Planet Fitness, Inc. ($PLNT)

I'm Sharon Zackfia with William Blair. Thanks for joining us today. Really happy to have with us from Planet Fitness, Colleen Keating, CEO; and Tom Fitzgerald, who's Interim CFO. Planet Fitness is the pioneer in the high-value, low-price fitness segment. They have almost 3,000 clubs today, over 21 million members. Colleen is going to give us an outlook or some synopsis of Planet Fitness and where they are today. And then we're going to go into a fireside chat. So I'll let Colleen do a few slides to create a foundation. Thank you.

Thanks for having us. I'm going to stand just for this as I kind of click through a few slides. So Sharon shared that some of you are kind of new to Planet Fitness or maybe haven't followed the stock. So I'll give just an overview, a little bit on our strategic imperatives, the things we're focused on as a brand. And then maybe give a couple of the fundamentals as I close before we go into the Q&A. So our strategic imperatives, and these are really the things that overall govern the strategic direction of our business. The things we're leaning into as we evolve Planet Fitness for the future. The first of our imperatives, and we'll talk about it a little bit today, is really redefining our brand promise. So we invented the HVLP category, which is High Value, Low Price, really democratization of the access to fitness and wellness in an environment that is both geographically and financially accessible. One of the things, as we've continued to evolve our brand promise is to ensure that we're meeting the needs of today's consumer, which then takes us into enhancing member experience, the engagement and the relationship that we have with our members and what they enjoy in our unique offering. And one of the things that makes us unique and special in the member experience is our judgment-free no gymtimidation environment. In fact, the #1 thing that prevents someone from joining a gym is intimidation. People feel like I won't know what to do when I walk through the door. Or I don't know how to use any of the machines. I won't know which button to push. So we've, over the years, invited people into the category who were never a member of a gym before. And preserving in our brand that no gymtimidation welcoming environment that resonates with all levels of fitness. And one of the beautiful things about Planet Fitness is, unlike many other gyms, you can walk into a Planet Fitness no matter what your age no matter what your body type no matter what your fitness level, you will see someone who looks like you. So member experience and making sure that we're conveying our judgment-free, no gymtimidation environment is really pivotal to our brand strategy and our brand promise. Refining our format and really optimizing the floor of the club is our third strategic imperative. And when Planet Fitness was first launched, we were known for kind of no line, no waiting. You walked in the front door and you could see a sea of cardio machines as far as the eye could see, and it conveyed to our members and prospective members that they never have to wait. Over the years and in the recent past, our consumer has evolved to a more balanced complement of strength and cardio. So we see among our members a desire for a mixed modality workout. And getting the floor plan or the equipment mix on the floor right for today's consumer is our third strategic imperative. So as for example, we used to put 102 pieces of cardio in our typical 20,000 square foot club. Today, we've dropped that to 60-something pieces of cardio depending on the club and really a 50-50 mix of strength equipment and cardio because we've seen, again, across all fitness levels across all ages, a greater utilization of strength in people's workout. It also meant opening up some floor space for people to drop a mat and do their workout their way. Strength -- I'm sorry, functional training and stretching are also a component of many of our members work out today. So really optimizing the floor plan and the equipment mix was -- is our third strategic imperative. And then fourth is accelerating new club growth. And I'll end my kind of slides on what that looks like, but growing units, both domestically and internationally, is really the culmination of us landing all of these strategic imperatives right. We believe we have the opportunity to double our footprint domestically and see an incredible amount of white space internationally as well. And we've launched recently in Spain. That's our most recent international market. we're seeing club ramp-up. So the build of membership club ramp-ups in Spain, our first foray into Europe that are akin to what we see in mature markets like the United States and Mexico. Our near-term priorities really reorienting our focus on the fitness beginner or a more casual gym goer, making sure that we're really reaching and resonating with the 70% of the U.S. population that does not today have a gym membership. And in the other geographies, international geographies where we operate, that number is even greater. The percentage