Q4 2024 Planet Fitness Inc Earnings Call
Thank you for standing by my.
Kevin: My name is Kevin and that will be your conference superior today at this time I would like to welcome everyone to the Q4 earnings call. All lines have been placed to eat sugars and a new type curve.
Kevin: After todays presentation, there will be an opportunity to ask questions. You ask a question you May press star followed by the number of I understand from spot to be drawing a question you May press star followed by then.
Kevin: I will now turn the call over to Stacey Caravella, Vice President of Investor Relations. Please go ahead.
Stacey Caravella: Thank you operator, and good morning, everyone speaking on today's call will be planet fitness, Chief Executive Officer colleague Keating and Chief Financial Officer, Jay says it will be available for questions. During the Q&A session. Following the prepared remarks.
Kevin: Today's call is being webcast live and recorded for replay.
Speaker Change: Before I turn the call over to Colleen I'd like to remind everyone that the language on forward looking statements included in our earnings release also applies to our comments made during the call.
Speaker Change: Our release can be found on our Investor website, along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures.
Colleen: Now I will turn the call over to Colleen.
Colleen: Thank you Stacy and thank you everyone for joining us for the planet fitness Q4 earnings call.
Colleen: We have previously referred to 2024 as a year of transition for our organization and I see it as a year of transition and foundation building starting with our leadership team.
Colleen: Now have two quarters under my belt, having started in mid June.
Colleen: We welcomed J stars to the CFO role in mid Q4, and more recently ship Olsen as Chief Development Officer, and Brian Poole Vanilla as Chief marketing officer over the past month or so.
Speaker Change: Welcome to planet fitness with the same goals in mind.
Speaker Change: Furthering our welcoming atmosphere for members of all fitness levels at an unbeatable value and at the same time accelerating growth to deliver increased shareholder value.
Speaker Change: We are incredibly proud of the progress we made in 2024 and in particular during the fourth quarter during which we grew system wide same club sales by five 5%.
Speaker Change: Delivered 19, 4% revenue growth and increased.
Speaker Change: <unk> adjusted EBITDA by 14, 4%.
Speaker Change: We added 86, new planet fitness clubs system wide during the quarter for a total of 150 for the year, bringing our global club count to more than 2700 clubs.
Speaker Change: We also grew our membership by 1 million members in 2024 to approximately $19 7 million members.
Speaker Change: We made significant progress in 2024 on improving club level returns.
Speaker Change: We rolled out an enhanced economic model for opening and operating a planet fitness club that included reductions in build costs extensions of capital investment timelines and the elimination of certain fees.
Speaker Change: We received an enthusiastic response with nearly all of our franchisees signing our new growth model franchise agreement.
Speaker Change: We also took a significant step to support top line growth.
Speaker Change: We haven't raised the monthly price of the classic card membership in more than 25 years, which represents nearly 40% of our membership roster.
Speaker Change: After extensive market testing, we raised the classic card price from $10 to $15 at the end of June.
Speaker Change: Between the changes to the build cost franchise agreement.
Speaker Change: The classic card rate increase.
Speaker Change: We believe that a new clubs Unlevered IRR is moving closer to pre pandemic levels.
Speaker Change: We're encouraged by the Green shoots that we're starting to see from these changes and remain committed to our focus on franchisee economics to fuel growth.
Speaker Change: Turning to 2025, we have a strong foundation in place to continue making meaningful progress on our four strategic imperatives.
Speaker Change: Redefining our brand.
Speaker Change: Enhancing member experience refining our product and optimizing our format and accelerating new club openings let.
Speaker Change: Let me start with redefining our brand.
Speaker Change: We're excited about our new brand promise to grow stronger together and our new creative with the we're all strong on this planet campaign that launched in late 2020 for these.
Speaker Change: These support our shift to a more balanced complement of strengths equipment in our clubs to meet consumers' evolving needs at.
Speaker Change: At the same time, our brand promise and our marketing communicate that we are welcoming to all whether someone is beginning their fitness journey or seasoned athlete and that planet fitness is a supportive community where all members belong.
Speaker Change: I attended my first new year's Eve in times square, which marked our 10th year of supporting the celebration. The energy was amazing and it's a great way to put planet fitness on a global stage at the right time to kick off our money quarter.
Speaker Change: As I mentioned earlier, we expanded our leadership team with the addition of our new Chief Marketing Officer, Brian Pow Vanilla.
Speaker Change: Brian is responsible for overseeing our marketing initiatives to strengthen our leadership position and expand access to fitness and wellness for all.
Speaker Change: He has extensive experience in the hospitality and apparel industries, a track record of leveraging data and insights to drive breakthrough results and has spent much of his career partnering with franchisees.
Speaker Change: Ryan who has only been here a few weeks. He is already building on the work we've done to date.
Speaker Change: Now to member experience and format optimization, which I really think go hand in glove.
Speaker Change: Our shift to more strengths equipment resulted from extensive consumer research and observing our members using our clubs, which will enhance member experience and give our members the equipment mix and format to achieve their desired workouts their way.
As we discussed last quarter more than 60% of our franchisees opted in to adding the three additional pieces of strength equipment.
Speaker Change: The new equipment is called out in our clubs with signage and floor claims and has been featured throughout our Q1 marketing creative.
Speaker Change: We expect that all our domestic clubs will have the additional pieces by the end of the year.
Speaker Change: Format optimization goes beyond equipment mix. It includes getting the floor plan right and opening up spaces within the clubs for members to do more functional training.
Speaker Change: We are seeing a great response to the changes from member feedback and social sentiment postings online we.
Speaker Change: We believe this is a winning formula to increase our membership which is the best enhancement to unit economics to ultimately accelerate new club growth.
Speaker Change: We feel great about the work we've done in 2024 to improve unit economics and reduced capital investments at the club level.
Speaker Change: So staying on our strategic imperatives and believe that we can get back to opening 200, new clubs per year in a few years.
Speaker Change: With that in mind I recognized early in my time at planet fitness thought to achieve our growth ambition, we needed someone on our senior leadership team dedicated to growing our global club footprint.
