3 Gym Stocks to Cash In on Dieters’ New Year’s Resolutions

 | Dec 06, 2023 02:26PM ET

  • Planet Fitness is the nation's largest gym operator having added 110,000 net new members in Q3 2023, bringing the total to 18.5 million throughout 2,498 gyms in 50 states.
  • Xponential Fitness is the largest global franchisor of boutique fitness studios under 10 brands ranging from Club Pilates, Cycle Bar, and Stretch Lab to Rumble Boxing to Pure Barre and Yoga Six.
  • Life Time Group operates over 160 massive fitness country club resorts that range in size from 50,000 to 200,000 square feet, comprised of state-of-the-art fitness machines, spas, pools, cafes, salons, and luxury locker rooms.

    • As we approach the end of 2023, the time for New Year's resolutions is upon us. With the Ozempic weight-loss trend in full swing, it's no surprise that many consumers will be making New Year's resolutions to join a gym and get in shape. Gyms love this time of year as they cash in on these New Year's resolutions.

    This results in heavy gym traffic in the first few months as members eventually tire themselves out as attendance dries up again. Planet Fitness has stated that 60% of its net member growth historically occurred in the first quarter. Rinse and repeat every year. With that in mind, here are 3 gym stocks that will be benefactors again during this time of year.

    h2 Planet Fitness Inc/h2

    As the nation’s largest gym operator with 18.5 million members in 50 states, consumer discretionary sector member Planet Fitness Inc (NYSE:PLNT) deploys a low-cost strategy with monthly memberships that start at just $10. This makes it easy and convenient for new members to sign up online. Memberships can have a $49 startup and $49 annual fee. The cost is so cheap that it's easy to forget about it once you get tired of going to the gym. Paying the startup or annual fee almost compels you to keep the membership going if you lose the motivation to go.

    Membership fees are automatically withdrawn from your checking account rather than a credit card in most locations. Cancelling a membership can be a pain as it must be done either in the gym or via certified mail. However, this is a common practice with gym chains: it is easy to get a membership but tougher to cancel one.

    h2 Unexpected CEO termination/h2

    Planet Fitness has over 2400 gyms in the United States. Over 90% of the gyms are franchisee-owned locations. They offer no-frills basic facilities, making Planet Fitness an asset-light company. Its stock was rattled in September 2023 when the Board unexpectedly and abruptly fired its CEO, Chris Rondeau, who had been with the company since 2013.

    No reason was given, and share prices plunged over 30% in the aftermath. Investors braced for the worst, but shares were able to bottom out at $44.13 and stage a recovery as the worst fears stemming from accounting irregularities didn't materialize. Former New Hampshire Governor Craig Benson replaced Rondeau as the interim CEO.

    h2 Flexing growth/h2
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    On Nov. 7, 2023, Planet Fitness reported Q3 2023 EPS of 59 cents, beating consensus analyst estimates by 4 cents. Net income rose $10.6 million to $41.3 million, up from $30.7 million in the year-ago period. Revenues grew 13.4% YoY to $277.6 million, beating analyst estimates of $268.18 million.

    System-wide same-store sales rose 8.4%. The company opened 26 new Planet Fitness locations (2 corporate-owned and 24 franchisee-owned) for a total of 2,498 gyms. Cash and cash equivalents were $474.1 million, comprised of $309 million in cash, $118.7 million marketable securities and $46,4 million in restricted cash at the end of the quarter. Check out the sector heatmap on MarketBeat.

    h2 Raising full-year 2023 outlook/h2

    Planet Fitness plans to add 150 to 160 new gyms for the full year 2023. Same-store sales are expected in the high single digits, with revenues rising 14% YoY, up from the 12% previous forecast. Adjusted EBITDA is expected to rise 18%, up from 17% in previous estimates. Adjusted net income is expected to be around 33%, up from 30%. Adjusted EPS is expected to rise 35%, up from 34%. Net interest expense is expected in the low $70 million range. The company is also exploring the potential for raising prices on its three-decade-long $10 per month membership.

    h2 Interim CEO Insights/h2

    Planet Fitness's interim CEO, former New Hampshire Governor, current board member, and franchisee Craig Benson stated that the company added 145 new locations in the year-ago period, marking 3X growth of its nearest 17 competitors. The conversion rate of team participants to paying members rose to 5.5%, up from 5% last year.

    Over 30% of new members were previous members compared to 20% in the pre-COVID period. Cancellation rates declined for the 9th straight quarter. The strongest net member group was Gen-Zs, which is a quarter of its membership base enhanced by its successful summer pass program, which three million teens and two million parents signed up for in the summer of 2023.

    Benson concluded, “In closing, our management team has taken responsible and data-driven approaches to adjust our franchisee return model, which we believe set us up for sustainable growth. We recognize that the operating landscape has changed, and therefore, we are evolving for the long-term sustainability of the model without compromising the member experience.”

    Planet Fitness analyst ratings and price targets are at MarketBeat. Planet Fitness peers and competitor stocks can be found with the MarketBeat stock screener.