of the population that doesn't have a gym membership. We're prioritizing member growth, and I should say, net member growth. The thing that's most accretive to unit economics for us and for our franchisees is member growth and the member growth and member retention number in our clubs. We are largely a franchise business. We own 10% of our fleet, 90% of our fleet is franchised. And we're also evaluating our pricing architecture, in line with our brand promise of democratizing access, making fitness and wellness really accessible to everyone. Today, our entry price point, you can enjoy a Classic Card member, which enables you unlimited use of the club you join for $15 a month. Our second tier, our Black Card membership is $24.99, and that enables you to use our Black Card spa, which has a number of modalities -- wellness modalities as well as the top 2 perks or top 2 benefits of Black Card membership on a utilization basis, which is reciprocity. It means you can use any Planet Fitness. Or bring a guest means you can bring a guest with you to the club at no additional charge. Kind of core focus areas, we'll lean into these even more in the Q&A is making sure we're really shifting to our target audience and the demand spaces where we have the greatest rate to win. And broadly speaking, that is the 70% of the U.S. population that doesn't have a gym membership today. That is our sweet spot. Again, no gymtimidation, welcoming environment, all fitness levels we really resonate with that 70%. And when you think about the growth of GLP-1 usage as well, many of the GLP-1 users are also new to fitness. The people who have never had a gym membership before. but they're embarking on a health and wellness journey. And maybe would walk into a gym and feel a bit intimidated because they haven't been there before or look at a piece of equipment and not know how to use it. We're the perfect environment for that because of the culture that we create in our clubs. We're adjusting our brand messaging a bit to reinforce our personality and make sure that we're conveying accessibility and approachability. We're breaking down really the psychological barriers to fitness, the biggest of which is intimidation. We often say that the heaviest weight in the gym is the front door, I often say our biggest competitor is fear of walking through it. Optimizing our marketing and channel mix to make sure that we're extending our reach and relevancy and really showing up, we are -- our target customer is going to have a propensity to see our creative and a propensity to buy. I touched on this already, affordability, making sure that our pricing is really thoughtfully aligned with our brand promise of accessibility and really democratizing access to fitness. I touched on member experience with the imperatives. One of the things we're doing specifically is a first 100-day initiative. We know that if we can engage with a new member and help them feel comfortable coming into a Planet Fitness in their first 100 days, our opportunity for them to have enhanced member experience, better retention, higher utilization, and we think utilization is an indication of stickiness, so that member experience is at the forefront of our focus areas. And then the in-club execution, the experience in the club, I talked about kind of culturally what we stand for, but clean and friendly Hi's and Bye's, really getting the basics of hospitality right so that we are that welcoming environment for our members. And when we get all of this right, member growth accelerates the flywheel. And I said I'd touch a little bit on the economics of the model. So kind of broad strokes, if building a club costs just shy of $3 million. So club build-out just shy of $3 million. And when a club ramps, its monthly membership dues are roughly about $2 million. From a GOP margin standpoint or an operating profit, call it roughly 40%. And pretty good returns, right? When you think about IRRs from an IRR standpoint, unlevered, approaching mid-20s IRRs. But at the end of the day, what drives that, right? What is going to encourage the franchisee to develop more clubs with Planet Fitness. So member growth, which I talked about, driving member growth, getting the brand promise, communicating it right, pulling it through our marketing and really reaching that 70% that is our target. That then drives member growth. We're a subscription business. So membership drives the revenue in a recurring revenue model, which, by the way, has really durable cash flows. And then the 4-wall profit that I talked about, which in turn generates those pretty incredible returns. There aren't a whole lot of places you can put your money and get that kind of a return today, particularly in a franchise model. That drives new club growth. And that's our ability to hit that doubling of our footprint domestically as well as the incredible white space that we see internationally as we look to continue to grow in more markets globally, really be the leader across the planet. So I think that's just a quick level set, and I'll turn it back over to Sharon.