Speaker Change: Chip Olson joined US in January as Chief Development Officer to spearhead our accelerated club growth.
Speaker Change: Chip is charged with growing our footprint, both domestically and internationally for our corporate and franchise clubs as well as strengthening our franchisee network.
Speaker Change: He will also support our efforts to optimize the build cost for franchisees with a thoughtful eye toward member experience.
Speaker Change: While Jay will cover our 2025 outlook in detail I would like to note that our overarching goal is healthy sustainable long term growth. This means we're aiming to achieve consistent increases in year over year growth in new club openings to establish a reliable pattern of expansion.
Speaker Change: <unk>.
Speaker Change: And finally, we recently announced the realignment of our leadership team to support our strategic imperatives.
Speaker Change: To best position, our teams to execute in 2025 and beyond we're shifting from a divisional structure to fit first strategy operating model, which integrates functional capabilities across the organization and strengthen accountability for our leaders and our team members.
Speaker Change: Evolving our organizational structure will enable us to be more integrated agile and faster in responding to the needs of our members and our franchisees.
Speaker Change: I'm excited about our strengthened and realigned team and what we can do to continue to drive this powerful brand forward into its next chapter of growth.
Speaker Change: Now I will turn it over to Jay to share more details on our metric performance for year end 2024, and our 2025 guidance Jay.
Jay: Thanks Colin.
Jay: And I knew that planet fitness is a great company with a great brand and an industry leader with a tremendous long term opportunity now for months and I'm, even more excited to be here as we execute on our strategy and enter the next phase of growth.
Jay: Additionally, planet fitness has a compelling business model, our asset light structure doesn't require a significant amount of capital, allowing us more flexibility in terms of the level of debt that the business can support.
Jay: To this end, we refinanced a portion of our debt in 2024 and completed an accelerated share repurchase which is one of the ways that we've delivered shareholder value since our IPO nearly a decade ago.
Jay: We also used our balance sheet to enter new international markets, Spain last year and ended $2024 five clubs in that country.
Jay: This is an example of using our balance sheet to demonstrate that the concept works in a new market. So that future franchisees will have an easier time accessing local capital to step in as owners and fuel our growth plans, we're off to a great start in Spain, and look forward to other opportunities to use our financial strength to drive growth.
Jay: We continue to believe in our asset light highly franchise model and reiterate our plans to own approximately 10% in the fleet.
Jay: Before I get to our 2024 results and our 2025 outlook I'm going to start by discussing the performance of our classic card price increase in member trends.
Jay: We felt it important to implement the price increase before Q1 of 2025 to leave time for the market to absorb the impact ahead of what has historically been our highest net member growth quarter.
Jay: Our fourth quarter net membership growth was slightly better than we expected. This favorability along with a lower than expected cancel rate drove an increase in our net membership growth during Q4, and we ended the year with 5% same comp sales growth.
Jay: We also continued to see a year over year increase in black card membership and ended the year with approximately 64% penetration.
Jay: We believe the new members are recognizing the great value of the Black card membership offers considering it's only $10 more than the classic <unk>.
We're also seeing that our members are more engaged in 24 versus 23 as they visited a planet club nearly six five times per month versus just over six times last year, which is a great sign for retention.
Jay: <unk> continues to lead our joined and have been the fastest growing demographic group our membership since 2021, bringing our share of that generation over the age of 14 to nearly 10% domestically. This has the added benefit of continuing to drive down the average age of our members.
Jay: At the end of 2020 for approximately 7% of the U S population over the age of 14 are now members of planet fitness.
Jay: Now to our fourth quarter results all of my comments regarding our quarter performance will be comparing Q4 of 2024 to Q4 2023, unless otherwise noted.
Jay: We opened 86, new clubs compared to 77.
We delivered system wide same club sales growth of five 5% in the fourth quarter franchisee same club sales increased five 7% and corporate same club sales increased four 4%.
Jay: Approximately 70% of our Q4 comp increase was driven by rate growth with the balance being net membership growth Black card penetration was approximately 64% at the end of the quarter, an increase of approximately 200 basis points from the prior year.
Jay: For the fourth quarter total revenue was $345 million compared to $285 1 million.
Jay: The increase was driven by revenue growth across all three segments. The 11% increase in franchise segment revenue was primarily due to an increase in royalty revenue new clubs placement revenue and National AD Fund revenue.
Jay: The fourth quarter, the average royalty rate was six 7% up from six 6%.
Jay: The eight 5% increase in revenue in the corporate and club segment was primarily driven by new clubs as well as revenue growth from clubs and the same club sales base.
Jay: <unk> segment revenue increased 49, 2% the increase was primarily driven by higher revenue from equipment sales to existing franchisee owned clubs, including the additional pieces of strength equipment that we delivered in Q4 as well as higher revenue from sales of replacement equipment.
We completed 77, New club placements this quarter compared to <unk> 67 last year for the quarter replacement equipment accounted for 57, 8% of total equipment revenue compared to 43, 1%.
Jay: Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee owned clubs was $80 5 million compared to $57 5 million.
Jay: Club operations expenses, which relate to our corporate and club segment increased to $74 4 million from $65 6 million.
Jay: Due to higher payroll and occupancy costs, primarily due to increased new club openings.
Jay: SG&A for the quarter was $35 $7 million compared to $31 $2 million adjusted SG&A was $34 $4 million, which includes a $1 $2 million adjustment.
Jay: For CEO transition related expenses compared to $29 $5 million, which also included a $1 $2 million adjustment for CEO transition related expenses the.
Jay: The increase was driven by incremental marketing spend in the quarter and higher CEO payroll expense.
Jay: National advertising fund expense was $19 4 million compared to $17 6 million.
Jay: Net income was $47 6 million adjusted net income was $59 $7 million and adjusted net income per diluted share was <unk> 70 per share.
Jay: Adjusted EBITDA was $138 million and adjusted EBITDA margin was 38, 4% compared to $114 3 million with adjusted EBITDA margin of 41%.
