Planet Fitness Inc (PLNT): Investor Discussion

On March 6, 2024, DeMatteo Research hosted a discussion on PLNT and the gym industry with five investors. The group shared thoughts on the stock’s recent performance, management turnover, franchisee unit economics, recent pricing tests, the international expansion opportunity, domestic TAM expansion, the impact of GLP-1 drugs, valuation, and their outlooks going forward. Bulls focused on the strong brand value, recent improvements to franchisee unit economics, a >50% chance of a price increase, and an attractive risk/reward setup. Meanwhile, bears highlighted a difficult path back to historical new unit growth, worrying results from pricing tests, and the risk of worsening investor sentiment if the unit growth reacceleration takes longer than expected.

Publicly traded companies mentioned herein: Dollar Tree Inc (DLTR), Planet Fitness Inc (PLNT), VF Corp (VFC), Xponential Fitness Inc (XPOF)

Bullish Perspective on Recent Performance

A bull started the discussion with some context around recent trends. In the ~2 months between former CEO Chris Rondeau’s departure and PLNT’s Q3 earnings in November, investors became reasonably comfortable that the ousting was due to Rondeau standing in the way of changes (including potential price increases) that could reverse the worsening unit economics for franchisees, as operators had stopped opening new units above their contractual minimums and the unit growth challenges were weighing on the stock’s multiple. Interim CEO Craig Benson and the board were moving quickly to institute changes, announcing pricing tests along with shifts to the growth model that would improve franchisee economics during the November earnings call. The company then provided additional details at ICR in January around the new growth model and the ongoing White Card price testing. It seemed like the improvement was on track and the next catalyst would be a CEO announcement, allowing the share price to rise from $55 before earnings to $75 in mid-January. However, this was followed by several “marginally negative” data points (weak January sign-ups, varying feedback on the pricing tests, CFO Tom Fitzgerald’s retirement announcement) that complicated the story and forced the stock back down to the current $65 per share. This retracing seems excessive given his view that PLNT has made sufficient changes to improve the economics and reaccelerate unit growth over time. He attributes the strong sell-off to the many pod shops that were long because it was an easy pitch (increasing monthly price from $10 to $15) but were not close to the name.