Yes, we'll have a chat. I think the -- we'll have to start with talking about member growth this year because I know it was not kind of the new year resolution sign-up season that everyone had hoped for. There were several factors you kind of talked about on the first quarter call, Marketing was one of those. I believe Competitive Infringement was another. Can you help dimensionalize what you saw in the first quarter? And how you can course correct throughout this year to set yourself up for '27?

Yes. And I think we also talked about a little bit of weather and then some question on the macro-environment...

We're not going to be able to fix the weather, though.

This is true. So we can fix the marketing. So I talked a little bit about the brand promise brand positioning. And what we saw a couple of years ago, we used a brand health tracker, we run it a couple of times, 2 to 3 times a year. What we saw a few years ago was a bit of a perception about our brand that while we were conveying approachability and a gym that was welcoming for beginners, we were a bit perceived as just a beginner gym. Or that you might need to graduate from Planet Fitness as you progress along your fitness journey. We put all life fitness and matrix equipment hammer strength in our clubs. It's top shelf equipment. You could pay several hundred dollars a month at one of the other brands, so call it a Life Time or in Equinox and see similar equipment. So we're putting top-shelf equipment in our clubs. However, there was a bit of a perception that our equipment wasn't top quality and that you really couldn't get strong at Planet Fitness. And this was at a time when across all fitness levels and across all ages, people were utilizing more strength and more strength focused in their workouts. So we evolved our messaging to convey that we are all strong on this planet and that we would grow stronger together at Planet Fitness. We saw very good performance initially. We came through last year, 2025, with two headwinds on our joins. One was we lifted the entry price point, our Classic Card pricing by 50%. We went from $10 to $15. We did that in mid-June of '24, but our big join quarters are Q1 and then Q2 top 2 join quarters. So the 2025 was the first time those quarters experienced that price lift. And then we rolled out nationwide, an online member management function where if someone wanted to terminate their membership, they could do it online. They didn't have to go into a club. And that created two headwinds. And with those two headwinds, we still had a 10% increase in net member growth in 2025 versus 2024. So what our brand health tracker was indicating was that we were making the pivots and perception around the brand that we anticipated, and we were seeing pretty good join volume. As we came through the year, really late in the year and then into Q1, we noticed a few things. Well, one, we saw some softening in join volume. Two, it was more pronounced in a couple of areas. We saw females coming down a little bit. We also saw a diminution in millennials as a proportion of our join volume. And then, to a lesser degree, Gen Xer. So we're still growing very well with Gen Zs, but we were losing some penetration with millennials and again, to a lesser degree, Gen Xers. So as we looked at the -- how the marketing was reaching our consumer and what -- how consumer perceptions were changing, we saw a couple of things. We saw intimidation was going up, and we saw gym for beginners was going down. And also algorithmically how kind of in the lower funnel our marketing was reaching people as more fitness-minded consumers were engaging with our creative, the algorithms were now looking for lookalikes, which is a marketing efficiency play with some of those lower funnel channels, but we left a bit of the kind of the consumer population feeling like we weren't talking to them. And that's our sweet spot, right, reaching that 70%. So our pivot on the marketing is really to make sure that we're going to dial down a little bit of the sweat level that you might see in some of the creative, maybe the bicep won't be as big, we're going to make sure that we're spanning age cohorts a little more broadly in the talent, in the creative and that our messaging really conveys approachability, make it a little bit more lighthearted so that we're reducing the intimidation factor that many people feel with joining a gym. And we often say, we're not a gym, we're Planet Fitness, because the experience with us is so different.

And Colleen, how quickly can you change the creative and start to impact those memberships?

Yes. We can change some of it quickly in terms of if we have campaigns in flight, we've been able to maybe use a little more female talent in it or put some older talent in the creative. But to launch a full new campaign takes a bit of time. We went out to RFP for a new creative agency in the first quarter. We've selected the new agency, they're under LOI. We've briefed them on the new creative, and we've even started to see some new themes to inform the creative, but we'll test the new themes, then we'll build the messaging and then we'll test several versions of the new messaging to see how it lands and what consumer sentiment is around it. And then after we do that, then we'll build creative underneath it and shoot some new creative. And then we'll test that and then it will be the new campaign. So it does take time and it is important, particularly considering the size of our estate that it's well pressure tested and that we're getting consumer feedback along every step in the campaign development.

