Planet Fitness is aiming to complete the acquisition of gym franchisee, Sunshine Fitness, in a deal valued at $800 million.
Jan. 11, 2022
Sunshine Fitness was actually the very first franchisee of the Planet Fitness (NYSE: PLNT) brand, back in 2003. What started off as a single gym back then, has grown into a mini-empire of 114 U.S. locations. Now, almost twenty years later, the fitness kingpin in Planet Fitness is taking these success stories back under its wing.
What does the acquisition mean for Planet Fitness?
Within the Planet Fitness eco-system, Sunshine Fitness franchised locations are noted as having “leading store-level profit margins” so we know it’s acquiring the cream of the crop. The deal will consist of a mix of stock and cash-based compensation valued at $800 million and the existing CEO of Sunshine Fitness, Shane McGuiness, will remain overseer of operations at the fitness centers.
The acquisition will likely have an immediate impact on Planet Fitness’ top-line revenue, with expectations of better long-term profitability on completion of the acquisition. Although a large acquisition, the company has stated that it is maintaining its position as an asset-light operator, and even with the acquisition, the company’s store-based ownership will hover around 10% of the 2,254 total global outlets.
Planet Fitness’ financials?
For Q3 2021 earnings, there were year-over-year (YoY) increases across all segments for the company; 26.1% YoY for franchise revenue to $75.4 million, 55.2% YoY for corporate-owned stores to $43.9 million, and 101.7% YoY for equipment to $35 million. These core categories were key contributors to the overall $154 million achieved in the most recent quarter.
2021 saw the company’s return to profitability on those figures too, with $18.6 million reported for net income — representing an 11% net margin — and a big bounce-back from the $3.3 million net loss for the same period in the year prior.
Is Planet Fitness a good investment right now?
The company lagged the S&P 500’s performance in 2021, but it still gave shareholders a modest 17% return. The business has not been without challenges in recent years, particularly during a time when the pandemic saw a near-global shut down of fitness centers and gyms, but it has demonstrated its resilience.
Planet Fitness has shown its ability to withstand even the most severe impacts to its model and the return to normal, with 98% of its worldwide locations and 100% of its U.S.-based fitness centers open for business. For the most part, it looks like the major headwinds are in the rearview mirror for the company, so it might be one to add to your watchlist for exposure to the growing fitness industry.