Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Planet Fitness fourth quarter 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question -and -answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, you can press star zero. Thank you. I would now like to hand the conference over to Brendon Frey. Please go ahead.
Thank you for joining us today to discuss Planet Fitness's fourth quarter 2019 earnings results. On today's call are Chris Rondeau, Chief Executive Officer, Dorvin Lively, President, and Tom Fitzgerald, Chief Financial Officer. Following Chris and Dorvin's prepared remarks, we'll open the call up for questions. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Planet Fitness' judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Planet Fitness' business. Accordingly, you should not place undue reliance on these forward-looking statements.
For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements included in our fourth quarter 2019 earnings release, which was furnished to the SEC today on Form 8-K, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today. With that, I'll turn the call over to Chris Rondeau, Chief Executive Officer of Planet Fitness. Chris?
Thank you, Brendon, and welcome to Planet Fitness's Q4 earnings call. We wrapped up another fantastic year for Planet Fitness in terms of brand growth and financial performance with another strong fourth quarter. Our recent quarterly results were highlighted by an 8.6% increase in same-store sales or a three-year stack comp of 30.3%. This also marked our 52nd consecutive quarter posting positive same-store sales, an incredible accomplishment for the brand. For the quarter, net member growth contributed to approximately 75% of the increase in same-store sales, reinforcing that consumers continue to be attracted to our judgment-free, affordable approach to fitness. For the full year, same-store sales increased 8.8% or 29.2% on a three-year stack comp basis, and we added approximately 1.9 million net new members in 2019, with approximately 14.4 million members system-wide.
Fourth quarter adjusted net income per diluted share grew 29.4% to $0.44, compared with $0.34 in the prior year period, and increased 30.3% to $1.59 for the full year. Thanks to our asset-light business model, we generated approximately $204 million in operating cash flow, which allowed us to invest in the business, including our headquarters support team and continued technology-focused initiatives. Along with our financing activities, returned over $458 million to shareholders through share repurchases. In 2019, we also had a big year in terms of expansion, and our well-capitalized franchisees continued to drive our strategic aggressive growth in both new and existing markets. In 2019, we opened 261 locations, a company record, consisting of 255 franchise locations and six corporate stores.
Coincidentally, we opened our 2,000th location on New Year's Eve and ended the year with 2,001 stores. This milestone is an incredible achievement and speaks to the passion and commitment of our entire system, franchisees, their team members on the front line of our stores, and our headquarters support team to furthering our mission of making fitness accessible, affordable, and non-intimidating, regardless of your fitness level. To put our growth in perspective, in the last five years, our store count has grown 118%, and member growth has grown 137%. We continue to be excited about the long runway for growth ahead of us, as we believe we have the ability to reach 4,000 locations in the U.S. alone. Outside the U.S., our opportunity is also substantial.
Today, our international presence is modest, consisting of 55 stores, mostly in Canada, with a handful in Dominican Republic, Panama, Mexico, and as of late last year, Australia. While domestic expansion remains our near-term priority, the pace of international openings is gaining speed, and we believe we are well-positioned to capitalize on our long-term potential in current and future international markets. Helping fuel our growth is our size and scale of our marketing budgets. Along with our differentiated messaging geared towards first-timers and casual gym users, these have proven to be important competitive advantages for Planet Fitness and have further widened the moat around our business. In 2019, between national and local advertising funds, collectively with our franchisees, we spent approximately $220 million on marketing, up from approximately $175 million a year ago.
With every new member we acquire, 2% of monthly dues goes toward our national advertising fund, while 7% goes to local advertising fund, growing our overall marketing machine with each new join to attract tomorrow's new member. A prime example of our marketing size and scale advantage continues to be our partnership with Times Square's iconic New Year's Eve celebration. This was our fifth year as presenting sponsor of the event, and we believe that having Planet Fitness' brand on a global stage where consumers have health and wellness top of mind drives brand awareness leading into January, the busiest time of year for our industry. Findings from our annual brand health study confirm that Planet Fitness not only remains number one in aided and unaided awareness in gym category, our awareness level continues to increase post New Year's Eve.
As it relates to our overall marketing strategy, we continue to be pleased with the enhancements we've made to our messaging, creative, and channel mix to optimize overall effectiveness and results. Now on to an update on our technology initiatives. In addition to attracting new members to our brand, engaging existing members via our mobile app remains a priority, with a focus on driving downloads, app usage, and enhanced functionality in future releases, such as referral incentives, in-app messaging, notifications, and enhanced account management tools. Features such as upgrades from our Classic Card membership to our Black Card remains an opportunity for us to drive rate.
We believe word-of-mouth marketing, driven by our vast membership base through the referral feature in the app, extends the reach of our marketing machine, capitalizing on our size and scale advantage, and helps to further expand brand awareness and consideration through our 14 million members. In the fourth quarter, we welcomed our new Chief Marketing Officer, Jeremy Tucker, and in January, our new Chief Financial Officer, Tom Fitzgerald, came on board. As you know, Tom succeeds Dorvin, who has served as our Chief Financial Officer since July 2013 and was promoted to Chief Financial Officer and President in April 2017. In Dorvin's continuing role as President, he remains focused on domestic and international store development, our corporate store portfolio, and providing leadership for the technology team. He will also continue to work closely with Tom and me to execute our strategic growth initiatives and long-term vision for the business.