Jay: Fourth quarter, adjusted EBITDA margin decreased compared to the prior year period, primarily because of our marketing investment along with the increase in <unk> sales.
Jay: Through our equipment segment, which is our lowest margin segment for the full year adjusted EBITDA margin increased to 41, 3% compared to 46% in the prior year period.
By segment franchise, adjusted EBITDA was $74 7 million and adjusted EBITDA margin was 68, 6% CT.
Jay: Corporate club adjusted EBITDA was $46 4 million and adjusted EBITDA margin was 36, 7% equipped.
Jay: Equipment, adjusted EBITDA was $29 9 million and adjusted EBITDA margin was 28, 5%.
Jay: Now turning to the balance sheet as of December 31, 2024, and we had total cash cash equivalents in marketable securities of $529 5 million compared to $447 9 million on December 31, 2023, which included $56 $5 million $46 3 million.
Jay: Of restricted cash respectively in each period.
Jay: Moving on to our 25 outlook, which we provided in our press release this morning.
Jay: Calling noted we believe that 200, new club openings per year is achievable, but it will take a few years before we get there. This.
Jay: This year, we expect to open between 160 and 170, new clubs, which includes both franchise and corporate locations.
Jay: We expect between $130 140 equipment placements and new franchise clubs and again, we expect that the quarterly cadence will be weighted like 'twenty four.
Jay: We expect that <unk> sales will make up approximately 70% of total equipment segment revenue for the full year. This is largely driven by the expectation that the clubs that did not purchase the additional pieces of strength equipment last year, we will do so in 2005.
Jay: We expect the sales of the replacement equipment to be more evenly spread throughout the year compared to 24, when the franchisees purchased the incremental strength pieces in Q4.
As a reminder, we are maintaining our equipment segment profit dollars for new placements and <unk> sales with the mix shift to more strength. Therefore, we expect that margin rate will be approximately 28% to 29%.
Jay: We expect the following targets that represent growth over fiscal year 'twenty for results.
Jay: System wide same club sales growth to be between five and 6%.
Jay: Our revenue to grow approximately 10%.
Jay: Adjusted EBITDA to grow approximately 10%.
Jay: Adjusted net income to increase in the 8% to 9% range and adjusted net income per diluted share to grow in the 11% to 12% range based on adjusted diluted weighted average shares outstanding of approximately $84 5 million inclusive of approximately 1 million shares we expect to repurchase in 'twenty five in line with what we've previously communicated.
Jay: <unk>.
Jay: We also expect 25 net interest expense of approximately $86 million inclusive of the annualized impact of our 24 refinancing.
Jay: Lastly, we expect capex to be up approximately 25% and DNA to be flat to 24, while depreciation expense will increase year over year amortization will be down of certain intangible assets related to our purchased by <unk> in 2012 fully amortized at the end of 'twenty four.
Jay: Let me address why we expect revenue and adjusted EBITDA to grow at approximately the same rate this year in.
Jay: In 2025, we have expenses related to our blue ribbon team, including our recent CEO and CMO hires and we have a full year of CEO compensation expense.
Jay: We also wanted to ensure that we have the ability to invest appropriately in our strategic imperatives with these investments we believe that we're setting ourselves up to drive long term sustainable growth and deliver increased shareholder value.
Jay: I will now turn the call back to the operator to open it up for Q&A.
Jay: At this time I would like to remind everyone in order to ask a question Chris Star then the number one on your telephone keypad.
Jay: Ask that you please limit your questions to one and one follow up.
Jay: We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from Simeon Siegel from BMO capital markets. Your line is open.
Simeon Siegel: Thanks, Hey, good morning, everyone.
Simeon Siegel: Any way to help us think about how much the price hike is embedded into your full year comp and revenue guidance versus expected member progression over the year and then maybe just any what are you seeing in terms of you mentioned the churn I think is improving what are you seeing there post the price hike any just curious if youre seeing any people not wanting to lose the grandfather $10.
Simeon Siegel: Any thoughts you have around that thank you.
Simeon Siegel: Yes, Simeon this is Jay and I'll start and calling or others may chime in but as far as the price hike. The class card increase you know we did that in June and we really we will anniversary that in June of 'twenty five so the way, we think about that and what we've talked about is that we expected a low to mid single digit comp lift on an.
Simeon Siegel: Annual basis, once we get through that first 12 months.
Simeon Siegel: We won't we don't guide to membership, but that is embedded in our guidance and then as we get past. This June right that tailwind, we're getting from a rate standpoint.
Simeon Siegel: He will step down a little bit because then we'll have a fair amount of people that are signed up at the $15 price point.
Simeon Siegel: And this really does impact the new clubs because all of those new members are coming in.
Simeon Siegel: The classic card price point in the old clubs right. Those people are anniversary to your question about churn what we've talked about as we continue to see good cancel rates.
Simeon Siegel: A little bit of stickiness to your point with people hanging on to that $10 classic card price and what we talked about at the Q3 call was that those attrition rates really came in line year over year.
Simeon Siegel: Which is.
Simeon Siegel: Good sign and something we hadn't really seen.
Post the spring incident, but those trends have continued Q3 and into Q4. So we're very pleased with that.
Speaker Change: Great. Thanks, and then just recognize the impressive <unk> equipment sales meet any color, we should keep in mind for <unk> equipment. I know you gave the full year and you gave relative cadence just want to make sure. There wasn't anything we think we should think about these would be timing. Thank you.
Simeon Siegel: Yes no.
Simeon Siegel: We did the play loaded in Q4, and we had some nice re equips there as well so obviously a strong quarter for Q4, when we think about cadence for next year. The placements we've outlined consistent and then the re equips, we've said it'll be about 70% of the total equipment revenue and.
Simeon Siegel: Inconsistent I mean more consistent over the course of the year than this year because of that spike, but Q1 is going to be pretty consistent year over year, and then I would spread it pretty.
Simeon Siegel: Pretty ratably for the remaining quarters.
