Planet Fitness, Inc. :PLNT-US: Earnings Analysis: Q2, 2016 By the Numbers : August 15, 2016

Planet Fitness, Inc. reports financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of Planet Fitness, Inc. – Grupo Sports World SAB de CV Class S and Town Sports International Holdings, Inc. (SPORTS-MX and CLUB-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 91.47 million, Net Earnings of USD 4.13 million.
  • Gross margins widened from 39.22% to 43.98% compared to the same period last year, operating (EBITDA) margins now 38.84% from 33.90%.
  • Year-on-year change in operating cash flow of 41.58% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline largely a result of non-operational activity, pretax margins improved from 15.24% to 23.52%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 78.95 68.82 105.85 83.34 91.47
Revenue Growth (%YOY) N/A 19.49 68.82 8.35 15.86
Earnings (mil) 11.5 -3.89 2.49 3.37 4.13
Earnings Growth (%YOY) N/A -164.35 -71.89 -60.02 -64.07
Net Margin (%) 14.57 -5.66 2.35 4.04 4.52
EPS 0.31 -0.11 0.07 0.09 0.11
Return on Equity (%) 324.6 -1812.81 N/A 435.92 127.87
Return on Assets (%) 7.94 -2.43 1.42 1.94 2.26

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Market Share Versus Profits

Revenues History
Earnings History

PLNT-US‘s change in revenue this period compared to the same period last year of 15.86% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that PLNT-US is holding onto its market share. Also, for comparison purposes, revenues changed by 9.75% and earnings by 22.68% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 39.22% to 43.98%, while operating margins improved from 33.90% to 38.84% over this period. For comparison, gross margins were 44.72% and EBITDA margins 39.87% in the immediate last period.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

PLNT-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 21.04, compared to last year’s level of 0.93 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

PLNT-US‘s change in operating cash flow of 41.58% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Margins

The company’s earnings decline is largely a result of non-operational activity. As a matter of fact, the company showed increases in operating (EBIT) and pretax margins. EBIT margins improved from 23.57% to 30.45% and pretax margins widened from 15.24% to 23.52%.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

Planet Fitness, Inc. operates and franchises fitness centers. It operates through the following segments: Franchise, Corporate-Owned Stores, and Equipment. The Franchise segment includes operations related to the company’s franchising business in the U. S., Puerto Rico, and Canada. The Corporate-Owned Stores segment deals with the operations with respect to all corporate-owned stores throughout the U. S. and Canada. The Equipment segment sells equipment to franchisee-owned stores. The company was founded by Michael Grondahl and Marc Grondahl in 1992 and is headquartered in Newington, NH.

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