In closing, 2019 was another very successful year for Planet Fitness. We posted strong financial results, opened a company record number of new locations, and added approximately 1.9 million net new members, invested in enhancing member experience, and collectively, with our franchisees, spent approximately $220 million to further increase brand awareness and acquisition. We also strengthened our foundation to support long-term growth by adding people and resources to our franchise support team, bringing on additional leadership to deepen our bench and bolster execution throughout the organization. It is extremely gratifying when our efforts are recognized outside the company.
To highlight a few, this past year, Planet Fitness once again received numerous industry accolades, including being named one of America's best companies for customer service by Newsweek and ranking among Fortune magazine's 100 fastest growing companies list as a top performer in revenues, profit, and stock returns over the past three years. 2020 is off to a good start, and I'm confident that Planet Fitness is poised to deliver increased shareholder value over the long term. I look forward to exciting things ahead and building upon our strong momentum. I'll now turn the call over to Dorvin.
Thanks, Chris. Good afternoon, everyone. I'll begin by reviewing the details of our fourth quarter results, highlights from 2019, and discuss our full year 2020 outlook. For the fourth quarter of 2019, total revenue increased 9.8% to $191.5 million from $174.4 million in the prior period. Total system-wide same-store sales increased 8.6%, and from a segment perspective, franchise same-store sales increased 8.8%, and our corporate store same-store sales increased 5.8%. Approximately 75% of our Q4 comp increase was driven by net member growth, with the balance being from rate growth. The rate growth was driven by 120 basis points increase in our Black Card penetration to 61.3%, compared with the prior period, combined with higher Black Card pricing for new joins. The rate growth was mostly driven by the Black Card price increases over the past two years.
The impact from Black Card pricing drove approximately 190 basis points of the increase in system-wide same-store sales. Our franchise segment revenue was $73.3 million, an increase of 29.6% from $56.5 million in the prior period. Let me break down the drivers for the quarter. Royalty revenue was $48.4 million, which consists of royalties on monthly membership dues and annual membership fees. This compares to royalty revenue of $38.5 million in the same quarter of last year, an increase of 25.7%. This year-over-year increase had three drivers. First, we ended the quarter with 237 more franchise stores compared to the same period last year. Second, as I mentioned, our franchise same-store sales increased by 8.8%. Third, a higher overall average royalty rate.
For the fourth quarter, the average royalty rate was 6.3%, up from 5.8% in the same period last year, driven by more stores at higher royalty rates compared to the same period last year. Our franchise and other fees were $4.5 million, compared to $3.5 million in the prior period. These are fees received from online new member sign-ups, the recognition of fees paid to us for new franchise agreements, area development agreements, and the transfer of existing stores, and fees received from processing dues through our point-of-sale system. Also within franchise segment revenue is our placement revenue, which was $5.6 million in the fourth quarter, compared to $3.8 million a year ago. These are fees we receive for assembly and placement of equipment sales to our franchise-owned stores within the U.S. National Advertising Fund revenue was $13.2 million, compared to $9.2 million last year.
Our corporate-owned store segment revenue increased 13.7% to $41.2 million from $36.2 million in the prior period. The $5 million increase was due to higher revenue of $3.1 million from corporate-owned stores opened or acquired since the end of the third quarter of last year. An increase in corporate-owned same-store sales of 5.8%, contributing $1.7 million, and increased annual fee revenue of $1.1 million. Turning to our equipment segment, revenue decreased by $4.6 million or 5.6% to $77 million from $81.6 million. The decrease was primarily due to lower replacement equipment sales to existing franchise-owned stores. Replacement equipment sales were 27% of total equipment sales in the quarter, compared to 37% during the same time last year. For the full year, replacement equipment sales were 25% higher than last year and were 46% of total equipment sales, compared to 44% the previous year.
Our cost of revenue, which primarily relates to direct cost of equipment sales to new and existing franchise-owned stores, amounted to $59.4 million, compared to $62.5 million a year ago, a decrease of 5%, which was driven by the decrease in equipment sales during the quarter as discussed above. Store operation expenses, which are associated with our corporate-owned stores, increased to $22.7 million compared to $19.9 million a year ago. The increase was primarily driven by costs associated with the nine new stores opened and 16 stores acquired since the end of third quarter of last year. SG&A for the quarter was $20.9 million compared to $20.4 million a year ago. For the quarter, we leveraged our SG&A as a percent of revenue by approximately 75 basis points, and for the full year by approximately 120 basis points.
National Advertising Fund expense was $13.1 million, offsetting the aforementioned NAF revenue we generated in the quarter. Our operating income increased 16.7% to $61.6 million for the quarter, compared to operating income of $52.7 million in the prior period, while operating margins increased 190 basis points to 32.2%. Our GAAP effective tax rate for the quarter was 24% compared to 15.6% in the prior year. As we've stated before, because of the income attributable to the non-controlling interest and not taxed at the Planet Fitness corporate level, an appropriate adjusted income tax rate would be approximately 26.8%, up 20 basis points from what I discussed on the last call. On a GAAP basis for the fourth quarter of 2019, net income attributable to Planet Fitness, Inc. was $29.7 million, or $0.36 per diluted share, compared to net income attributable to Planet Fitness, Inc.
of $24.8 million or $0.29 per diluted share in the prior period. Net income was $34.3 million, compared to $28.8 million a year ago. On an adjusted basis, net income was $39.2 million, compared to $32.5 million in the prior period, an increase of 20.6%. Adjusted net income per diluted share was $0.44, compared with $0.34 per diluted share in the prior period, an increase of 29.4%. Adjusted net income has been adjusted to exclude non-recurring expenses and reflect a normalized tax rate of 26.8% and 26.3% for the fourth quarter of 2019 and 2018, respectively. We have provided a reconciliation of adjusted net income to GAAP net income in today's earnings release.
Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation, and amortization, adjusted for the impact of certain non-cash and other items that are not considered in the evaluation of ongoing operating performance, increased 23% to $76.6 million from $62.3 million in the prior period. A reconciliation of adjusted EBITDA to GAAP net income can also be found in the earnings release. By segment, our franchise segment EBITDA increased 30.8% to $50.7 million, driven by royalties received from additional franchise-owned stores not included in the same-store sales base and an increase in franchise-owned same-store sales of 8.8%, as well as a higher overall average royalty rate. Our franchise segment adjusted EBITDA margins increased approximately 85 basis points to 69.5%.
Corporate-owned store segment EBITDA increased 3.6% to $15.1 million, driven by the 5.8% increase in corporate same-store sales, higher annual fees, the nine new stores opened, and stores acquired since the end of the third quarter of last year. Our corporate store segment adjusted EBITDA margins increased by approximately 75 basis points to 43.2%. Our equipment segment EBITDA decreased 1.7% to $18.7 million, driven by lower replacement equipment sales to existing franchise-owned stores versus a year ago. Our equipment segment adjusted EBITDA margins increased by approximately 100 basis points to 24.3%. Turning to the full year, let me quickly summarize the highlights for 2019. Revenue increased 20.2%. System-wide same-store sales were up 8.8% on top of a 10.2% increase in 2018 for a three-year stacked comp of 29.2%. Corporate store same-store sales increased 6.1%. Our average royalty rate for the year increased 50 basis points to 6.1%.
We placed equipment in a record 263 new stores, and replacement equipment sales increased 25%. Our adjusted EBITDA increased 26.4% to $282.2 million. We bought back and retired 6.1 million shares of Class A common stock, and our adjusted net income for diluted share was up 30.3%. Turning to the balance sheet. As of December 31, 2019, we had cash and cash equivalents of $436.3 million compared to $289.4 million on December 31, 2018. We announced a few transactions throughout 2019 that impacted our overall capital structure. In December, we completed an additional securitized financing transaction, which resulted in the issuance of $550 million of term notes. After expenses related to the transaction of approximately $11 million, the net proceeds from this transaction were approximately $539 million. Total long-term debt, excluding deferred financing costs, was $1.74 billion at December 31, 2019.
As I have previously stated, we believe the appropriate capital structure for the company would be a targeted gross leverage ratio in the range of four to 6x adjusted EBITDA. This is based upon the free cash flow generation of the business, our asset-light model, and our long runway for continued growth. Our gross debt to adjusted EBITDA leverage ratio as of 12/31/2019 on a trailing 12-month basis was approximately 6.1 x. Shifting to our share repurchase activity, we closed out the 2018 share repurchase authorization in Q3 of 2019. As previously announced, in November, the board approved a new $500 million share repurchase program. In December, we announced that we entered into a $300 million accelerated share repurchase agreement, which we expect to conclude in Q2 of 2020.
For the year, we utilized $458 million to repurchase 6.1 million shares and have $200 million remaining on our 2019 share repurchase authorization. With respect to cash use and investing activities, our total net spend in 2019 was $111 million, which included approximately $53 million for the 16 franchise stores we acquired during the year, including 12 in December. Additionally, we incurred approximately $17 million for new corporate stores, including six opened in 2019, and $23 million on our existing stores, including $7 million for replacement equipment. We incurred approximately $17 million on IT infrastructure investments in 2019. Now to our outlook. For the year ended December 31, 2020, we currently expect revenue to increase approximately 12% over the 2019 levels, driven by same-store sales growth of approximately 8% and the placement of equipment in approximately 240 new stores. In terms of quarterly cadence, 2020 will be different than 2019.
In quarter one, we expect to see new equipment placements lower by approximately 10-12 new stores, with quarter two flat to slightly up. As our line of sight becomes clearer through 2020, we will update our new equipment placement outlook. Replacement equipment sales are projected to be slightly less than 50% of total equipment sales, compared with 46% in 2019. Additionally, we expect our average royalty rate to increase approximately 30 basis points over 2019 levels and expect the Black Card pricing to drive an approximately 200 basis points increase in same-store sales. With respect to profitability, we currently expect adjusted EBITDA to grow approximately 15% and adjusted earnings per share to increase approximately 16% compared with 2019 levels. Our adjusted earnings per share guidance includes approximately $0.07 of dilution related to the 2019 securitized financing transaction.
Excluding this impact, we expect adjusted earnings per share to increase approximately 20%. This guidance is based on a fully diluted share count of 87.7 million shares and assumes no additional share repurchases and includes net interest expense of approximately $70 million, consisting of $80 million in interest expense and $10 million in interest income. For 2020, we anticipate CapEx to be approximately $65 million, including approximately eight new corporate stores. Compared to 2019, our 2020 spend includes approximately $13 million of additional expenditures on corporate-owned stores with no acquisitions planned and approximately $6 million less on IT infrastructure investments. I'll now turn the call back to the operator for questions.
Ladies and gentlemen, again, in order to ask a question, you do need to press star and then one on your telephone. We do ask that you try and limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Your first question is from Oliver Chen with Cowen and Company. Thank you. Please go ahead.
Hi, this is Jonna on for Oliver today. Thank you for taking our question. Just curious on your new store guide of 240 versus 260, in 2019, just what you're seeing in terms of this year and what's leading to that guide, and also in terms of your 8% guide, how much is attributable to the price increase and how you're thinking about the new membership growth as you're also making changes to your marketing strategy? Thank you very much.