And you touched on the increase in the Classic Card price a couple of years ago, which obviously was very instrumental in helping those IRRs just given the inflation to build a club. I wonder though, as you think about that, has it created more vulnerabilities from an economic standpoint or from a competitive standpoint and how do you address that?

So do you want to start?

Yes, , go ahead. So I think we think at $15, it's still a great value. compared to what you might spend for a monthly membership to a great club that has great equipment, as Colleen said. And there are some competitors who are -- whose headline price might be $10 in High Value, Low Price. When you get inside, there's lots of other fees that get attached to that. So it's a bit of a head fake in terms of what you ultimately pay compared to what we charge. But we think it's a great value. Now having said that, the world has changed. So we're fielding some tests in our clubs today. We're going to field some more to see if we've got the right combination of price points and offers to see if there's not something better than what we currently have. And as you know, Sharon, it takes a while to read our results. We're not like spend some time in apparel and food, you can read something for a couple of weeks and get a pretty good sense of it. Because we're subscription, you have to see how it affects membership joins, folks who come in as well as how they cancel. So we have to read things for a number of months before we can really determine whether one beats what we have today. But I think our appetite to test is always pretty healthy. I think what we're considering testing is probably wider in scope than we have done before.

So theoretically, maybe more tiers?

It could be, yes, we're not being real specific, but I think the wider aperture idea would probably -- what you consider is probably not far from what we might be doing. But yes.

Okay. Can you also talk about you had been testing a Black Card price increase for quite a while. It seemed like it was going well. Obviously, we have a different consumer environment in 2026 with gas prices and so on. You did decide to defer the Black Card price increase system-wide. Can you talk about the decisions behind that? What were the factors, how the franchisees have reacted to that decision. And is this really just a deferral? I mean do you expect this to be something that you implement in '27 or '28? Or how do you think about that Black Card pricing?

Yes. Maybe I'll keep going. So Black Card is the higher price, but it's a phenomenal value. And I think that the testament to that is about 2/3 of our current membership takes the Black Card -- or is a Black Card member. And of the people who join in any given year, while most of our marketing features the Classic Card when people come in -- used to come into the club to sign up now more people sign up online. The majority of people who join are joining at the higher rate of the Black Card. So in light of what we experienced in net member growth in the first quarter, which was below our expectations. We just didn't think it was prudent to then raise the price of the thing that most people take. And while we tested it, we tested it in an environment to your point that was different. So we've taken the Black Card price up over time gradually, and it's percent of the member mix has increased over time. So it proves what a value that is. It used to be $19.99, and we took it up periodically $1 or $2, and it's currently $24.99. We do have some markets that are $29.99 and a couple of them. So I think we -- the time will come when it's right. We just didn't think based on what we've seen and what we're trying to do and really sort of reinforce the importance of net member growth over rate growth that we'll put rate aside until we can prove with the marketing that we've reignited net member growth and then we have more options.

I mean how does that resonate with franchisees? I feel like with franchisees, it often feels easier to take price because you get that immediate impact, it takes longer to build members. So when you're having this discussion with franchisees about we're doing member growth, which is the more durable long-term dynamic, but it's a less impactful near-term dynamic where do they fall on that spectrum of the conversations you're having with them?

