Planet Fitness races against rate hikes

Life Time group

18/09/2023 18:59

(The author is a Reuters Breakingviews columnist. The opinions
expressed are their own.)
       NEW YORK, Sept 18 (Reuters Breakingviews) - Planet
Fitness  PLNT.N  is struggling to adapt to a high-interest-rate
diet. After 13 years, boss Chris Rondeau on Friday abruptly
stepped down from the $4 billion gym chain, sending shares to
their lowest level in three years. With growing debt-servicing
costs crimping franchisees, the company can’t outrun rising
rates unless its next coach reconsiders rock-bottom prices.
    Under Rondeau, Planet Fitness benefited from a post-pandemic
exercise rebound, notching annual sales growth of over 40% in
the last two years as location count expanded by 13%. But last
month, it lowered projections for further growth, blaming
boosted construction costs that have left franchisees under
heavy debt burdens, doubly painful given the higher cost of
interest.
    Allowing franchisees to hike prices might be unpopular for a
company that prides itself on accessible dues. The price of a
base membership hasn’t budged from $10 a month despite
inflation. But rival Life Time  LTH.N  has shown it can work,
having jacked up dues by 12% per location since 2019. Its stock
is up 32% this year, while Planet Fitness’s is down by roughly
the same amount. Life Time boss Bahram Akradi said his old
approach of keeping prices low was a “mistake.” Planet Fitness
can fix the same error. (By Anita Ramaswamy)
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 (Editing by Jonathan Guilford, Sharon Lam and Aditya Sriwatsav)
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