Yeah. Thanks, Jonna. This is Dorvin. When we took a look at the way we've guided in the past, and we look at what's in the pipeline, what's in the line of sight. Based on where our franchisees are with respect to deals they're working on and the history of the franchisees, we decided to guide to the 240. A couple things to comment on. One is, we still have over 1,000 in the pipeline, and about half of those are in the next three years. That's pretty consistent with the past. Terms of factors that would affect development, such as real estate, any of these other kind of factors we've talked about in the past, we don't see any deterioration of any of those things that necessarily would slow that down.
Timing is such a huge element when it comes to real estate and really pipeline deals. We did guide slightly lower in Q4 or Q1 rather this year. Q1 of 2019 was the highest number of placements the company's ever had. The implied guide that we have now would still be higher than it was back in 2017 and 2018. I think the last point I'd make is that the guide we have as of right now is even higher than it was this time last year. As we did last year, quarter -by -quarter, as we get more insight into that line of sight, which is generally about a three to a six-month kind of time period, then we'll update our guidance as we go throughout the year. We feel very good about the economics of the model.
The franchisees continue to deploy capital and building out their markets. We think 240 is kind of an appropriate number for right now. In terms of your same-store sales question, the 8% guide includes approximately 200 basis points related to the Black Card pricing, which is a combination of both the $2 pricing increase back in 2017 as well as the $1 price that we took back in early September of last year.
Thank you.
Your next question is from John Heinbockel with Guggenheim Securities. Your line is open.
Hey, guys. Let me start with your take on member growth this year. Obviously, opening a few less clubs, do you think the member growth tracks close to what you had this past year, a little bit less? From a seasonality perspective, it's becoming gradually a little less first-quarter centric and more in two, three, and four. Do you think that continues in 2020, that gradual shift away from the first quarter?
Yeah, John, this is Chris. We do see the seasonality doesn't affect it quite like it used to, like we mentioned last year, where the summers aren't quite as a falloff as we once used to see years ago. I think what we've learned back on the marketing front from third quarter as we had talked about end of last year from the marketing mix and driving acquisition, we feel really good on the changes we had made and the reallocations of NAF dollars and those learnings into this year. We're really pleased with the momentum we're carrying.
Okay, maybe secondly, talk about your thoughts on Teen Summer Challenge, year two here in terms of how you get started, what you do differently on the marketing budget. I would think that it would be more impactful this year. That 900,000 would go up and the 60,000 member lift would go up as well. Maybe, talk about how you're going to attack that.
We're definitely relaunching it again this year for sure. I mean, it continues to get many accolades and awards even just as early as last week from a Golden Halo Award we got granted for it. It's a great initiative that we'll do this year. The beauty of it now is we now have hundreds of thousands of kids, the teens to now redirect and go after, and parents, as we mentioned before, emails that we're launching it. We have a base already baked in that we can go after and say, "We're relaunching. Come be the first of the teens in the U.S. to activate your second free summer." We've got a lot of initiatives around that to get more momentum. Hopefully, we blow that 900,000 teen number out of the water.
On top of that, we're going to use our new app actually too on the onboarding process for the teens. They will actually check in almost feeling like a real true member with their barcode on their app and some teen content and so on. We're looking forward to a little bit more structure around how we capture and interact with the teens this go around.
Okay. Thank you.
Thanks, John.
Thanks, John.
Your next question is from Randy Konik with Jefferies. Your line is open.
Yeah, thanks, guys. Just curious, Dorvin, I think you said that Black Card penetration was up about 120 basis points year-over-year. Is that correct?
Yes. The end -of -the -year Black Card percentage, yes.
Yeah, I think that's kind of gone up a tick more than being more flattish. Is there anything that you're seeing in the way that you're going about approaching conversion of White to Black? Any amenities being added more than in the past at locations? As you think about the future, are there other areas or amenities that your customers or your members are asking for that are a little bit outside the box that you're thinking through that could be more impactful for them as you continue to think through of innovative ways to continue to grow more things for those members to keep them happy and talk about those benefits to other potential members in the future? Give us some thoughts there, please?
Sure, Randy. We've talked a lot in the past about the biggest values out of the Black Card membership. Clearly, reciprocity is the number one benefit. As we just continue to add more and more clubs, and now over 2,000, the availability and the more likelihood of using that, whether it's you yourself wanting to use a club closer to home, closer to work, or just the fact that you have friends or someone that you want to take that might be at another location. The big value of reciprocity and guest privileges just continues to increase. You've heard us talk about that's really why we took the first price increase, then basically two years later, we tested again and took the dollar increase.
In both cases, we continued to see the Black Card percentage increase, quite frankly, even more so than while we were doing the pilot. I think it speaks to the value of the actual benefit you get from that, just with the scale that we continue to have as we open more stores. Second thing is that we continue to sign up more members online year after year through our web join process, and there's a higher propensity of those members to join as a Black Card member when you join online on a percentage basis versus when you join in a club. You kind of got a little bit of built-in momentum there.
I think the last thing I'd say is that, clearly over the last four or five years or so, and continue to do so today, we keep continuing building really nicer Black Card spa areas than where we had been if you go back years ago when that Black Card percentage was less. We always are looking for other options to add in the club that would cause you, if you come in and do a tour and you want to join, we want to be able to present that value proposition that would hopefully drive you to take the Black Card membership. I think down the road, to your point of maybe the wish list or what people might want, we've talked in the past, Chris and I, about digital content.
