in Canada, Dominican Republic, and Mexico, in 2019, the company signed an agreement to bring 35 Planet Fitness locations to Australia. The goal of 4000 sites does look appetizing when you consider historical performance; just how quickly Planet Fitness Inc will get there will be interesting.

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