Randy: The next question comes from Randy <unk> from Jefferies. Your line is open.
Randy: Yeah. Thanks, a lot good morning, everyone.
Randy: I like the word that you used foundation set the foundation for the future.
Speaker Change: I guess, what I want to understand is thinking about unit growth long term and just how youre thinking about.
Randy: On the international side.
Randy: And it's staying with I think five units you said talked about in the past.
Randy: Good.
Randy: Good strength in Mexico and other areas.
Randy: Maybe give us some vision on when we could see even more kind of.
Randy: I don't know more kind of builds.
Randy: And potentially franchising in international markets as it pertains to Europe, and then back to the United States on the franchisee side, you gave us a good punch list of the changes you've made.
Randy: To make the IRR has improved to make them more attractive for the franchisees in the past the franchisees back in the day lets say 810 years ago franchisees used to build ahead of their mandated kind of programs I'm sure. During Covid day. They did not obviously where are we now in that build cycle with the franchisee base.
Speaker Change: How hungry are they kind of get those builds starting to Reaccelerate. You. Obviously gave us really good guidance for an accelerated unit development or openings in 2025, but from 2024, but it feels like that's just we're just beginning and we should get to that 200 units fairly quickly.
Randy: So I just wanted to get your color on the franchisees and then the international when we can get to see more progress in Europe markets and beyond thanks.
Speaker Change: Hey, Randy good morning, and thanks for the question. So so first international then then kind of U S.
Randy: And then accelerated growth is kind of what I heard.
Randy: And I'll start with international So we were very pleased with the performance in Spain.
Randy: And the way our clubs are ramping there. We're also quite pleased to have five clubs opened in Spain by the end of the year last year.
Randy: What we've said is that we're going to take a thoughtful approach to international expansion and.
Randy: And go into a market, where we can achieve real scale and real real density.
Randy: And not flat plant, so again pleased with the progress in Spain.
Randy: We will continue to have spanned openings <unk> got a strong pipeline there going into 2025 and at the same time as you know.
Randy: We built Spain on balance sheet.
Randy: Which gave us the ability to really have to.
Randy: To have a strong hand in and getting off the ground in a really healthy way there and building a very good team on the ground at the same time.
Randy: We will transition Spain.
Randy: To a franchise model.
Randy: As we as we get the market established and then we will look to recycle that capital.
Randy: And look at other market opportunities for expansion and we said one to two new international markets, a year and thats that stellar.
Randy: That's our anticipation.
Randy: As it relates to.
Randy: Domestic growth and.
Randy: The IRR is for our franchisees we've made good progress as I noted with the with the new growth plan and reducing the build costs.
Randy: As well as some of the capital ongoing capital costs with pushing out the real timelines and addressing some fees domestically with a new growth plan and then we had almost 40% of the topline lever that was really kind of off the table for more than 25 years and.
Randy: With that with the change of the classic card pricing.
Randy: Jay touched on that and how that will impact your unit economics at the same time.
Randy: We remain committed to continuing to to enhance the unit economics for our franchisees and continue to try to drive toward the pre COVID-19 IRR. So.
Randy: We've made good progress however, we will never stop at looking at ways to continue.
Randy: To enhance the model in a way that benefits our members and.
Randy: And benefits, our franchisees and while we're we're really guiding for 2025 today and we.
Speaker Change: <unk> said, well, we will have an investor day with some some longer range targets. Later this year, we want to give chip Wilson, the new Chief Development Officer has only been on board for a few weeks give him an opportunity to.
Randy: Get his arms around the business and he is out talking with our franchisees.
Speaker Change: And we will we will give some longer range guidance, but.
Randy: We like you.
Speaker Change: Endeavor to get back to.
Randy: Starting with the two.
Randy: New club growth every year, we think it will just take a couple of few years. So we say not five years, but not this year so somewhere in the middle.
Randy: Very helpful. Thank you.
Randy: Absolutely. Thank you.
Randy: Okay.
Sharon Zackfia: The next question comes from Sharon Zackfia from Marine There Youre line is open.
Randy: Good morning.
Randy: Yes.
Speaker Change: Hi, guys. If I missed this but I wanted to show that kind of double click on the increase and the mix of Black card. This quarter are you seeing just with the compression between price slipped through the basic membership on the black card more trade up and is that something we should expect to continue into 2025.
Speaker Change: And then did you comment on the Blackhawk question test and kind of what Youre thinking along those lines.
Jay: Yes. So this is Jay and I can start on this in terms of the black card test.
Jay: We did not comment that is in flight, we expect for that test to continue through at least Q1, and we don't typically speak to attest <unk> going on and to your point on the Black card penetration, yes, we are seeing a nice lift in that we're at roughly 64% at the end of the year, which is a two point lift at the end of the third quarter I believe we were about a one point lift so.
Jay: We're seeing some nice acceleration there and.
Youre right right, because theres, such a value and there is only $10 spread between the classic card price and Black card price, we think more members or are joining into that black card, which is a nice trend.
Speaker Change: And I guess, just following up tier you changed your marketing messaging pretty significantly at the beginning of this year. How do you feel the response has been from consumers.
Jay: The more what I'll call inclusive marketing message.
Jay: And so we just launched the marketing really at the very tail end of December.
Jay: You know that marketing is in flight and we'll talk about that in our Q1 earnings call in a couple a few more months.
Jay: We will say is even on social sentiment.
Jay: We're seeing very favorable response, a lot of online postings of Odyssey, social sentiment about the the shift to a more balanced complement of strength equipment and we know one of the things that makes our brand so unique and special and a highly differentiated brand is.
Jay: Is the sense of community and we believe were conveyed in the marketing messaging around growing stronger together.
Speaker Change: Your next question comes from Joe <unk> from Raymond James Your line is open.
Speaker Change: Thanks, Hey, guys. Good morning, I wanted to circle back on the.
Speaker Change: New openings for 2025, if I use placements as a proxy for new franchisee openings I guess your guidance implies and you.
Speaker Change: Call. It 130 to 140, new franchisee clubs this year.
