Planet Fitness, Inc. (PLNT – Free report) will likely benefit from store expansion, strategic partnerships, and marketing efforts. That and the emphasis on acquiring Sunshine Fitness bode well. However, supply chain issues and inflationary pressures are a concern.
Let’s discuss the factors that highlight why investors should hold on to the stock for now.
Engines of growth
Planet Fitness focuses on strategic partnerships and international expansions to drive growth. To strengthen its presence in Mexico, the company announced a joint venture with a prominent local retail services company and one of its largest developers in the US. The agreement calls for the development of a minimum of 80 new stores over the next five years. The company is focusing on expanding its reach outside of the United States. PLNT announced an agreement to open a branch of Planet Fitness in New Zealand. Through this initiative, it is expected to open 25 locations over the next few years. As of September 30, 2022, the company had commitments to open more than 1,000 new stores under existing area development agreements. Given the growth potential of changing market dynamics and health and wellness-related tailwinds, the company is optimistic about an opportunity for more than 4,000 domestic stores in the long term.
The increased focus on the Sunshine Fitness acquisition bodes well. The Company expects the acquisition to provide geographic diversity to the company’s current portfolio of stores and in long-haul markets for future store development. Following the completion of the acquisition, the company now owns more than 200 corporate stores for approximately 10% of the entire system. Sunshine Fitness — which operates 114 locations in Alabama, Florida, Georgia, North Carolina and South Carolina — is likely to add to Planet Fitness’ adjusted net income per share in the low double-digit percentage range in 2022. The acquisition of 114 stores through the Sunshine Fitness buyout contributed $50.4 million to Enterprise Stores segment revenue in the third quarter of 2022.
The company continues to focus on its marketing muscle to drive growth. The company said it has gone from 16 marketing agencies to one (Publicis Groupe) to drive incremental member growth. The agency will handle the company’s advertising and media placement for its annual New Year sale. In line with the advertising strategy (covering national and local levels), the transition paves the way for lower media spend along with solid member acquisition. In the third quarter of 2022, the company reported solid membership conversions on the back of its marketing and promotional offers. It also said it was ahead of 2019 levels. In the quarter, membership levels reached 16.6 million, compared to 16.5 million in the previous quarter. For the rest of 2022, the company expects regular joining trends and seasonality to continue.
For 2022, the company continues to expect revenue to grow in the high 50 percent range over the year, compared to the previous forecast of a mid 50 percent range. Adjusted EBITDA for 2022 is expected to grow approximately 60% year-over-year, compared to previous expectations for a high range of 50%. Adjusted net income is expected in the low 100% range (above 2021 levels), compared to previous expectations of the low 90% range. The company expects adjusted earnings per share to increase to the mid-90% range for the year, compared to its previous forecast of a mid-80% range. The figures are based on the assumption of the potential impact of the acquisition of Sunshine Fitness and that there is no significant impact of the COVID-19 pandemic.
Over the past year, shares of Planet Fitness are down 22%, compared with the industry’s decline of 43.4%.
Image source: Zacks Investment Research
The coronavirus crisis has affected the company’s business on a large scale. Due to the pandemic in China, HVAC supply shortages are hurting the company. Due to the supply chain issue, the company has reduced its outlook for equipment placement in franchisee-owned locations from approximately 170 to a range of 150-160. The pandemic-induced slowdown in new store development and inflationary pressures are cause for concern.
Zacks Rank and Stocks to Consider
Planet Fitness currently carries a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the consumer discretionary sector are Hyatt Hotels Corporation (h – Free report), Crocs, Inc. (Crocs – Free report) and Boyd Gaming Corporation (BYD – Free report).
Hyatt currently carries a Zacks Rank #1. H has a last four quarter earnings surprise of an average of 652.3%. Shares are up 9% over the past year.
The Zacks Consensus Estimate for H’s current fiscal year sales and EPS indicate a jump of 92.6% and 121.8%, respectively, from the reported levels of the prior period.
Crocs currently has a Zacks Rank #2 (Buy). CROX has a long-term earnings growth rate of 15%. Crocs shares have tumbled 48.8% in the past year.
The Zacks Consensus Estimate for CROX’s 2022 sales and EPS shows growth of 51.5% and 23.7%, respectively, from the prior period’s levels.
Boyd Gaming carries a Zacks Rank #2. BYD has a long-term earnings growth rate of 12.8%. Shares are down 4.5% over the past year.
The Zacks Consensus Estimate for BYD’s 2022 sales and EPS shows growth of 4.4% and 11.9%, respectively, from the prior period’s reported levels.