Planet Fitness, Inc. (PLNT – Free Report) is likely to benefit from store expansions, strategic pricing adjustments and a New Growth Model. This and the emphasis on smaller store footprint and market penetration bode well. However, a fall in website traffic and a less effective advertising campaign are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Growth Drivers
Planet Fitness is emphasizing strategic partnerships and international growth to drive expansion. In first-quarter 2024, the company opened 25 new stores and plans to open 140-150 new locations throughout the year, including franchise and corporate stores. With favorable market conditions and a strong growth trajectory, the company is confident in reaching this target.
Alongside domestic growth, Planet Fitness is excited to enter the Spanish market. Significant investments were made in the fiscal first quarter to accelerate this expansion. This strategic move follows recent progress in developing markets such as Mexico and Australia.
The company is considering adopting a smaller store footprint to facilitate expansion into suburban areas and new regions that may not meet standard population requirements. Planet Fitness aims to continue its trend of increasing market penetration across different age generations, focusing on the local market analysis.
Planet Fitness is undertaking effective pricing strategies to counter the impacts of the inflationary environment. The company is focusing on offering top-tier services to its members, which suffice more than the price increases, along with creating growth opportunities for the long term.
During 2023 fall, the company-initiated trials involving two pricing tiers, $15 and $12.99 and implemented in around 100 stores. An additional trial was launched in December 2023 in New York, maintaining a fixed price of $14.99. These pricing tests were made through the April 2024 sale period using a disciplined data-driven approach to determine the best balance between the higher dues while minimizing loss of membership. Per the learnings from the approach, the company decided to change the price of the Classic Card membership to $15, which will be effective from 2024 summer only for new members. This new price drove a significant increase in average unit volumes with the least impact on the rate of joins.
Planet Fitness intends to capitalize on its scale advantage by refining its strategies to stay ahead of competitors. During fourth-quarter 2023, the company unveiled to franchisees a New Growth Model, aiming to improve the economics of new stores and lower capital requirements. This involves modifications to franchise agreements, adjusting equipment re-equipping schedules based on usage patterns and declining capital expenses for new constructions and renovations while streamlining operating costs. The company is focused on implementation and is confident that the fresh approach will be beneficial for franchisees and the franchisor.
Concerns
In the past year, Planet Fitness’ shares have declined 3.2% against the industry’s 17.9% growth. The decline is primarily due to heightened concerns about COVID-19, RSV and other respiratory infections, which likely discouraged visits to public places, including gyms. A decline in website traffic and a less effective advertising campaign further contributed to the downside.
In the first quarter, PLNT reported reduced membership growth. This was partly due to extensive media coverage of health concerns, leading to a drop in public gym attendance, especially in early January. The company also reported double-digit declines in website traffic, impacting potential new memberships. A nondiscrimination policy incident at an Alaska gym in March attracted media attention and resulted in some member cancellations, adding to the softness of new joins. The company is cautious in light of the uncertain environment.
Zacks Rank & Stocks to Consider
Planet Fitness currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector are as follows:
Strategic Education, Inc. (STRA – Free Report) currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
STRA has a trailing four-quarter earnings surprise of 45.1%, on average. The stock has surged 48.5% in the past year. The Zacks Consensus Estimate for STRA’s 2024 sales and earnings per share (EPS) indicates an increase of 6.4% and 33.3%, respectively, from the year-ago levels.
Royal Caribbean Cruises Ltd. (RCL – Free Report) currently sports a Zacks Rank of 1. RCL has a trailing four-quarter earnings surprise of 18.3%, on average. The stock has rallied 90.8% in the past year.
The Zacks Consensus Estimate for RCL’s 2024 sales and EPS calls for growth of 16.6% and 61.9%, respectively, from the year-ago levels.
Hasbro, Inc. (HAS – Free Report) presently flaunts a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 17.5%, on average. The stock has gained 18.2% in the year-to-date period.
The Zacks Consensus Estimate for HAS’ 2025 sales and EPS suggests an improvement of 4% and 14%, respectively, from the year-ago levels.
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