You walk into our club today, you'll see people that are consuming data off of their cell phone, leaning up against the wall or on the treadmill. They're looking at various types of content, whether it's exercise and fitness or entertainment, whatever the case may be. As we continue to enhance what we can offer through our mobile app, we want to be able to offer content that can be consumed not only in the club that most likely would require Black Card membership to get full access to that, maybe content that's kind of on the go as well that could be consumed outside the club. Those are the things that as we think about our overall strategy, particularly to drive more Black Card members, those are the pieces to the puzzle.
I guess the only thing I'd add to that too is with the new app. I'm sorry, Randy. I think the only thing I'd add too, [Aaron], as with the app now, the only way you could upgrade your membership to a Black Card would be to physically walk into a facility and go to the front desk and have a staff member upgrade you. With the app today, it's a one-click upgrade option. As more people adopt the app, the convenience of being able to upgrade on the fly has already proven to be really beneficial here. We just got to get more people upgraded and adopt the app. One-click option to be able to get it is an easy way to upgrade.
Great. Now, just one last question. I think you said in the past you used Buxton or what have you to help with thinking through the long-term opportunity on real estate. Have you contemplated doing any kind of updated work there, perhaps on a more micro level basis to kind of look at specific different densities in different parts of the country? For example, if you say your highest density is New Hampshire, I'm assuming, I'm not sure, how the density work may look where you could have added unit opportunity than previously contemplated when the work was done, I don't know, four or five years ago. What's the update there in terms of density work or that you're either doing or potentially doing in thinking through long-term real estate opportunity for the business?
Sure, Randy. You're right. We used to actually use Buxton, and today we use a company called Tango, which really incorporates a lot more data inputs that we can put in about site location, a lot of other factors including population density, drive times, income levels, et cetera. It's a more powerful tool for us and for our franchisees to use as we do our market planning. I think what I would say is that if you go back at the time of the IPO, we said that we had over 1,000 stores in the pipeline, and look at the number of stores we've opened in the last four years or so now, and we still have over 1,000 stores in the pipeline.
What we do, in concert with our franchisees, is either voluntarily, they come in and they say, "I bought a 15-store area development agreement and I've built 10. I think I can do 10 more." We amend their agreements and add more locations. Today, we can do that in a much more sophisticated way with these tools. It's all the way from things like having access to third-party data that tracks cell phone usage, how many cell phone devices are in parking lots, where they're coming from, where they're going. We've done some studies with consumer intercepts in our centers where we have stores. We know where they shop within the center.
We know if this is the first time that they really ever shopped in this location because they joined Planet Fitness or vice versa, that this is kind of their home shopping center, so to speak. All of a sudden, we open in the center, they join Planet. We have a lot of data that we can then take back to these landlords and REITs and prove to them that the old fallacy of the parking lot hogs of back in the day is no longer reality. Quite frankly, they're trying to find retailers that are out, not only wanting to take space, but are driving traffic.
We've even been able to get a number of our landlords and REITs in centers where we wanted to go into to give up their exclusion for fitness centers, which back in the day was kind of a given that they wanted to protect their parking. I think the net of it, Randy, is that one is we have obviously all the data to know the population density and then our penetration within the market and what percent of that penetration of the population do we have within a 12-15-minute drive time, which is kind of the sweet spot, and then we can see where we're not. That's how we do the market planning to maximize the number of stores that we think we can put in that market.
As you know, a number of the franchisees have monetized over the last two or three years, with bringing in private equity. We've resized all those markets where those area development agreements got sold and resized them based upon, in essence, much better data that we have today, not only with more stores, more members, but with more sophisticated tools as well.
Very helpful. Thanks, guys.
Thanks, Randy.
Your next question is from Jonathan Komp with Baird. Your line is open. Jonathan Komp with Baird.
Thank you. Hello?
Hey, John.
All right. Sorry about that. I wanted to first ask on the comps. If I look at the last two quarters, it looks like things have stabilized and accelerated a little bit in the fourth quarter. Now, obviously pretty different approach to the marketing so far in 2020. Just maybe wanted to hear your thoughts on what you're seeing and how you're planning comps for the year here.
Well, I said approximately 8% is what we're forecasting for this year. I think you're right. I think towards the fourth quarter, we saw some momentum and on the findings of that, we re-looked at our data that supported our spend on digital and moving some of that into more TV and specifically cable advertising, which is one of the bigger shifts we did. I think even the January sale, I couldn't get away from the TV commercial every time you put it on TV. I think you saw quite a bit of change here from the previous year. I think the momentum is good. We're happy with how the year started and coming from fourth quarter for sure.
I think the only thing I'd add to that, John, is that kind of implied in that guide of approximately 8%, we anticipate about 200 basis points or so related to pricing for 2020. I think that when you kind of back that out, you're really not all that far off for the last couple of years or so, at least on an annual basis, of kind of the non-pricing related comp. We think probably about 75% of our growth will be member growth as kind of where it's been fairly recently, with still some pricing embedded into some lingering on the $2 and then the $1 that we've talked about at the end of Q3 last year.
The other factor, as we've also talked about, we just have another 250 some odd stores that are in that base of stores on the comp waterfall that comps in that low to mid-single digit range.
Okay, great. Maybe a separate question on the unit growth outlook. I guess one question I had, maybe bigger picture, I know the annual unit growth has been a part of the annual incentives at the executive level. I just wanted to ask maybe if that still is the case, and if it is, how those targets align with the targets that you've put out for the guidance here for the year?