Speaker Change: That's up modestly year over year, and it's actually down a little bit from 'twenty three is the new growth model offering.
Speaker Change: He is enough incentive to open new clubs are keeping them longer to respond to it.
Speaker Change: Well this is Jay and I'll start with that I think I mean, we've done Kelly mentioned it the work. The team has done on new growth model I think the franchisees are appreciative I don't I think they are engaged and onboard.
Speaker Change: That is not something that turns on a dime as far as planning and development.
Speaker Change: But I think we've got a good relationship there and they understand the levers we pulled with the new growth models as well as with the price increase.
Speaker Change: <unk> said, they always and we will always want to strive for more so that will continue and as an evolution I think.
Speaker Change: To your question I think part of the.
Speaker Change: The delta in that mix right I mean, we continue to build corporate clubs, but we also in that number from.
Speaker Change: From a corporate standpoint includes Spain, which continues to build out this year, which we're doing.
Speaker Change: On our balance sheet and considering that.
It's not a placement so it's part of the corporate build so that's part of the Delta between those two numbers.
Speaker Change: Got it and then just to follow up on that is there a number you can give us in terms of the percentage of franchisees that are currently not on track with their build obligations and what recourse you might have to get them back on track yes.
Speaker Change: Last majority are on track.
Speaker Change: It's been consistent so.
Speaker Change: That has not changed we just continue to work with franchisees and now with chip here I mean, these building those relationships with them as well.
Speaker Change: Chime in on that it.
Speaker Change: It is certainly the build cost on the unit economics.
Speaker Change: A key factor in the growth. It's also a real estate team partnering with our franchisees to find.
Speaker Change: We help them find available space, we see some tailwind there with with retail vacancies.
Speaker Change: Increasing.
Speaker Change: Space still remains fairly tight.
Speaker Change: With about 4%.
Speaker Change: <unk> reported about 4% vacancy so we're partnering our real estate team is partnering with our franchisees to help them find.
Speaker Change: Great sites.
Speaker Change: <unk> developed a new clubs.
Speaker Change: Next question comes from Chris <unk> from Jpmorgan. Your line is open.
Speaker Change: Good morning, guys, great to see the C suite and fully ramped up on kicking the tires here.
Speaker Change: Well then I wanted to ask like how has the brand refresh campaign this new year.
Speaker Change: Hit the targeted demographics are like how did it perform relative to your expectations, where do you think the opportunity is going forward based on learnings on mainstream lots of social media or even the effectiveness of spend across national and local campaigns have you had a chance to discuss this with Brian.
Speaker Change: Revisit thing or is it too early on yes, I have a follow up.
Speaker Change: Sure. Good morning, Thanks for the question.
Speaker Change: I would love to talk to you about how that campaign is performing however, it's a Q1 campaign and we're just just about the midpoint of Q1, So we'll talk more about how it's performing.
Speaker Change: When we when we have our Q1 earnings call in a few months.
Speaker Change: As far as Brian engagement.
Speaker Change: Brian was engaged a bit even before he started and he is he's got his sleeves rolled up and he is.
Speaker Change: He is very much.
Speaker Change: Gauged in the <unk>.
Speaker Change: And as it's as it's rolling out today.
Speaker Change: As well as our brand strategy work so.
Speaker Change: He's been on board for about three weeks now and his sleeves rolled up and we look forward to talking more about that at the end of the quarter.
Speaker Change: Great.
Speaker Change: Our churn levels like how are you guys thinking about the click the cancel comes into play through remainder of the year given like two thirds of the club. This is still not on that on what do you think is the best alright that optimal approach to rollout.
Speaker Change: Just on the recent developments.
Speaker Change: I'll start maybe.
Speaker Change: We've talked about this a little bit before as well where are we where we have had quit to cancel in place. So in about 11, I think 11 states right now as well as 100% of our corporate clubs.
Speaker Change: Even where its not municipally required what we see is a very sure are fairly short term impact. So maybe eight to 12 weeks of a little bit of an elevated churn rate.
Speaker Change: And then a moderation in churn after that so.
Speaker Change: So I think the important thing to think about is the value proposition that we're offering our members and the fact that we really are in in the Golden age of fitness fitness and wellness and wellbeing.
Speaker Change: And with as we talked about Jay touched on Gen Z as is our fastest growing proportion of our membership very fitness minded generation.
Speaker Change: So we believe the value proposition.
Speaker Change: What's going to be compelling for members to join and to stay.
Speaker Change: That was quick to cancer rollout again with one one exception and I don't want to overplay It with one exception with the state of Tennessee.
Speaker Change: In almost all other geographies, we see a very short term increase in churn and then and then a moderation back too.
Speaker Change: So our normal churn rate.
Speaker Change: I'll also maybe touch on the fact that our rejoin rate I think we've talked about that too or rejoin rate is.
Speaker Change: It's been pretty high we were in the high 30% 38, 37% the last couple of quarters.
Speaker Change: So that also speaks to even in the event that a number.
Speaker Change: The number of lease planet fitness, we still remain top of mind and have a very high rejoin rate as well.
Speaker Change: The next question comes from John Ryan Merkel from Guggenheim Partners. Your line is open.
Hey, Kelly I wanted to ask you talked about at least for this year right reinvestment in strategic imperatives.
Speaker Change: What do you what do you think are the one or two things.
Speaker Change: Our high priorities for you on that list and I also wonder when you think about marketing cadence, it's always going to be <unk>, driven but do you think about.
Speaker Change: Doing something different beyond the first quarter do you think about.
Speaker Change: Like to do high school past differently, because I just wonder if.
Speaker Change: Particularly with Gen Z of joins can be stronger in Q2 and.
Speaker Change: <unk> maybe than they've been historically.
Speaker Change: Yes, we'll talk about that I'll touch on the strategic imperatives on the priorities I think.
Speaker Change: Gosh, there's there's four of them so there I'd say.
Speaker Change: And this is not a cop out they're all important.
Speaker Change: That said when you think about how we've how we've added.
