Planet Fitness, a franchised low-cost gym chain with over 950 locations in the US, has filed with the SEC to raise up to $100 million in an initial public offering. However, the deal size is likely a placeholder for an IPO that we estimate could raise $500 million.
The everyman's gym has attitude
Known for its "judgement free zones" where "lunks" are forbidden from using "gymtimidation," the IPO candidate states "We're not a gym. We're Planet Fitness." Despite that claim, the company had 976 gyms as of March 31, 2015, which were 94% franchised and 6% company-operated. Its system-wide membership has reached 7.1 million people, up from 6.1 million (+16%) just three months earlier and up from 5.7 million (+25%) one year ago.
Consumer fitness and wellness: A strong sector and an active space
Planet Fitness could go public just months after Life Time Fitness went private; the gym operator was purchased by private equity firms for over $4 billion. The new IPO filing also follows the offering of consumer-focused fitness company Fitbit (FIT), which raised $732 million and has since run up over 60%. MINDBODY (MB), a provider of fitness-focused software for small business owners, went public recently as well. Capitalizing on health trends, the maker of "better-for-you" snack food SkinnyPop (BETR) filed to raise $200 million in an IPO that could come in July.
Planet Fitness can lift: high growth gym franchise bulks up before going public
Planet Fitness has attained high member growth by offering basic memberships that start at $10/month for access to its 20,000 sq. ft. facilities. It can then double customer revenue through its $20/month "PF Black Card" membership offered as a premium service, allowing members to bring guests and have other perks (55% of total memberships). The franchise has recently grown at a break-neck pace. Between 2010 and 2014, store count grew at a 24% CAGR, membership at a 28% CAGR, total revenue a 32% CAGR and EBITDA a 45% CAGR.
System-wide sales rose 44% in the first quarter to $328 million. The company has had positive system-wide comparable store sales growth for the past 33 quarters, above 7% in the past fourteen quarters and 10% or more in the past six. Its stores achieved a 37% EBITDA margin in 2014 with average unit volumes of about $1.6 million. Its franchisees have signed area development agreements to open more than 1,000 additional stores (100% unit growth) over the next seven years, including 500 over the next three years. Planet Fitness believes the US can support over 4,000 stores (4.1x current footprint). It now charges franchisees a royalty of 5% of monthly dues and annual fees, though only 30% of its stores pay this rate due to lower historical agreements. Going forward, these lower rates will phase out as franchisees open new stores and renew their agreements; its monthly average royalty was 2.95% in 2014, compared to 1.39% in 2010.
The Newington, NH-based company, which was founded in 1992 and booked $299 in revenue for the 12 months ended March 31, 2015, plans to list on the NYSE under the symbol PLNT. Planet Fitness initially filed confidentially on March 25, 2015. J.P. Morgan, BofA Merrill Lynch, Jefferies and Credit Suisse are the joint bookrunners on the deal. No pricing terms were disclosed.