Yeah, we have different incentive factors that depending on the pyramid that you work in functionally, but clearly, store openings and placements is a critical factor. Same-store sales is also an element of that as well as EBITDA to drive profits to the bottom line. It still is a factor in our overall compensation plan.
Okay, got it. All right, thank you.
Thanks, John.
Your next question is from Sharon Zackfia with William Blair. Your line is open.
Hi, good afternoon.
Hi, Sharon.
Two different sets of questions. I guess first on equipment, I didn't hear you mention anything about supply chain challenges with China. If you could just talk to us about supply and whether or not you feel good about the equipment you have to facilitate new unit openings and replacement demand. Should we expect as well, equipment revenue to be down in the first quarter if placements are down? Secondarily, on marketing, you have a huge ad budget, and I'm just wondering, as you delve into optimization there, where the next legs could be on more optimization for the money you're spending.
Yes, Sharon. I'll take the first part and Chris can talk about the marketing. We're having fairly regular contact with our suppliers, as you can imagine, as a lot of companies are right now. We've been assured by all three of our manufacturers that they have plenty of supply in the distribution centers or in transit to get us all the way through the end of Q2. We have plenty of supply for Q1 and Q2 at this point, and we continue to monitor that on a regular basis. In terms of revenue for Q1, revenue will be down. I mentioned we'll have, say, 10-12 placements less this year than the highest we've ever had, which was in Q1 last year. We do expect that our replacement equipment sales on a full year basis will continue to grow. This past year, 2019, it was about 46%.
We think it'll be a bit higher in 2020. That is a little bit lumpy quarter -by -quarter. We do expect a slight decrease in sales on Q1.
Can I ask a follow-up just on that before the marketing question? Is all of the equipment assembled or made in China? If you had to prioritize, would you prioritize new unit openings relative to a replacement equipment if you were kind of limited in supply at some point?
Yeah. Our franchisees, they have the election to choose any of the three manufacturers for new equipment. They can pick any of the three. A lot of the equipment is actually manufactured in the U.S., some in Taiwan, and a little bit in Europe. A lot of it is in the U.S. They can do that. When it comes to re-equipping their clubs, they also can do that, but we don't let them pick and choose. You can't replace some pieces with one brand and then some pieces with another brand because we like the consistency of the branding from a member-facing experience perspective. We're not at a point where we think we'll ever have to prioritize that.
As I said earlier, we've been in contact with these guys, if not daily, weekly, just to make sure that we've got enough supply on hand, and they've assured us that we don't have any issues to get through Q1 and Q2. Quite frankly, we're probably the most important customer some of these guys have in terms of volume on an annual basis, so we get some prioritization with respect to our manufacturers.
On the marketing front, Sharon, I'd say we did the New Year's Eve. We renewed that contract for two more years. We also did "The Biggest Loser" this year, which they brought that back. That started end of January, another integration there. I think the bigger lever we have is we started to collect it in towards the tail end of last year. Although we got the spends, what the franchisees were doing locally, it was more the means and methods that we weren't capturing as diligently. Learning best practices around the system so that we can figure out and guide franchisees on their local spend for the 7%, what tactics they should be using so they were all aligned and all rowing in the same direction. That I think is a bigger lever for us to be pulling this year and in the future.
Thank you.
Thanks.
Your next question is from Peter Keith with Piper Sandler. Your line is open.
Hey, good afternoon, everyone. Nice quarter here. Was to ask you a question more on the revenue growth outlook. Hopefully, it's not an easy answer that I overlooked, but why is the revenue growth guided at 12% this year versus 15% at the start of last year with what looks like a fairly in-line comp outlook to last year?
Yeah. The total revenue number obviously is impacted in a big way by the equipment sales. That's the reason I made the comment to Sharon's question a while ago that we expect overall the replacement as a percent of the revenue to be up on a year-over-year basis. This year, in 2019, when we placed around 260 in total, so it's down. New stores on a year-over-year basis, that is really the only factor that's driving down revenue. It's offset by growth in our other segments, but the biggest decrease is coming from the guidance of approximately 240 new stores.
Okay. Does that carry forward to the EBITDA and net income guide? They're also, this year, a little bit lower than how you started last year? Are there other expense items?
Yeah
we should be aware of?
No, it's really a pretty straightforward flow-through. Call it a 23%-24% kind of margin business. There's not a lot of SG&A in that segment. When you take that and flow it through your model, really, on a year-over-year basis, the only other change is the debt structure. In my prepared remarks earlier, I addressed what the total gross and net interest expense we expect in 2020. Those are really the only other factors affecting the model.
Okay. That's helpful. I did want to pivot to some of the comments you made around the app. It seems like there's some interesting benefits that are helping your business. I was wondering if you were able to assess what the penetration of app usage is today, maybe versus where it started, 2019, and where you would like to get it to over the next year or so.
Yeah. It's still small. We at least rolled out tail end of last year, so it's two million active users. It's really just starting up here, but we're really focused on new joins, how do we get them onboarded correctly? That's our main focus. The current members are one thing, but the newer members as they're joining, how do we get them just to start using it right off the bat so that we can capitalize on it? You're right, whether it's the upgrades, the referral function too. We never really had a formal way for a member to refer another member. When you have a huge volume of joins, how do they tell their friends and family that they joined and hopefully offer them an incentive through them to join? Just some really neat tactics there.
