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Planet Fitness Needs More Curves Flattened

Planet fitness Co., Ltd.

PLNT 1.12%

2020 began with the announcement of sponsorship of the television show The Biggest Loser. Little was known that the Covid-19 would soon become a suitable label for itself. The crash diet has reduced the market value by 70% in less than a month.

Still, while many of our big and small competitors were forced into bankruptcy by a pandemic, Planet Fitness somehow regained all its weight and then some. Stock prices on Monday morning were trading 8% higher than they were a year ago. It doesn’t make sense.

Planet Fitness has a clever business model that helped it grow rapidly, but certain elements of it have recently backfired. The best customers rarely appear because of the very low charge and the difficulty of deliberately canceling, but we continue to pay anyway. If they did, the gym couldn’t fit them all at once. Still, the sales are high enough that you should always recruit new members at stores that are primarily owned by franchisees.

The company made a clear tactical mistake by collecting membership fees from its members in March, despite the closure of all US gyms due to the blockade order. Cancellations must be made directly or by letter, even if the gym is closed, and members who are wary of unnecessary trips cannot cancel online or by phone when the gym is reopened. Judging from social media posts, it infuriated those who were forced to move or were in financial distress. The number of members increased from 15.5 million in March to only 14 million at the end of October. The move also artificially pleased the third quarter results reported last month. This is because these monthly revenues have been credited for future use and postponed until the gym resumes.

Overall revenues were down 37% year-on-year, while equipment revenues, franchise gym outfits and regular refurbishment profitable businesses were down 71%. The company was forced to offer a 15% discount on equipment to support new store openings, giving franchisees a 12-month extension of their “development requirements.” The growth of the new gym is, of course, far below expectations. Planet Fitness has closed its quarter with about one-third of its initial store growth target for 2020 and has suspended financial guidance.

The company’s “no judgment zone” slogan does not apply to analysts. The expected profit for 2020 was the expected loss. Earnings per share forecast for 2021 has fallen by almost half since February, according to FactSet. In other words, even the expectation that the gym will remain open and the vaccine will return to normal life cannot obscure the fact that the momentum of the fast-growing chain is seriously disrupting.

On the plus side, just a bend in Planet Fitness breaks 24-hour fitness, Gold’s Gym, town sports, and countless independent gyms. Retail vacancies due to pandemics provide a cheap opportunity for franchisees looking to expand.

But should they? People want to get back to normal, but many buy home exercise equipment and can stay alert while gasping for strangers. Planet Fitness has recorded a number of downloads of its own fitness app, but you need to step into a crowded area and be careful not to prey on the franchisee’s outlook.

For the hard-working shareholders, it’s time to jump out of this oval while going ahead. It’s difficult to square the damage and ongoing uncertainty of Covid-19 with 60 times more earnings next year.

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Planet Fitness Needs More Curves Flattened

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