Planet Fitness, Inc. (PLNT Free Report) is likely to benefit from store expansion, digital efforts and marketing initiatives. Focusing on the Black Card mix of membership bode well. However, a decline in traffic from pre-pandemic levels is a concern.

Let us discuss the factors that highlight why investors should hold on to the stock for the time being.

Growth Drivers

Planet Fitness is one of the largest and fastest-growing franchisors as well as operators of fitness centers in the United States. To boost its presence in Mexico, the company announced a joint venture of a prominent local retail services company and one of its largest U.S. developers. The agreement is set for developing a minimum of 80 new stores over the next five years. During the first quarter of 2022, the company opened a store in Mexico under a development agreement. Meanwhile, the company emphasizes expanding its reach outside of the United States. To this end, the company announced an agreement to open a Planet Fitness branch in New Zealand. Through this initiative, it expects to open 25 locations over the next several years. Given the growth potential on the back of changing market dynamics and tailwinds related to health and wellness, the company remains optimistic for a 4,000-plus domestic store opportunity over the long term.

Apart from attracting new members to its brand, engaging existing members via its mobile app is a priority. The company intends to achieve this by focusing on driving downloads, app usage and enhanced functionality such as referral incentives, in-app messaging, notifications and improved account management tools. Features such as upgrades from the classic white card membership to the black card are an opportunity to drive rates.

The company continues to focus on its marketing muscle to drive growth. The company stated that it has transitioned from 16 marketing agencies to one (Publicis Groupe) to fuel incremental member growth. The agency will be looking after the company’s creative and media placement for its annual New Year’s sale. Consistent with the advertising strategy (covering national and local levels), the transition paves the path for lower media costs and solid member acquisition. As of Mar 31, 2022, the company had more than 16.2 million members compared with 15.2 million members as of Dec 31, 2021.

Increased focus on the Black Card mix of membership bode well. In summer 2021, the company launched a Black Card pricing test in 100 stores. Despite an increase in price, the company reported positive outcomes across key metrics such as acquisition rates, retention, average monthly dues per member and margin. Backed by the strong performance, the company initiated the rollout of new Black Card membership in May 2022 (at $24.99), covering additional 400 plus stores and access to premium digital content via PF+ platform. Given the solid offerings, the company remains optimistic about the untapped opportunities for its brand in the United States.

In the past year, shares of Planet Fitness have declined 5.3% compared with the industry’s fall of 40.4%.


Image Source: Zacks Investment Research

Concerns

The coronavirus crisis has affected the company’s business on a wide scale. In late December 2021 and early January 2022, the company reported softness in traffic due to a surge in Omicron cases. According to the U.S. Census Bureau, it’s estimated that approximately 14 million Americans did not work at some point from Dec 29 to Jan 10 because they had COVID or were caring for someone with COVID. Due to this, the company had to re-close certain stores under local guidelines. Although the company implemented enhanced sanitation measures and social-distancing protocols upon reopening, traffic is still below pre-pandemic levels.

Zacks Rank & Stocks to Consider

Planet Fitness currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Consumer Discretionary sector are Civeo Corporation (CVEO Free Report) , Bluegreen Vacations Holding Corporation (BVH Free Report) and Funko, Inc. (FNKO Free Report) .

Civeo sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 1,565.1%, on average. Shares of the company have increased 77.7% in the past year.

The Zacks Consensus Estimate for CVEO’s 2022 sales and earnings per share (EPS) suggests growth of 12.5% and 1,450%, respectively, from the year-ago period’s levels.

Bluegreen Vacations carries a Zacks Rank #2 (Buy). BVH has a trailing four-quarter earnings surprise of 85.9%, on average. The stock has increased 46.6% in the past year.

The Zacks Consensus Estimate for BVH’s current financial year sales and EPS indicates growth of 11.2% and 35.1%, respectively, from the year-ago period’s reported levels.

Funko carries a Zacks Rank #2. FNKO has a trailing four-quarter earnings surprise of 78.7%, on average. Shares of the company have declined 6% in the past year.

The Zacks Consensus Estimate for Funko’s current financial year sales and EPS suggests growth of 26.8% and 31%, respectively, from the year-ago period’s reported levels.

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