Can Planet Fitness (PLNT) Replicate Its 2019 Performance In 2020?

 | Dec 26, 2019 01:31AM ET

The year 2019 has turned out to be an eventful one for Planet Fitness, Inc. (NYSE:PLNT) . So far this year, the stock has surged 38.7%, compared with the industry ’s growth of 14%. Planet Fitness’ consistent focus on strategic partnership and international expansion is a major growth driver. However, in the past month, the stock declined 0.3%, compared with the industry’s 6% gain. Planet Fitness’ heavy reliance on debt financing remains a concern. Let’s delve deeper.

Growth Drivers

Planet Fitness’ low-cost gym franchise is the key to its above-average growth in customers, and, consequently share price. Although the nature of the business is traditional, the company’s strategy to attract customers with a $10-a-month membership fee and a no-frills atmosphere has helped it gain a significant share in existing market and expand market size. Lower-than-peer membership fee, higher demand and lower costs have helped the company generate above-average profits.

Moreover, the company has been focusing on international expansions and partnerships to drive growth. Recently, it reached an Area Development Agreement with Bravo Fit Holdings Pty Ltd. ("Bravo") to expand its footprint. Per the agreement, Planet Fitness will open a minimum of 35 outlets in Australia over the next few years. Earlier this year, the company also announced partnership with Kohl’s.

Per the terms of the agreement, Planet Fitness can open stores adjacent to select Kohl’s stores. In 2019, Planet Fitness intends to open up to 10 stores, adjacent to select Kohl's retail locations across the country. This apart, the company’s existing franchisees signed agreements to open 1,000 more gyms.

Planet Fitness is one of the largest and fastest-growing franchisors as well as operators of fitness centers in the United States. As of Sep 30, 2019, the company had more than 14.1 million members and 1,899 stores in all 50 states. These apart, Planet Fitness is committed to open 1,000 new stores under prevailing area developments agreements.

In 2018, the company opened 230 new stores (226 franchise stores and 4 corporate stores). Currently, it has stores in the United States, Puerto Rico, Canada, Dominican Republic, Panama and Mexico.

The company’s solid growth plan has helped to generate sturdy same-store sales. During third-quarter 2019, it posted the 51st straight quarter of positive same-store sales. In the first, second and third quarters of 2019, the company reported system-wide same-store sales growth of 10.2%, 8.8% and 7.9%, respectively.