Planet Fitness (NYSE: PLNT) is one of the biggest gym franchises in the U.S. with 2,039 locations and roughly 15.5 million members. The pandemic has forced the company to shutter all of its gyms and the company has resorted to providing free at-home workout routines via Facebook (NASDAQ: FB) live, often featuring celebrity guests like actor Jerry O’Connell. Justifiably, it also discontinued charging membership fees during the closures. With Peloton (NASDAQ: PTON) having a first-mover advantage in the at-home fitness market and its membership base growing every month, how can the brick-and-mortar Planet Fitness compete and survive the impact of the deadly outbreak?
How has PLNT managed this crisis?
Planet Fitness controls 20% of the health and fitness club market share in the U.S., an industry worth over $34 billion. It does this through a high-value, low-price (HVLP) model, offering membership for $10 a month and a “Judgement Free Zone” to work out in. These two factors have helped the company grow its revenue by over 225% from 2013 to $689 million in 2019.
In response to the pandemic, Planet Fitness has deferred opening any new stores and investments on existing stores. The company’s CEO and other C-suite personnel have taken significant salary cuts and the organization temporarily furloughed all corporate-owned club employees, with their benefits remaining intact. It has increased its cash position by drawing down $75 million under its revolving credit facility to $540 million, which CEO Chris Rondeau believes will carry the company well beyond the end of the year. Most importantly, the club is expected to maintain at least 80% of its members, according to analyst surveys.
Maintaining membership is key and to do so the company boosted its digital offerings and its workouts averaged more than 100,000 views per session, while its YouTube subscribers increased 229% since the closures, with its videos viewed more than 10 million times. With the outbreak taking a toll on people’s finances, low-priced Planet Fitness is expected to continue growing post-pandemic, especially because most at-home routines have contributed to comfort-cooking and stress-related weight gain, giving rise to the phrase ‘Quarantine 15.’ Most other gyms cost more or don’t have as many locations and Peloton offers a plan that costs $39 a month, which is significantly higher than a Planet Fitness membership, and that’s not including the $2,200 starting price-tag for a stationary bike.
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There are more reasons to be bullish
The company’s low price isn’t the only way it will benefit after the COVID-19 chaos as the impact of the pandemic on the real estate market will provide a more favorable position for Planet Fitness’ expansion plans to reach 4,000 locations in the U.S. Additionally, the company isn’t impacted by e-commerce’s takeover of brick-and-mortar establishments as you need to physically be at a gym to work out; you can’t dial it in and it would cost you money (see Peloton) and living space to build your own gym at home. Finally, people are going stir-crazy from social-distancing and cannot wait to return to normal everyday routines like the gym, the community pool, or the coffee shop (on its first reopening, my coffee shop was packed and my building’s pool is out of control)!
The gym began to reopen stores on May 1 and as of June, had roughly 1,000 stores operating with memberships remaining consistent and store usage increasing as time progressed. Planet Fitness has withdrawn guidance for the rest of the year and is trading at $57.11 on July 10, considerably lower than its high in the mid ’80s earlier in the year.
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Contributing Writer at MyWallSt
David fell in love with the stock market in 2000 after making $30,000 overnight on Techniclone. His favorite stocks today are Netflix, Google, Amazon, and Apple as they are the market leaders in their sectors and are safe long-term investments.