Now it's just a matter of getting everybody onboarded so that we can capitalize on them. We haven't even rolled out messaging or in-app messaging and notifications. Once we roll that out, being able to speak to our members about promos we run so they can refer people. You can't underestimate, today, with over 14+ million members here, we're so much larger than even our competition, that it's such a huge member base that if you can talk to them and offer them incentives, that in itself and word-of-mouth marketing is just a powerful tool that no one else in the industry has.
Your next question comes from John Ivankoe with JPMorgan. Your line is open.
Sorry about that, guys. The cost of incremental debt would suggest that any acquisition of already established franchise clubs would actually be accretive to earnings, just by the straight math of it. Is there a number that you guys think about in terms of the number of company clubs that you would want to operate in the United States? Maybe there's a percentage of the total gyms that exist in the United States that you would potentially want to operate in. Would you consider actually owning any company stores internationally, given what your overall cost of incremental debt is?
Yeah, it's a good question, John, and we get this a lot, obviously, from both sides of the equation. There are some investors who will question why we have any, and there's two good answers to that. One is it really is a great kind of R&D lab for us, so to speak, because not only can we test things, but we've got a lot of people that work in our corporate office or now work out in the field with our franchisees that kind of grew up on the corporate store side. They understand the business and can be great business coaches to our franchisees. It's good to have that.
Secondly, we've gone down a strategy of saying we would like to operate some stores in most geographies so that we understand the different aspects of those geographies, all the way from, we have a store in downtown Boston, as you know, so we have an urban store. We have a couple stores in a really fairly high-crime area out in Oakland that you know quite well. We have stores in rural Pennsylvania and stores in New York and a lot of stores in New Hampshire, where it's very rural. It gives us a good read and a good kind of pulse on how the business operates in different geographies.
In terms of the strategy, we have a ROFR on every single location, and we take a look at not only does it make sense if a franchisee decides to sell, and we're nearby, that's kind of a no-brainer to take a look at. Sometimes we've done that, and we did a couple acquisitions last year. We're also looking at some of the better operators and some of the locations where there's some pipeline that could be built out incremental stores. Maybe it's a market where if we could dominate that market and kind of build the moat around us by building out stores and kind of getting there first, even if you take a decent-sized city, you got a lot of stores you could build there. We'd rather be first to market within that kind of shopping hub, so to speak.
We will continue to do that. We don't have a set number of stores that we would target in any year. In fact, our guidance for the year does not assume that we would buy any corporate stores. When those opportunities come up, because quite frankly, the EBITDA that they generate is pretty significant. We know everything about the store. We know the members. The operating costs are pretty easy because it's pretty much the same from store to store, but it's something we're going to continue to focus on. I don't think we have to be the largest, but I do believe, Chris and I have talked about this a lot, that we have historically been one of the larger groups.
We'd like to stay up in some of the larger groups and be a key player of our brands in some of those markets where we have stores.
We've seen restaurants go from what used to be 20% need to own in terms of understanding markets to well under 5%. Is there a percent just in terms of a philosophy that you would like to commit to? Then, secondly, for the record, my sister does say that the high crime area in Oakland is much less high crime than it used to be as that area has significantly changed. Thank you for that comment.
That's good, John. I appreciate that. Keep telling us how it's going. I think the way we look at it, John, is that we are an asset-light model. We generate a lot of cash. We've said we want to return cash to shareholders, yet we are and have deployed capital in buying some of the stores. There's a lot of strategies of markets where you have some onesies and twosies, so to speak, it makes a lot of sense, whether it's us or a franchisee, to control that market. We're looking at that as well as working with franchisees to dominate the market with one or two operators. I think when you get up into probably the 20%-25% range in that starts to get maybe a little bit high.
I think you would say, just because you know the QSR business so well, that there's not many franchise businesses out there that generate high 30s or 40% EBITDA margins. You could make an argument that in terms of the way investors tend to look at it, maybe you'd look at our business a little bit different. We're under 5% today, and I would say over time, we probably would increase that percentage a little bit.
Perfect. Thank you.
Thanks, John.
Your next question is from Rafe Jadrosich from Bank of America Merrill Lynch. Your line is open.
Hi, good afternoon, and thanks for taking my question, guys.
Hey, Rafe.
I just wanted to follow up on the question in terms of the priorities of capital allocation, and how do you think about the buyback longer term in terms of whether it's accretive to you on a near-term basis or not? Does that matter to you when you're deciding between whether to buy a club or buy back stock?
Yeah, I think, Rafe, the way we think about it is the acquisitions that we've done historically have all been in the, call it five to 7x EBITDA. Obviously, we're trading at a much larger multiple than that. That kind of goes to John's question that I just answered in that you could make an argument to buy a business all day long at five, six, 7x EBITDA when you're getting the kind of multiple valuation that we're getting. Rightly so, because we've been able to take stores and in essence, generate with the kind of comps we're generating, they just become more accretive.
On the one hand, we haven't deployed a significant amount of cash in that area, but that's something that, albeit not embedded into our guidance or our budget for 2020, we will always look at all the ROFRs that come along. In terms of the way we think about the broader strategy of capital allocation, we've stated this now since the last couple of years or so that we will return cash to shareholder. In fact, we've done so well north of $400 million last year and over six million shares. It is diluted to 2020. I mentioned that in my remarks. We believe that over time it's the right thing to do.
If we can keep growing comps, we have the confidence in our business, we have the confidence in our pipeline, this business will generate so much cash flow that we believe that's sort of the right thing to do. We have had conversations with our board about the right priorities of capital allocation, and those discussions have always been around stock buybacks, dividends, and then deploying capital in terms of corporate stores, both organic as well as acquisitive. So far, obviously the bigger piece has been cash returned via shareholder purchases or stock repurchases. We'll continue to look at all of those options every time we meet with our board and have a capital allocation conversation.
