Planet Fitness, Inc. (PLNT) Earnings Call Transcript & Summary

Okay. Thank you. We're going to get started here. Thanks for joining. I'm Jon Komp from Baird. I cover the active lifestyle and fitness sector. Very pleased to be up here with Planet Fitness. Planet, as you may know, is the largest gym chain with over 2,700 clubs today, almost 20 million members, really a disruptor within the high-volume, low-price segment of the industry. Joining me today on stage, Colleen Keating. Colleen joined Planet in June after a distinguished career in hospitality and real estate. And then Jay Stasz, who joined as CFO just recently in November after 25 years in finance across a range of retail and consumer businesses. Pleased to have you both here on stage. Thank you.

Great to be here. Thanks.

And Colleen, I think it's still fitting roughly 7 months into the CEO role. If you could maybe start just highlighting where you're focused currently and some of your observations today.

Yes, absolutely. I guess I'll start with initially was crafting the overarching strategic imperatives and making sure that we really kind of codified the strategic growth of the organization. And that's really 4 things. We have an ambition to continue to grow at an accelerated pace and make fitness and wellness really accessible to almost everyone. And that started with refining our brand promise and our brand positioning. And once we codified our brand promise, making sure that we really pulled that through in our marketing and how we were communicating with prospective members. And as most of you know, we're the fitness club and club is important because we are about our relationship with our members. We are the club that really democratized access to fitness and wellness. At the same time, we are hearing from consumers an inclusion of more strength in their workout routines. And we started to see that across generational cohorts. So that helped inform our brand promise, which is really to grow stronger together, conveys that sense of community while also conveying that you really can get strong at a Planet Fitness. And when we think about that, pulling that through our marketing and how we communicate with prospective members, it also helps us to think about our relationship with our members. So that means our second strategic imperative is really leaning in on member experience. And member experience is about the relationship we have with our members, both inside and outside the 4 walls of our clubs and ensuring that they can get their workout their way at Planet Fitness and that we enhance the stickiness of our relationship with our members. And then the third that is a fast follow to that is really in format optimization. So when we talk about ensuring that our members can get their workout, the workout that they desire in -- at a Planet Fitness or in their relationship with our app, that's format optimization. And many of you have probably heard us talk over the past months about shifting our equipment mix and making sure that we've got the right complement of strength and cardio in our clubs. It also means optimizing the floor plan so that our members can utilize the club in the way that they want. So if they want space to drop a mat, grab a couple of free weights and again, do their work out their way. So format optimization is -- and refining that is really the third. And then the fourth is when we get all of that right, and that format optimization is also accretive to the unit economics of our franchisees because the density of cardio versus strength and shifting that mix to a greater complement of strength actually lowers the equipment cost for our franchisees. And when we think about format optimization, we're putting the things in the club that are going to be most meaningful for our members but not putting things in the club that aren't going to be accretive to the member experience. So we're also looking at reducing our build cost, and we've been able to make some substantial reductions in the cost to construct for our franchisees. We get all of that right. We're delivering on the member experience and giving them what they're looking for. We're being thoughtful about unit economics for our franchisees. That gives us the opportunity to really turn up the afterburners on growth. So accelerating unit growth is the fourth strategic imperative. So really, that's been the focus for my first few months. And I'll say I've now visited over 100 clubs. It's been really informative to see how our members are utilizing our clubs and talk with our club team members about member feedback and how we can continue to refine our offering and stay most relevant for today's customer. And I touched on a little bit on the marketing. I don't know if now it is an okay time, but maybe I thought maybe I'd share a couple of the commercials. We've talked a lot about the marketing and branding and growing stronger together, and we're all strong on this planet. So I thought maybe we'd start by sharing a couple of the commercials that we're running in the New Year. [Presentation]

So you could see in the marketing messaging, we're conveying our brand promise. At the same time, we're showcasing the experience that our members are going to enjoy in their relationship with Planet Fitness, still leaning in on high-value, low price. However, when I think about high-value, low price, I often say I think about the HV of HVLP in capital letters and the LP in lower case because it really is about the incredible high value our members are getting for a very modest price at Planet Fitness.

Yes, those spots are great. Very different brand character and everything you mentioned comes through well. Maybe to go further, this morning, you shared a little bit of an update on 2024 results. But if you're willing to talk more about the results you released and what you're seeing in the business coming out of Q4.