Speaker Change: Some very key resources to support the strategic imperatives.
Speaker Change: Bringing on a chief marketing officer.
Speaker Change: Is is very much focused on on topline right. That's the that's marketing and branding and also making sure that we have kind of a branded member experience in.
Speaker Change: We continue to refine that so.
Speaker Change: Leaning into topline with our with our brand positioning and having that inform our marketing is a very high priority and then with the establishment and bringing in a chief development Officer, we're highly focused on on unit growth and all of the things that we've touched on that go into unit growth.
Speaker Change: Economics, helping our site selection for Ya, reducing those costs all of that.
Speaker Change: So I would call those out as two two big priorities and then.
Speaker Change: As it relates to the to the marketing I think I've said this a couple of times I joined in mid June.
Speaker Change: And when I came aboard in mid June it felt like first quarter was tomorrow.
Speaker Change: And I wished I had a little bit more time.
Speaker Change: On the brand strategy and marketing work it was a bit of a sprint and wished we'd had the opportunity to have our CMO in place to help inform it so.
Speaker Change: The beautiful thing is that Brian joined very early in the year and he will have an opportunity to.
Speaker Change: To put his imprint on the brand strategy on the <unk>.
Speaker Change: Marketing going forward.
Speaker Change: And then maybe as a follow up.
Speaker Change: Your current thoughts on perks.
Speaker Change: Right and.
Speaker Change: The development of that and particularly black.
Speaker Change: Black card perks right, which.
Speaker Change: It has been a smaller much smaller number right then number of offers and white card.
Speaker Change: So I've talked a little bit about perks before and I'll just share that for the year year end number 2024, we had over $10 million in redemptions by our members by our members through our Perks program. So we see that as a way to continue to add value.
Speaker Change: For our members and enhance our relationship with our members even when they're not inside the club and also.
Speaker Change: Continue to increase the engagement with our App as you know.
Speaker Change: The most downloaded fitness app on the App store with more than 80% utilization and the more we can embed programs like perks in the App.
Speaker Change: We increase the engagement with our members so that remains a focus and Brian coming from our consumer business Marriott the bond flight program.
Speaker Change: <unk> got he's got deep experience in building.
<unk> loyalty and marketing partnerships.
Speaker Change: Yes.
Speaker Change: Yeah and John This is Jay just to go back on the on the membership and the joins it's a great comment and my colleagues had give Brian a beat to get in and.
Speaker Change: Potentially impact those other quarters as well, but we also the other thing we're talking about besides joins us attrition rate net member growth and making sure we're focused on nutrition, having a good experience.
Speaker Change: Around all of that so we can hold on to those members.
Speaker Change: Our next question comes from Matt Sharpe and golf from TD Cowen Your line is open.
Speaker Change: Great. Thanks, a lot. So colleen as you continue to spend more time with franchisees what part of your plan do you have more conviction in versus parts. It may take longer to implement.
Speaker Change: And what's been most surprising to you from the conversations with operators and sponsors and just how does that inform your view of the pace of the turnaround.
Speaker Change: So.
Speaker Change: As it relates to confidence in in.
Speaker Change: In the plan.
Speaker Change: I think we've got the strategic imperatives in place to achieve our plan and our longer term growth ambition and we've we sourced those.
Speaker Change: The strategic imperatives to support our focus on accelerated growth as it relates to the to our operator and franchisee conversations gosh.
Speaker Change: Coming into the business last year, one of the things that that really stood out is how much pride. There is in the planet fitness brand and one of the other things is we've got a pretty a pretty narrow band of quality. Unlike a lot of brands. So our franchisees are committed to investing in there.
Speaker Change: <unk> committed to delivering our unique and differentiated member experience.
Speaker Change: At the same time.
Speaker Change: We are simply we want to continue to deliver even greater value for our franchisees, which is which is why the focus on continuing to drive top line growth and continuing to look at build cost and unit economics.
Speaker Change: I think our franchisees are also quite excited when you think about nearly 65% of the estate opting in to put the plate loaded equipment in their clubs in fourth quarter of last year and on budget at expense.
That also speaks to their confidence in.
Speaker Change: In our strategy and our brand promise of growing stronger together.
Speaker Change: That's a that's an incredibly high opt in rate when we rolled out the program at the start of Q4 and had again, 65% participation before the end of the year. So.
Speaker Change: Great partnership with our franchisees.
Speaker Change: That's helpful and then Jay anything that you can share on how to think about comps just the cadence potentially.
Speaker Change: Potentially throughout the year, maybe reimburse membership and then how does click to cancel a play into it because the compares are sort of volatile throughout the year and theres just many moving pieces.
Jay: Yes, Max for sure. So as we've talked about right now from a comp standpoint, we're seeing that comp is being driven 70% roughly by rate and 30, 30% by membership as we think about this.
Speaker Change: Next year, we do think that we will continue to be largely rate driven.
Speaker Change: Certainly through the end of June until we anniversary the class current price increase and then even beyond that.
Speaker Change: The way we've modeled it as is.
Speaker Change: That's driven by both right.
Speaker Change: <unk>.
Speaker Change: Transaction or membership trends.
Speaker Change: And then I think.
Speaker Change: Beyond that in terms of click to cancel I mean, we haven't.
Speaker Change: Built in are really made a decision yet on how we're going to approach that we've got the 35% today are 100% corporate clubs.
Speaker Change: And as Colleen stated on clicks cancel rate, we do see an initial spike in cancellations, but then we see that.
Speaker Change: Level out and returned to normal trends and maybe not even quite a spike it's an initial elevation.
Jonathan Komp: Next question comes from Jonathan Komp from Baird. Your line is open.
Jonathan Komp: Yes. Good morning. Thank you maybe just one last follow up on the comps or are you seeing any changes in behavior. I know Q4, you highlighted was slightly better ending member level.
Jonathan Komp: But at the midpoint for 25 here youre not assuming any any change in the comps compared to the Q4 run rate, even though pricing could could step up a little further so just wondering if youre seeing any changes in behavior.