Okay. Thank you. That's really helpful. Chris, you mentioned international growth accelerating this year and then kind of going forward. Can you talk about just within the guide, how many of the openings will be international versus domestic? Can you sort of go through some of the key markets between Mexico, Canada, and Australia and talk about what you see there in terms of the long-term potential?
Maybe compare it to the U.S. Thanks.
Yeah, I'll take a stab at it, and Chris can add to it. Last year, we opened 261 stores. Out of that, 16 were international, so it's still a small percentage. We ended the year with 55 stores, mostly in Canada, as we've talked about. We have 44 stores in Canada. Last year, we opened 12. We just, most recently, at the end of the year, as we talked about Australia, so we have two stores open there. In terms of the opportunities and the way we currently see international, clearly, Canada, we've sized it at about 300, so it's a really important country for us.
Now with a base of 44 stores and growing, it's starting to get more scale, there's things that you can do with scale that you can't do when you only have just a small number of stores, be it, in this case, let's say Mexico or even Australia. Mexico, we also believe is a really important market for us. We do extremely well in a lot of Hispanic markets, from Southern Florida to Southern Texas and California. The stores we have down there at the moment, they do very well, and we think our brand will resonate in that as well. We're opening some more stores in the Monterrey area, testing kind of some different income levels to try to determine exactly where our brand can really excel in different economic structures down there.
Those are really probably the two markets at the moment that have kind of the biggest opportunity within most recently, as I mentioned, just going into Australia.
Your next question is from Joe Altobello with Raymond James. Your line is open.
Great. Thanks, guys. Good afternoon. I guess first question to Dorvin, just want to go back to some comments you made earlier about marketing and the fine-tuning of the marketing that needs to be done in 2020. I know you guys have done a very good job of reorienting the marketing effort back towards traditional and cable TV, for example, and away from digital. Beyond that sort of high level, what other fine-tuning do you guys see happening in 2020 on the marketing side?
This is Chris, actually. You may recall last year, we did a big market segmentation study on our member base and categorized our members into 5 different buckets and learned a lot about TV channels, retailers that they shop at, and so on and so forth. Not only have we directed more towards cable and from digital, but also fine-tuned what particular channel networks we're actually going to be on, besides network television being ABC or NBC, for example, but Food Network, History, A&E. It goes down a big list of them. Insights that we really didn't have before. We fine-tuned a lot of that part of it, and used that for end of last year as well as 2020.
Got it. Okay. Just one more on productivity. This sort of goes back to the commentary about opening 240 new stores this year versus 260 last year. If you look at the productivity of your recent new store openings compared to some of the older cohorts, how do they stack up? Is the productivity improving on the newer stores?
Yeah, I'd say if you look over the last, call it three years, four years or so, and you look at kind of the comps of older stores versus how stores kind of get out of the gate, there hasn't been any significant difference. We get this question a lot in terms of if you are in a higher market penetration area of the country where we have more stores and therefore a higher percentage of the TAM. We don't see really any significant difference from that than we do in a market where you have a lower percentage, which comes back to why we keep saying that we continue to have confidence in kind of that 4,000 potential in the U.S.
We even looked at our 100 oldest stores in the system, and our 100 oldest stores, which goes way back, actually last year outperformed even the more mature stores, older than, say, three or four years old. Not only are we seeing kind of those newer stores and then the kind of year two, three, four, five-year ramp, even the 100 oldest stores continue to comp positive and, in fact, higher than some of the mature stores. I think it speaks to a number of things. It's more and more marketing dollars, as Chris just talked about, going into a market. Obviously, in those markets where some of the oldest stores are, we have a lot more stores today, so you have the availability of reciprocity. You got the Black Card penetration can contribute to the total revenue, and then therefore the comp.
It just speaks to the power of the brand as we go into more and more markets, including some of the oldest we have and some of the highest penetrated markets we have today. We feel really good about how our store performance has been and feel good about what it's going to do even this year.
Great. Thank you, guys. Appreciate it.
Thank you, Joe.
Our last question comes from Simeon Siegel with BMO Capital Markets. Your line is open.
Thanks. Hi, guys. Any color you can share on what percent of Black Card members are still grandfathered in at the lower rates? Just congrats on that ongoing SG&A leverage. How are you thinking about that for the line item for next year? Thanks.
Yes. We don't break out, I guess, the layers of our pricing. We give what our total Black Card is versus our standard Classic Card membership. We still have pretty good size numbers at the $19.99 membership as well. We've talked about in the past as to maybe there's some stickiness to that. Over time, we'll see, because it's only been now nine quarters, I guess, since we put that price in effect. We don't break out that. What was the second part of your question?
How are you thinking about SG&A for next year?
SG&A.
Given the leverage.
Yeah. If you remember back in Q3, we said we'd get leverage for Q4 and then full year. Based on our guide, we believe we'll continue to get some leverage this year.
Great. Thanks a lot, guys. Best of luck for the year.
Thank you.
Thank you. Appreciate it.
This does conclude the Q&A period. I'll now turn it back over to Chris Rondeau for any closing remarks.
Great. Well, thanks everybody for joining the call today. It was a record year for us. We broke 2,000 stores, so we're halfway to that 4,000 number, as well as a record year of openings at 261. Really pleased with the changes in marketing and the performance there, and look forward to the Q1 release. Thank you.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.