Good afternoon. My name is Gabriel, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Planet Fitness fourth quarter 2018 earnings 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. If you'd like to ask a question during this time, simply press star one on your telephone keypad. If you'd like to withdraw your question, simply press the pound key. Thank you. Mr. Brendon Frey, you may begin your conference.
Thank you for joining us today to discuss Planet Fitness' fourth quarter 2018 earnings results. On today's call are Chris Rondeau, Chief Executive Officer, and Dorvin Lively, President and Chief Financial Officer. A copy of today's press release is available on the investor relations section of Planet Fitness' website at planetfitness.com. 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 that is included in our fourth quarter 2018 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' Q4 earnings call. 2018 was another banner year for Planet Fitness, and I am extremely pleased with the strong results we delivered. We rounded out 2018 with a fantastic fourth quarter, highlighted by double-digit same-store sales increase of 10.1% for a three-year stacked comp of 32.2%. This also marks our 48th straight quarter of posting positive same-store sales comps, which is truly incredible. Adjusted net income per diluted share grew 42% to $0.34, compared with $0.24 in the prior year period. For the quarter, net member growth contributed to over 70% of the increase in system-wide same-store sales, reinforcing that our differentiated and affordable approach to fitness continues to resonate with consumers.
For the full year, comps increased 10.2% for the second year in a row, and we added approximately 1.9 million net new members to end 2018 with approximately 12.5 million members system-wide. What is remarkable about these figures is that we believe our affordable and non-intimidating approach to fitness is expanding the overall health and fitness market, evidenced by the fact that 35% of our new member joins identify as first-time gym members. Even with our tremendous success over the past several years, we are confident there is still a long runway for growth well into the future. We are continuing to thoughtfully and aggressively expand our presence, and we still have the opportunity to more than double our domestic store footprint. In 2018, we opened 230 new stores system-wide, which included selling and placing equipment in a record 228 new stores.
This growth is led by our passionate and proven well-capitalized franchisees who continue to reinvest in their businesses by opening stores in both new and existing markets. Of the 230 new store openings in 2018, 226 were franchise stores and 4 were corporate stores, and we ended the year with 1,742 stores system-wide. The makeup of our franchise system is also a competitive advantage for us. With more than 90% of our growth coming from existing franchisees opening more stores, we know that they understand and believe in the model and can run our playbook and are strong operators. We also have more than 10 franchise groups who have partnered with private equity to accelerate their growth, build out their systems, and leadership teams as they scale their businesses.
The sophistication of our franchise system, combined with our franchisees' passion for our mission and bullish growth plans, continues to set us apart from other franchise brands. Looking ahead, real estate trends appear to remain in our favor as many bricks-and-mortar retailers continue to close stores and landlords are increasingly looking to Planet Fitness as key tenants to drive traffic to their centers. In addition, we are also working with a variety of retailers who are looking to downsize their boxes in markets where we are looking to expand our presence. In an effort to better capitalize on our growing availability of real estate, we have hired a handful of our own in-house real estate brokers to work with our franchisees locally on sourcing and securing premium sites.
Based on our investments we've made in our franchise support team, the strength of our business model, and our franchisees' increasingly bullish growth plans, combined with favorable real estate trends, we are increasing our new equipment sale and placement target in 2019 to approximately 225, up from the roughly 200 we've targeted at the start the past few years. Also fueling our confidence in the future is our large and growing advertising budget. Through our national and local advertising funds, we spent approximately $175 million on our collective marketing efforts to highlight our unique judgment-free environment that caters to casual and first-time gym-goers versus avid exercisers like traditional gyms, up from $130 million in 2017. 2% of every member's monthly dues is allocated to the national ad fund, while 7% goes towards local marketing. With every new incremental member, our marketing machine gets bigger.
This is a huge competitive advantage for us and allows us to run our memorable and television ads nationally, explore new brand partnership opportunities, and continue to sponsor marquee events like the Times Square iconic New Year's Eve celebration for the fourth year in a row. New for 2019 New Year's Eve celebration, we expanded our presence on both coasts in New York City and L.A. with increased branding and celebrity integration. I had the pleasure of attending the event in person this year, and I can tell you that the rain did not put a damper on the celebration. Times Square was a sea of purple and yellow, and over 1 million revelers on site, and 1 billion viewers TV worldwide were exposed to our brand.