Jonathan Komp: No, we're not and we're seeing good consistent trends.
Speaker Change: Hey, guys. Thank you spoke about that with them.
Speaker Change: With the balance of rate versus membership right and as we see the $15.
Speaker Change: We will continue to see rate favorability over the lifecycle of membership which is longer than 12 months.
Speaker Change: Okay.
Speaker Change: Okay, Great and then one follow up Jay if I could ask just trying to.
Speaker Change: To get a better sense of the underlying.
Speaker Change: Earnings model, if you will or the leverage potential.
Speaker Change: Any way to quantify some of the step up investments youre, making in personnel and other initiatives or maybe differently.
Speaker Change: So more of what types of.
Speaker Change: Earnings growth, you would view as possible for roughly a 10% topline growth rate any more perspective, there in a more normalized here.
Speaker Change: Yes, sure and we're not we're not guiding beyond 25 at this point, we will come out like calling said later in the year and have more of a long term.
Speaker Change: Algorithm and discussion around that I mean, ultimately we want to.
Speaker Change: Typically we would want to plan our SG&A below the sales the top line growth to your point, we would get leverage exactly that rate. We would have some growth and we would have EBITDA margin expansion. This year is a bit of a unique year as we've talked about we are investing in the blue ribbon team, including adding the CDO and the CMO and we also we've touched on the straight Colleen.
Speaker Change: As lapping against the interim CEO, who did not have CEO compensation.
Speaker Change: So that's that's a yes.
Speaker Change: That's a chunk of that and then the other component is continuing to have.
Speaker Change: So that we can invest in the strategic imperatives as.
As well so to your point this year is a bit of an anomaly, making sure we're building that foundation.
Speaker Change: And then we would expect to get leverage in the out years.
Speaker Change: Next question comes from Nathan <unk> from Morgan Stanley. Your line is open.
Nathan: Hi, good morning, and thanks for squeezing me in.
Nathan: Colin I wanted to just circle back and follow up on some of the comments you've made about development just in the prepared remarks in the earlier questions.
Nathan: Up until today I think the message on getting back to 200 units in terms of the gating factors had been a bit more external in nature things like interest rates real estate availability availability, which you've continued to talk about I guess your comments in the prepared remarks about aiming to achieve consistent increases.
Nathan: It seemed to me maybe the message is shifting a bit in terms of just saying Hey, we don't we don't want to grow too quickly I think.
Nathan: <unk> mentioned, establishing a reliable pattern of expansion so.
Understand chip Hasnt gotten in his seat and will hopefully hear from him later this year, but.
Nathan: Just to put a finer point on it is is the strategy in terms of unit development in the piece of that changing at all or you're just saying, there's a lot of moving pieces and we wanted to make sure chip Ken.
Nathan: Look at everything and then we'll come back to you later this year.
Nathan: I think it's a little bit of both Megan I think.
Nathan: Certainly we've had we've had questions.
Nathan: We've had questions recently about when will we get back to 200.
Nathan: Start printing something that starts with the two.
Nathan: So I think in endeavoring to kind of answer that question, even though we're not guiding longer term than 2025.
Nathan: I wanted to kind of.
Nathan: Kind of see that it's it's not five years, but it's not this year.
Nathan: And that we're looking to ramp ramp our cadence of growth and building a foundation with the right team the right resources.
Nathan: And then also looking at the at the build cost and safety human resources.
Nathan: It's not fully a CDO, it's also CDO and team and.
Nathan: And the resources that we've put in our real estate team to build relationships with brokers and developers to help our <unk>.
Nathan: To help our franchisees Ida.
Nathan: Identify great locations too.
Nathan: To fulfill their development opportunities.
Speaker Change: Okay, Great. That's helpful. And then maybe just a quick follow up for Jay.
Speaker Change: Capex looking at your guide for 'twenty, five you've had kind of two years of sizable increases in capex and as a percent of sales well above where we were kind of first pre COVID-19. So understand a lot of that's driven by the accelerating international expansion, but I guess beyond 25, how should we be thinking about future increases in.
Speaker Change: Capex should that start to moderate.
Speaker Change: As you become more established in these international markets and can shift a little bit more to a franchise model.
Speaker Change: Yes, I think Thats, a fair lens to put on it I mean, we're not guiding beyond 'twenty five and we're going to continue to leverage our financial strength and our balance sheet to recycle capital.
Speaker Change: So the intent is to re franchise vein.
Speaker Change: This year end.
Speaker Change: Then there could be another opportunity in Europe to do the same thing. So we're not forecasting out what that capex could be in the future.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Well at the same time remaining committed two ish 90 10.
Speaker Change: Alright, yes franchise.
Speaker Change: Couple of them.
Speaker Change: Yes.
Speaker Change: Next question comes from Corinne will Smith from Piper Sandler Your line is open.
Speaker Change: Hey, good morning, Thanks for taking the question I do want to touch a little bit more on the marketing spend in some of your marketing plans for the year. I mean, you have some new initiatives in place how should we be thinking about the cadence on spend throughout the next four quarters and how that spend this year should be comparing to prior years in terms of marketing and brand awareness. Thank you.
Speaker Change: Yes, I mean I'll touch on that.
Speaker Change: As you know the.
Speaker Change: The Knapp and laugh funds are a percentage of revenue would therefore as revenue grows so too.
Speaker Change: So too does the funding.
Speaker Change: In both laugh and naphtha at the local and the National AD funds.
Speaker Change: Youll see youll see increased spend on an annualized basis.
Speaker Change: We're always going to come out of the gate strong with a.
Speaker Change: With a fair proportion of the marketing spend in Q1 that will be both at the national level and the local level and as you know we for competitive reasons we are at.
Speaker Change: We don't really disclose where we're going to be spending more aware, we're going to be on promo.
Speaker Change: But know that we'll have we'll have coverage throughout the year and that there'll be promo periods in other quarters as well.
Speaker Change: Yes.
