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8/8 SLIDES

Before people began squatting or sprinting, the ritual was a way of forcing them to see each other. “People are looking for reasons to belong to each other, but they need a catalyst for that,” Kelly Starrett said. “Our gym gave us that opportunity to do that.”

But the challenges of operating in 2020 — the reopening fits and starts, the strict limits on capacity, the dramatic drop in revenue as people left the gym or left town — proved too much for the couple and their business. On Sunday, Nov. 15, the gym will hold its final WOD, or workout of the day, then close permanently.

Before CrossFit was a household name and the CrossFit Games aired on CBS, Kelly and Juliet Starrett started doing deadlifts, burpees and thrusters in their Richmond District backyard. Both are former competitive whitewater paddlers (Juliet was a two-time world champion), and Kelly, a physical therapist,

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fitness

Planet Fitness Stock Had a Terrible Quarter. Here’s Why It’s Still a Buy

Gyms have been one of the business models hurt most by the pandemic. Lockdowns had forced most gyms to shut down, and some simply never reopened. For gyms open today, strict capacity restrictions provide yet another temporary headwind for success.

Considering all of this, it’s no wonder that Planet Fitness (NYSE:PLNT) had such a bad quarter. Regardless, it is a strong long-term buy.

How is the company is doing today?

A man and a women running on treadmills in a gym

Image source: Getty Images.

In Planet Fitness’ most recent quarter, it posted a 36.8% year-over-year decrease in revenues and a 5.6% year-over-year decrease in same-store sales. Its adjusted EBITDA was cut in half to $32 million, and the company reported its first GAAP net income loss in years — ouch. Encouragingly for investors, management believes brighter days are ahead.

In the same report, CEO Chris Rondeau pounded the table on his conviction in long-term market share gains for Planet Fitness. The structure of its operations deserves a lot of the credit for that.

Fortunately for the company, its franchisee business model creates an asset-light approach to operating gyms. Rather than owning the vast majority of Planet Fitness locations, the company collects rent from franchisees owning roughly 75% of stores. This approach allows Planet Fitness to enjoy EBITDA margins double that of competitors like Crunch Fitness, and enabled staying-power for Planet Fitness while others like Gold’s Gym declared bankruptcy due to the pandemic.

The profile of a typical Planet Fitness franchisee is also ideal. Company franchisees own, on average, 20 locations in multiple states. This fosters durability among Planet Fitness location-owners, which also served the company immensely well during a tough 2020.

It’s nice that Planet Fitness can survive turbulent times, but how will it perform as the world begins to recover? Early signs are positive.

Today, 95% of Planet Fitness locations are open once more. Usage rates at the open locations are surprisingly in line with pre-COVID levels, and its membership of 14.1 million is flat from before the pandemic. Ideally, member count would be growing — but considering the global pandemic, status quo is just fine.

In September, Planet Fitness resumed national marketing for the first time since the pandemic began. The early results have been solid, with a chunk of locations actually returning to positive year-over-year membership growth during the quarter. Based on the early advertising success, the national gym chain decided to increase funds allocated to marketing for the rest of 2020. This does not sound like a struggling company.

While the pandemic has been a massive demand shock for gym chains, people will likely still want to work out when they feel it’s safe to do so. With Planet Fitness’ industry-low $10-a-month membership — and the economic pain cause by COVID-19 — it’s reasonable to believe the company could emerge out of the pandemic even stronger than before.

More growth to come

Through all of the chaos, Planet Fitness opened 29 new locations during the quarter and began to capitalize on the industry consolidation it has

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fitness

Here’s Why Over 1 Million People Have Quit Planet Fitness Since July

If you peek inside a Planet Fitness (NYSE: PLNT) gym location these days, things look busy. Granted, it might not be as busy as it once was, but members are nonetheless exercising despite the ongoing COVID-19 pandemic. Management says that its usage rates (how many people are actually present in the building) are currently 67% to 74% of what they were last year at this time.



a wooden bench: Here's Why Over 1 Million People Have Quit Planet Fitness Since July


© Provided by The Motley Fool
Here’s Why Over 1 Million People Have Quit Planet Fitness Since July

The usage rate appears to be trending in the right direction. But it doesn’t tell the whole story for Planet Fitness, and the next stat should give investors pause. Since July, the company has lost over 1 million members. 



a wooden bench: A red exclamation point sitting on a wood floor leans against a wall.


© Getty Images
A red exclamation point sitting on a wood floor leans against a wall.

The mass exodus

Gyms weren’t considered an essential business when government decision-makers were trying to determine what could stay open shortly after the COVID-19 pandemic began. As a result, all 2,000 Planet Fitness locations were closed at some point in 2020. However, somewhat surprisingly, the company lost relatively few members while gym locations were closed.

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Planet Fitness charges a monthly membership fee, but the fee was waived while gyms were closed. This gave members very little incentive to cancel their memberships early on. However, as gyms started reopening, the company started to bill people once again. And once this happened, there was a mass exodus.

In the conference call to discuss third-quarter results, Planet Fitness management said it noticed a lot of losses during the second-month billing. This seems to imply members were charged for the first month after their local gym reopened, perhaps unaware it had started back up. But they made sure to cancel before having to pay the second bill. 

Putting it in context

Membership for Planet Fitness peaked in the first quarter of 2020 at 15.5 million. This was an incredible jump from the prior quarter when it had 14.4 million members. But the timing of this jump makes sense. With the dawn of a new year, many people resolve to exercise more frequently.

This 1.1 million-member jump came on the heels of a hot 2019. In 2019, Planet Fitness added a whopping 1.9 million members. Totaling it up, from the end of 2018 to the start of the COVID-19 pandemic in the U.S., the company had added 3 million members — up an impressive 24% over just five fiscal quarters. Then the coronavirus derailed the train.

As of October, Planet Fitness was down to 14 million members. The last time the company had just 14 million members was in the second quarter of 2019. Back then, there were 1,859 locations. Now there are 2,086. So, not only has membership fallen, but members per location have plummeted dramatically. 



A rack of barbells in a mostly empty gym.


© Getty Images
A rack of barbells in a mostly empty gym.

Why it matters

Planet Fitness may have merely lost low-commitment members. The company expressly targets

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