5 things to know about Planet Fitness

Planet Fitness, Inc. priced its initial public offering at $16 a share late Wednesday, the high end of its guidance range. The company sold 13.5 million shares to raise $216 million. Shares will start trading later Thursday on the New York Stock Exchange under the symbol “PLNT.”

Planet Fitness offers a chain of gyms and standard memberships for $10 a month. It says it has more than 7 million members and is “one of the fastest-growing health club franchises in the U.S.”

The company is majority owned by private-equity firm TSG Consumer Partners.

Here are five things to know before it goes public:

1. Planet Fitness has very specific branding

With a mantra of being a gym for anyone and a place without judgment, Planet Fitness
  says it owns or has rights to very particular phrases it uses in the gym and its branding.

These include the obvious “Planet Fitness” but extend to motivational phrases such as “No Lunks,” “No Gymtimidation” “Judgment Free Zone” and “You Belong.”

The stores also feature a similar décor with purple and yellow, branded gym equipment.

2. Membership costs are lower

Planet Fitness prides itself on offering low-cost memberships, with a standard membership at $10 a month and higher-tier membership, with its PF Black Card, at an average of $19.99 a month. With that deal, the company is looking to attract the “occasional and first-time gym users.”

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The company says its member base is composed of both high- and low-income households and is more than 50% female.

But the $10 deal may just be a way to reel people in. As part of its growth strategy, Planet Fitness aims to move those members to its Black Card Membership, which has grown from 38% in 2010 to 55% in 2014.

3. The company has a half billion dollars of debt

In its filing, Planet Fitness says it has “a substantial amount of debt” at $506.4 million as of March 31, 2015. That debt requires large interest payments and the company said it could hamper growth.

In the previous quarter, Planet Fitness reported $76.9 million in revenue, above the $57.6 million it had in the year-earlier period.

4. Franchise owners are a key part of the business

Planet Fitness has 976 stores in the U.S., Puerto Rico and Canada. The majority of the stores, 919, are franchised, while 57 are corporate-owned. Additionally, the company expects the franchised-store owners to drive growth of the company. It said owners have committed to opening more than 1,000 new stores.

“We view our franchisees as strategic partners in expanding the Planet Fitness store base and brand,” the filing states.

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This strategy allows the company to grow rapidly and gain a “substantial portion” of its capital from royalties—a percentage of membership dues and fees—paid by franchisees.

But that means its revenue streams and growth, as well as its brand image and ability to retain customers depends on the actions of third parties.

“We recognize that our success depends on a shared passion with our franchisees for providing a distinctive store experience based on a judgement-free environment and an exceptional value for our members,” the filing states.

5. Planet Fitness could become part of the tanning debate

Though Planet Fitness itself does not highlight tanning as part of its main services, the filing states that a “vast majority” of its locations have indoor tanning services, particularly for its Black Card members. This may be nice for now, but the filing highlights that these tanning beds could become a blight for the company if more negative publicity and opinions on tanning arise.

Negative public opinion could also bring about a drop in its Black Card memberships, it says.

If further regulatory action is taken by government agencies, Planet Fitness may have hefty fines to pay, the filing states.

“The continuation of our tanning services is dependent upon the public’s sustained belief that the benefits of using tanning services outweigh the risks of exposure to ultraviolet light,” the filing states.

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View more information: https://www.marketwatch.com/story/5-things-to-know-about-planet-fitness-2015-06-25

Articles in category: moneyist

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