Speaker Change: Great. Thank you and then just as a follow up as we think about on the equipment upgrades that a lot of the franchisees are making but also some other unit build plans is there any.
Speaker Change: Any chance that maybe they're being faced with having to prioritize equipment over new unit growth and is that a choice that they'd been Huffington acre is that not.
Speaker Change: Consideration that they're having right now thanks.
Speaker Change: Yes.
Speaker Change: What I can say to that is that the vast majority.
Speaker Change: All of our franchisees are on pace with their development opportunities and at the same time as I mentioned.
Speaker Change: We've got a narrow band of quality and a good way right. Our franchisees are investing in their clubs meeting there.
Speaker Change: The re equip timelines made the discretionary decision to add additional strength equipment at the tail end of last year, and we expect that that additional those additional few pieces of strength equipment will be in virtually all of our clubs by the end of the year. This year. So.
It in balance and not.
Speaker Change: Not not a not not trading.
Speaker Change: Development for re equips or vice versa.
Alex <unk>: Your next question comes from Alex <unk> from Bank of America. Your line is open.
Speaker Change: Hi, Thanks for taking my questions here I guess just two for me.
Speaker Change: Are you seeing any differences in black card penetration by age demographic I think you spoke in the past about some some differences in terms of age cohorts to the black card penetration are you starting to see better uptake in the younger demographics and then my second question is it seems like the customer reception has been strong.
Going to the new strength equipment are you planning any more changes to optimize the box format is there other equipment or black card perks that you think members desire and sort of what informs.
Speaker Change: Your decision.
Speaker Change: Repurpose the box and then.
Speaker Change: With the addition of the strength of equipment is that something youre getting from customer surveys or what has informed some of that work. Thanks.
Speaker Change: Yes.
Speaker Change: I can start on the black card penetration.
Speaker Change: Demographic and we do see differences by age group I mean Gen Z is typically lower than some of the other.
Speaker Change: Generations.
Speaker Change: It's been consistent year over year, so no major change other than we've had a little bit of creep up obviously to the 64%.
Speaker Change: But that has not necessarily been driven by the Gen Z.
Speaker Change: Yes.
Speaker Change: I will touch on also say.
As they age as GNC ages, we see.
Speaker Change: Increases in in Black card penetration as well and then to answer your question on.
Speaker Change: The decision around the model and the strength of equipment and how we arrived at that those decisions.
Speaker Change: It is really a balance of both.
Speaker Change:
Speaker Change: Consumer survey.
Speaker Change: Data that helped inform a stronger preference for strength and how we've observed our members utilizing our clubs.
Speaker Change: <unk>.
Speaker Change: Both both data inputs are both pieces of input.
Speaker Change: Inform that decision.
Speaker Change: And as we've tested and tried new formats and survey our members and capture member feedback.
Speaker Change: <unk> had very favorable feedback about the increased complement of strength. It is important to recognize that.
Speaker Change: The additional pieces of strength equipment in the format optimization is in balance with the cardio.
Speaker Change: So we know that across generational cohorts theres, a greater utilization of strength equipment in.
Speaker Change: In our members or prospective members workout routines at the same time, we continue to refine and optimize the cardio mix as a for example.
Speaker Change: Look at utilization and we've pulled back on.
Speaker Change: Elliptical and arf trainers, but increased the complement of stair climbers and maintained a strong complement.
Speaker Change: Treadmills, so we use both data.
And consumer feedback to help inform the format optimization decisions and we're constantly testing.
Speaker Change: One of the beautiful things about having 10% of our fleet as corporate clubs, we've got a great test lab.
Speaker Change: To constantly be testing format optimization.
Speaker Change: And seeing what resonates most with our members.
Speaker Change: Perfect. That's very helpful best of luck going forward.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from <unk> <unk> from BNP Paribas. Your line is open.
Speaker Change: Hi, guys. Thanks for the question.
Speaker Change: Could you maybe give us a little bit more color on how January one in terms of the new year's event times.
Speaker Change: We're in kind of a response to the pricing during that key period.
Jay: Yes. This is Jay we're not commenting on Q1, we'll do that when we have our next earnings call, which will be early may.
Jay: Okay got it and then when you mentioned kind of consistent growth.
Jay: On the store.
Jay: Store openings over the next couple of years is 25 as an example of.
That consistent growth or is it.
Jay: That the cadence could actually.
Jay: Potentially change from here, a little bit better I think you mentioned potentially cadence ramping from here I think the answer to one question just curious how to think about the 25.
Jay: Yes, I would.
Jay: Think about I would think about 25.
Jay: And kind of our go forward plan again, we're not guiding beyond 25, yet.
Jay: I know everybody is looking for some longer range numbers.
Jay: We are very committed to providing those a little bit a little bit later in the year I think what you could read into some of the comments is that we've talked about kind of healthy.
Jay: Healthy sustained pace for growth.
And you've also heard us talk about getting back to an annualized openings number that starts with the two so.
Jay: So that you can infer EPS I'll, let you infer from that.
Jay: And again as it relates to the strategic imperatives win when we talk about accelerating growth.
Jay: We have we have talked about accelerating new club growth. So we're very growth focused we want to do it in the right and healthy way.
Jay: I've also said, we don't want to print one year, that's the year of the bumper crop and then have to lap that.
Jay: So again a healthy steady.
Jay: The steady pace of growth.
Jay: Very helpful. Thank you guys and more numbers later this year.
Jay: Yes. Thanks.
Jay: Okay.
Unidentified Moderator: <unk> Q&A session I will turn the call over to Colin King CEO for closing remarks.
Unidentified Moderator: Well. Thank you for all the questions I am excited about the progress that we've made in 2024 against our four strategic imperatives, which will enable us to accelerate healthy and sustainable growth and propel the brand forward. We continue to be focused on boosting the economic value proposition for.
Unidentified Moderator: All stakeholders franchise or franchisees and members to ultimately deliver even more value for our shareholders. Thank you everyone.
Unidentified Moderator: Ladies and gentlemen.
Unidentified Moderator: Today's call. Thank you all for joining and you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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