Yes. So we did have a key metrics release this morning, and we have 19.7 million members as of the end of December. We have a 5% comp for the year. We did 150 openings and 124 placements. So a lot of good information there, and I'll just touch on a couple of items. I mean the placements -- I'm sorry, the openings, it's always a bit of a sprint to the finish in this business. We did 86 openings in the fourth quarter, landing at 150, which is at the very top of our guidance range. So we're excited about that. The comp standpoint, 5, that was actually right -- again, right at the top of our guidance. So we're excited about that. And we've talked a little bit in meetings earlier about the Classic Card price increase that we did in June. So we increased that from $10 to $15. And we did it in June specifically, we wanted to let that bake into the market. So we're seeing great benefit of that. We're actually seeing from a net membership basis that the expectations we had coming out of the way we tested that Classic Card price increase, we're actually performing a little bit better. We expected a headwind on joins and headwind is not as big as we would have thought. And we expected the attrition rate to get a little bit better because people are holding on to their $10 Classic Card versus leaving and coming in for $15, and that's actually trending a little bit better, which is helping drive that net membership increase that we saw, which was ahead of our expectations.

And maybe just to elaborate further on pricing, how -- Colleen, maybe your thoughts on pricing coming in. I know there's a range of tests still going on, but given what you're testing, but also the results you're seeing from the actions you've taken already? What are some of your broader thoughts on the pricing?

Yes. So we lifted the Classic Card pricing in June. It was the 28th, I think, of June. So we've had it in place for 2 full quarters. We did extensive testing on that $15 Classic Card price increase before we rolled it out. And a couple of things. First of all, at the end of the day, we had not raised the Classic Card price in more than 25 years, 26 years, I think. So the $15 price point today is actually a better value than $10 was when it was established more than 25 years ago. And the other thing I'll say is that we see a greater proportion of our membership choosing our Black Card, at a higher price point, more than 60% of our membership choosing Black Card. We've actually seen an increase even over the past couple of quarters in Black Card penetration. So that's also telling us that our members are really valuing the experience at Planet Fitness that it's not just price. So that kind of goes back to what I was saying about really leaning in on high value being so important, not just low price because, again, more than 60% of the membership has chosen the Black Card. And we have -- as Jay said, we've had favorability versus what we modeled in the test environment over the last couple of quarters on joins. And we've also had favorability on churn rate. And to Jay's point, certainly, part of that could be kind of the bit of a vapor lock on the folks who are in our member base at the $10 Classic card pricing because one of the beautiful things about our model for our members is we do not increase our members' price once they join. So the rate that they join at for the continuity of their membership, that price remains in place. So maybe that's influencing some of the churn. But at the same time, we're also seeing our utilization up. And that's a great indication of stickiness with our members. So pre-COVID where we would see utilization of about 6x a month, today, we're seeing utilization of 6.4 to 6.5x a month. So a significant increase there. And then I think -- go ahead.

I'm sorry I was just going to tack on -- we are running 2 Black Card pricing tests in the market. These started last year. Currently, the Black Card is priced at $24.99, which is historically a smaller gap than it would have been with the Classic Card price increase. Normally, it would typically be about double, if not more. So we're running a test at $27.99 in certain markets and $29.99 in certain markets. And no updates here for that. But we're going to continue to run that test at least through the end of Q1 and then assess the results at that point.

Yes, that's great. And then we're sitting here on the stage in January. January is obviously an important period for Planet and for the industry. Just given the changes you've made already around the strength equipment, the marketing you showed us, what are you hoping to see and achieve as you think forward to the current periods here?

I'll start. So I think with the format optimization, and I touched on it a little bit in the strategic imperatives, is making sure that we're delivering the experience that our members are seeking in our clubs today, while at the same time, making sure that our offering is broad enough that we're still the club experience that attracts the 80%. And I will say I've spent a lot of time in clubs since I joined. Just since the holidays, I've been in more than 20 clubs. So over 100 to date. And I did more than 20 club visits coming through the holidays because part of it is I wanted to see the plate-loaded equipment in place and hear from our club team members, our club managers and our team members in the clubs, what's the feedback from our members. And generally, the feedback has been incredibly positive where we've got that equipment placed. And I think we shared this at the end of last quarter. We had over 1,700 of our clubs opt in to put the plate-loaded equipment in place before the end of the year. So we've got it across a majority of our state today.

And I'll just add, I mean, we're not going to say anything about January, right? It's too early. We're a couple of weeks in. But to your point, January and Q1 are big months for us. We did end the year at 150 openings, which was great, 86 openings in the fourth quarter. When we think about growth, we talk internally about a couple of things. I mean, one, the strategic imperatives that Colleen has mentioned; two, building the Blue Ribbon team, which we had 2 great additions to the team that we announced today. And I've only been here a little over 2 months, but I have spent some time, not in 100 clubs like Colleen, but I've been in a few clubs and talking to the franchisees and really understanding their perspective and insight and how we can partner with them to drive growth. And the team before I joined has done a lot of work in that area with the new growth model with the Classic Card price increase. So when we think about growth going forward, we think 200 units is achievable, kind of we like that nice round number, but we think it's going to take a few years. But there is more excitement, I think, in the franchisee base to get behind that. So we're going to see consistent steady growth, I would say, until we reach that benchmark in the future.