I'll do one more, and then I'll shut up. But so the brand just historically to wind the clock back, pre-COVID, we had 53 straight quarters of positive comps, 53. The average of that -- my memory is not what it used to be, but I believe it's 6% over that time. And it was largely member growth driven. We grew faster than the industry in most years in membership. So everybody else was -- and we only built about 25% of the new units. So everyone else was building new units and sharing a smaller pie. So we think member growth is the sustainable way to grow the business. We think no matter what it is, we love our franchisees. We have just south of 90 of them. Most of them are pretty big, pretty sophisticated. If you ask them any questions, you're not going to get a consensus answer. But I think the ones who've been it for a long time, and there is some private equity money in our business, but the owner operators have typically been. While their ownership -- or the majority owner may change, they tend to roll. So they have a long horizon in how they think about things. And as do we. And I think the right answer is member growth helped by rate growth. And so I think some were quite resident or had -- were not in favor of the Black Card price going up based on what they saw in Q1 as well. So I think the folks who have the long view believe we're on the right path. There are a couple who would disagree, but they'll disagree with anything.

In addition to member growth, are there other things you're working on to help improve the franchisee IRRs?

Yes, I'll start. So in addition to member growth, certainly, the #1 thing that drives the flywheel the slide that's still up is absolutely net member growth. That's what drives the EFT of the club, and that's also the most profitable dollar that we can bring in for a franchisee, right? The profit margin on an incremental membership is well over 80% from a flow-through standpoint, after you deduct their royalty and the national marketing fee. So the thing that's most accretive. I think from a value proposition standpoint, we're doing a lot. One is around retention. So we've got a number of things underway that will help ensure that we enhance the life cycle of a membership. That's accretive to a franchisee's economics. So reducing churn, enhancing the relationship with the member so that they stay longer. The first 100 days, I touched on that really important, the level of engagement and getting a member comfortable with the club shortly after they join, so that they increase their utilization and that drives stickiness. We just launched in April, it's learning. It's in kind of a beta mode, an AI-enabled predictive analytics churn model to help identify among our membership, what are some of the indicators of a propensity to churn. And as this model learns that, then we'll arm it with some inducements or incentives that they can use as retention strategies to serve up retention strategies for members. So not only leaning in on gross joins. But when we say net member growth, it's gross joins as well as retention. And then back to the pricing, as Tom said, we've taken pricing from time to time, not often with Classic. We just raised Classic for the first time. But that 2/3 of our membership that participates at the Black Card level, one of the things we're always thoughtful about is enhancing the value of the Black Card membership. And from a Black Card spa's standpoint, we're testing five new modalities that our franchisees are quite excited about. And this isn't to add costs. This will be instead of. So maybe they'll have one less tanning bed, but then they'll put a spray tanner -- self-spray tanner and instead or maybe one of the standup tanners comes out and a red light goes in because red light is really popular right now. So we've had it in -- had these five modalities in 13 clubs today, they've tested really well. We're putting them in 100 club test at a DMA level so that we can put marketing behind them. This will help enable us to support thinking about Black Card pricing in the future and the value that, that could bring to our franchisees. And then the last thing -- not last, but one of the last things I'll talk about is on the build cost. And we know that construction costs have grown over time since pre-COVID labor, construction materials as well as the rent per square foot that our franchisees are paying for the fairly tight suburban shopping center retail space, 20,000 square feet is our average gym size. So we're also working on reducing that build cost so that our franchisees can build more economically while at the same time being accretive to the member experience. So as for example, we have over 80% of our joins joined digitally today, either online or through our app. We don't need a big lobby for in-club sign-ups. Big lobbies are expensive, one, because they're square footage, but two, because we tile them. And when we reduce the footprint of the lobby, we can dedicate more space to the gym floor and we reduce the build cost with expensive tile. Same with locker rooms, we're building locker rooms at -- we were building locker rooms that were similar to what we built at the inception of Planet. People are showering and getting ready less in the gym locker room today, more at home, shower utilization is pretty low. So we can build a smaller locker room. Plumbing is expensive, tile is expensive, lockers are expensive. So shrinking that footprint is answering the call for a more economical build, it's also enabling us to dedicate more of that square footage to the gym floor at a time when people want space for stretching functional training and more strength equipment.

Great. That went really fast. We're out of time. We are yellow Yes, I know right? We are going to have a breakout in the Adler. So hopefully, we'll see everyone there. Thank you.

Thank you all. Thanks, Sharon.