The country’s largest publicly traded gym chain Planet Fitness Inc. (NASDAQ: PLNT) stock, has been slowly fading in a weekly descending price channel despite growing its membership to all-time highs of 18.1 million. While the pace of growth is slowing from 66% in Q1 2022 to 19% in Q1 2023, membership, gyms and revenues are still growing.

The NYSE: PLNT">gym franchisor opened 36 new gyms in Q1 2023 for a total system-wide total score of 2,446. Its gyms operate on a low-cost, no-frills strategy with memberships costing $10 to $25 a month after a startup fee ($10 to $49) compared to other gym and fitness studios like Xponential Fitness Inc. (NASDAQ: XPOF), Sport & Health, Gold’s, L.A. Fitness and Equinox that charge anywhere from $50 to $200 a month.

The low price point opens up its potential customer demographic range vastly. While inflation has impacted sports footwear and apparel makers like Nike Inc (NYSE: NKE), Planet Fitness' low-cost strategy has proven to be inflation-resistant. Inflation may work for them as 30% of its new members were previous members. As of Q1 2023, nearly 60% of its gyms are at or above pre-COVID revenue levels.

No Frills

The economics of a no-frills gym is simple. Sign up continuously as many members as possible due to the high turnover rate. Luckily, people tend to get lazy and rarely continue steady gym attendance, which enables gyms to accommodate members even during busy hours without a wait list or line to get into the gym.

All its members are unlikely to ever show up at once at a location. There would be no way to accommodate thousands of people in a single gym at one time. The top reason for membership cancellations is "no use"; no big surprise. Most locations are independently owned and franchised. The company is targeting growth to over 4,000 gyms.

Generational Customers?

Millennials and Gen-Z-ers lead its new memberships with 9% of each segment. Planet Fitness introduced a high school summer pass program that includes seamless online registration for high school teams to pay a one-time, flat fee to use the gym over the summer. Last year, they had 3.5 million team participants in the summer pass program and 2.3 million parents that signed them up.

Losing the Pump

On May 2, Planet Fitness released its fiscal first-quarter 2023 results for the quarter ending March 2023. The Company reported an adjusted earnings-per-share (EPS) profit of $0.41, excluding non-recurring items, versus consensus analyst estimates of $0.46, missing estimates by ($0.05).

Net income rose $6.4 million to $24.8 million. Revenues rose 19% year-over-year (YOY) to $222.23 million, falling short of analyst estimates of $238.3 million. System-wide same-store sales (SSS) rose 9.9%. System sales rose $147 million to $1.11 billion. Planet Fitness ended Q1 with 18.1 million members, adding 1.1 million in the quarter. The company bought back 25 million shares in Q1 and an additional 25 million in Q2. They have a 10% conversion rate turning them into regular members.

Reaffirmed Guidance

On June 7, 2023, Planet Fitness reaffirmed its guidance for fiscal full-year 2023 with EPS ranging from $2.18 to $2.23 versus $2.16 consensus analyst estimates. Full-year 2023 revenues are expected between $1.059 billion to $1.068 billion versus $1.05 billion estimat5es. Three-year revenues are expected to be low to mid-teens with adjusted EPS low to mid-20 % growth.

Analyst Downgrade

On June 23, 2023, Exane BNP Paribas cut its rating on PLNT from Neutral to Market Perform with a $57 price target. On June 6, 2023, Planet Fitness CEO bought 10K shares between $64.60 to $65.28, worth nearly $650K. 

Planet Fitness analyst ratings and price targets are at MarketBeat.

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Descending Price Channel

PLNT has been in a weekly descending price channel since peaking at $99.60 in November 2021. Shares have continuously made lower highs on bounces, forming a descending upper trendline, and lower lows on drops forming a parallel descending lower trendline.

Every attempt to breakout and hold above the upper trendline has failed, with the last attempt falling back under the $81.55 trendline in May 2023 to a low of $60.22 before forming a weekly market structure low (MSL) buy trigger at $69.19. Shares are back into the descending price channel range. Pullback support levels are at $60.22, $54.15, $49.42 and $45.87.