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Planet Fitness Files for an IPO

Planet Fitness, the budget gym franchise, filed an S-1 for an initial public offering on June 22, 2015. While the company did not specify number of shares and price, the Planet Fitness' prospectus detailed an approximate offering size of $100 million. The company applied to list on the New York Stock Exchange under the ticker "PLNT." The IPO could value Planet Fitness at more than $2 billion, including debt.

In its filing, Planet Fitness is the largest U.S. fitness center operator, with over 7 million subscribers. The gym currently had close to 1,000 locations, 919 of which are own by franchisees (92% franchised units).

That would be an average of 7000 members per location. Even at $10.00 per member per month that sounds like a profitable $70,000 per month in average membership dues revenue.

From May 2014 to December 2014 I was the interim Executive Director of the Planet Fitness Independent Franchisee Association (PFIFA). I helped the franchisees to establish their independent franchisee association. The S-1 acknowledges the existance of PFIFA as well as the existance of the Planet Fitness Franchise Advisory Council.

Planet Fitness has experienced 33 consecutive quarters of system-wide same store sales growth. It also has a high store development pipeline (approximately 1000 more franchised locations). The company has grown drastically over the past four to five years. From 2010 - 2014, the number of stores grew more than 100%.

The company has stated in its S-1 filing that it can quadruple its store count to over 4,000 stores in the U.S. itself. That number is higher than any number I have heard before. There is no doubt in my mind as well as some franchisees that encroachment issues will develop such as lower membership dues collection per club on the way to 4,000 locations.

The franchisor has enormous debt, reportedly after being taken over by the private equity firm TSG for a reported $700 million in 2013. Its total debt as of Mar 31, 2015, was $506.4 million compared to equity of $12.4 million.

Planet Fitness’s franchise fee is $10,000 for a 10-year term with no protected territory. There is a renewal if you meet the francisor’s requirements. This renewal language is new in the 2015 FDD. The total investment ranges from $728,290 to $2,963,060 if you finance your equipment. The total investment including equipment ranges from $1.153,000 to $3,779,000, according to the Planet Fitness 2015 Franchise Disclosure Document (FDD). Franchisees must also pay a 5% ongoing royalty fee on all monthly and annual membership fees as well as 2% National Advertising of the total monthly dues collected. Locally franchisees are required to spend 7% of their total gross sales on advertising.

There is a requirement for the franchisees to replace cardio equipment every 4-5 years and non-cardio every 6- 7 years regardless of wear and tear. The franchisor discloses in the FDD that they have the right to receive commissions or other consideration from suppliers in connection with the franchisee’s purchase of goods, products and services. In the year ending December 31, 2014, Planet Fitness’s affiliate received $141,000.000 in commissions. Planet Fitness received an additional $22,800,000 in commission revenue which was 36% of their total 2014 revenue of $62,900,000.

It is unsure how Wall Street will accept this offering. Planet Fitness faces some challenges such as imitators, high percentage of franchised units, and a large debt load.

The company’s revenue lags competitors like LA Fitness, 24 Hour Fitness, and Equinox, even though it has far surpassed them in members and store count.

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About Jim Coen

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Franchise Specialist

With over 30 years of franchise, marketing, and entrepreneurial experience, Jim Coen is a franchise expert. Who can help prospective franchisees, private equity investors, franchisees, multi-unit franchisees, and stockholders, evaluate franchise business models and Franchise Disclosure Documents (FDD). Jim is not an attorney his specialty is analyzing the franchise business model for all stakeholders.

In May 2014 Jim was named the Interim Executive Director of The Planet Fitness Independent Franchisee Association (PFIFA) he finished in that capacity on October 31, 2014.

From September 2013 to November 2014, Jim served as the Executive Director of the Maine Franchise Owners Association (MFOA), this Maven served in that capacity on a part-time basis. This Maven is now a Member of the Board of Directors.

From April 1, 2008 thru November 2012 this Maven served as President of the Dunkin’ Donuts Independent Franchise Owners (DDIFO). DDIFO represents franchisees that own and operate over 2600 Dunkin’ Donuts shops in the US.

Jim served as the Vice Chairman of the Coalition of Franchisee Associations (CFA), from 2009 – 2011. As Vice-Chairman, Jim worked with the Fair Franchising Committee to develop the Universal Franchisee Bill of Rights (UFBOR).

From 2006 thru 2008, Jim was the Executive Director and Board Member of the New England Franchise Association (NEFA). NEFA is a franchise trade group that brings franchise executives, area developers, and vendors together to share ideas and best practices.

Prior to that Jim sold and trained franchisees at Supercoups, a direct mail company based in MA that is similar to Val Pak. Jim became VP of Sales for the largest Super Coups franchisee based in the Boston area.

 

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