Strong Same-Store Sales Growth Powers Planet Fitness, Inc. Earnings Higher

By Markets Fool.com

Image source: Planet Fitness.

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Planet Fitness (NYSE: PLNT) reported third-quarter results on Oct. 26. The fitness-center chain is delivering a powerful combination of store count expansion and surging same-store sales, which together are fueling sharp increases in revenue and profits.

Planet Fitness results: The raw numbers

Metric

Q3 2016

Q3 2015

Growth (YOY)

Revenue

$87.0 million

$68.8 million

26.4%

Adjusted EBITDA

$35.4 million

$26.5 million

33.5%

Adjusted net income

$15.9 million

$10.5 million

51.7%

Data source: Planet Fitness Q3 2016 earnings press release. YOY = year over year.

What happened with Planet Fitness this quarter?

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Planet Fitnessopened 37 new franchise stores in the third quarter, bringing its total store count to 1,242 as of Sept. 30, 2016. The company also enjoyed a 10% jump in systemwide same-store sales. Together, that helped drive a 26% year-over-year increase in total revenue to$87 million.

EBITDA (earnings before interest, taxes, depreciation, and amortization) -- adjusted to exclude acquisition and IPO-related costs and other special items -- rose 33.5% to$35.4 million.

Broken down by segment, franchise EBITDA leapt 47.2% to$22.8 million,driven by royalties from new stores and higher sales from existing stores. EBITDA for Planet Fitness' corporate-owned stores increased 14% to$10.6 million, due to greater same-store sales. And equipment segment EBITDA jumped 45.7% to$7.2 million, due to higher equipment sales to both new and existing stores.

All told, adjusted net income surged 51.7% to$15.9 million, or$0.16 on a per-share basis.

What management had to say

CEO Christopher Rondeau said in a press release:

Our business continues to get stronger. Third quarter systemwide same store sales increased 10% as a growing number of casual and first time gym users are joiningPlanet Fitness. The combination of our affordable, non-intimidating fitness offering and increased national and local advertising spend, which continues to increase with each incremental new join, is fueling greater brand awareness in all markets and membership growth across the store base.

Rondeau also noted that Planet Fitness is attempting to increase its borrowing capacity, and would consider using those funds to pay out a special dividend to shareholders:

Based on our performance and more importantly, the long runway for growth ahead of us, we are also announcing that we are seeking to amend our credit facilities to, among other things, increase the size of our term loan. Proceeds from the incremental borrowings, plus cash on our balance sheet, will enable us to consider a special cash dividend to holders of our Class A common stock and other equivalent payments, including payments to unit holders ofPla-Fit Holdings, LLC, of up to approximately$280 million.

Looking forward

Planet Fitness reiterated its guidance for systemwide same-store sales growth in the "high-single digit" range. Additionally, the company again boosted its full-year revenue and profit outlook, including:

  • Total revenue of $373 million to $378 million, up from previous forecasts of$366 million to $372 million in August and $360 million to $370 million back in May.
  • Adjusted net income of$65 million to $66 million, up from prior estimates of $62 million to $65 million and $61 million to $64 million before that.
  • Adjusted EPS of $0.66 to $0.67, versus previous ranges of $0.63 to $0.66 and $0.62 to $0.65.

"Our formula for expandingPlanet Fitness'market share, enriching members' lives and delivering strong returns to our franchisees has been working," added Rondeau. "At the same time, our business model has consistently generated double-digit earnings growth and strong free cash flow, providing the company a great foundation for driving significant long-term shareholder value."

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Planet Fitness. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.