Speaking of exposure, results from our annual brand health survey continue to show Planet Fitness ranking number 1 in brand awareness in the gym category. Our marketing efforts remain focused on reaching new consumers and engaging existing customers. Currently, millennials make up our largest demographic, and we believe we are well-positioned to capitalize on opportunities with Gen Z, an even larger generation that follows millennials and makes up approximately 26% of the U.S. population, according to Nielsen data. Teen Summer Challenge Pilot Program, which allowed New Hampshire high school teens ages 15 to 18 to work out free all summer, was extremely successful and helped introduce members of Gen Z and their parents to our brand, build loyalty and affinity.
Providing youth with free access to fitness not only addresses the important societal need to help teens get active and increase their overall health and wellness, we believe it is also a great opportunity for our brand in the long run, and we look forward to potentially expanding this program nationwide this summer. Switching gears now to an update on our connected equipment tests from our three suppliers in 15 stores. The plan is to implement the initial test learnings ahead of expanding the test to additional locations later in the year. Early member feedback includes a desire for enhanced fitness functionality. For example, the ability to track progress over time, receive recommendations on what to do next, and to see how their results stack up against others. While many have logged on to watch TV, having access to Amazon, Facebook, Netflix, et cetera, has not been a top priority.
In the second quarter, we'll begin launching our new proprietary Planet Fitness app, which will give us the opportunity to influence the mobile member experience via enhanced functionality and design. Release 1.0 will include streamlining existing functionality, including members' digital key tag, workout tracking, and the ability to find a club and join, along with several new features. We also recently completed our first member segmentation study that looked at usage and membership insights to learn more about our members' behavior at the gym. At the same time, we conducted customer journey mapping work to better understand the needs and desires of our members within each segment, and how Planet Fitness can deliver against them. The intersection and outcome of this work will help to shape the delivery and increased personalized member experiences.
We are encouraged by the first steps we have taken towards delivering a more personalized and connected fitness journey to our members via our equipment enhanced mobile app, which we believe will further differentiate our concept and strengthen our offering with casual and first-time gym-goers. Finally, we continue to explore additional brand partnership opportunities outside of the store that could provide discounts to members on a wide variety of products and services. With approximately 12.5 million members, we believe we can leverage our size and scale to provide additional value and further enrich our members' lives. In closing, 2018 was another very successful year for Planet Fitness.
On top of the strong financial results we achieved, I am very pleased that the hard work of our franchisees, club staff, and corporate employees continues to be recognized by leading publications such as Newsweek, which named Planet Fitness number one in customer service among fitness clubs. We also placed seventh in Entrepreneur Magazine's annual Franchise 500 ranking, the highest of any fitness concept. Never before has there been so much opportunity for Planet Fitness brand and our low-cost, high-value offering. Our platform is built to support multiple growth vehicles, including more than doubling our U.S. footprint to 4,000 stores, developing an enhanced digital offering to enhance members' experience, and expanding our affinity network.
With our great group of franchisees, passionate teams throughout the organization, and growing marketing machine, I am confident as ever that this company is strongly positioned to continue to grow the overall health and fitness market for years to come. Board of directors is also extremely confident in our future, evidenced by the decision to increase our buyback authorization to $500 million last August, which we acted on aggressively through the $300 million accelerated share repurchase program we entered into November. With that, I'll turn the call over to Dave.
Thanks, Chris, and good afternoon, everyone. I'll begin by reviewing the details of our fourth quarter results, highlights from 2018, and then discuss our full year 2019 outlook. For the fourth quarter of 2018, total revenue increased 30.1% to $174.4 million, from $134 million in the prior period. Total system-wide same-store sales increased 10.1%. From a segment perspective, franchisee same-store sales increased 10.1%, and our corporate same-store sales increased 9%. Approximately 70% of our Q4 comp increase was driven by net member growth, with the balance being rate growth. The rate growth was driven by a 30-basis-point increase in our PF Black Card penetration to 60.1% compared with last year, combined with a $2 increase in PF Black Card pricing for new joins that was put in place system-wide on October 1 of 2017.
During the quarter, the increased PF Black Card pricing drove approximately 300 basis points of the increase in same-store sales. Our franchise segment revenue, which beginning in 2018 now includes National Advertising Fund revenue, was $56.6 million, an increase of 41.4% from $40 million in the prior period. Let me break down the drivers for the quarter. Royalty revenue was $38.5 million, which consists of royalties on monthly membership dues and annual membership fees. This compares to royalty revenue of $27.1 million in the same quarter of last year, an increase of 41.8%. This year-over-year increase had three drivers. First, we have 210 more franchise stores since the fourth quarter of last year. Second, as I mentioned, our franchisee-owned same-store sales increased by 10.1%. Third, a higher overall average royalty rate.
For the fourth quarter, the average royalty rate was 5.8%, up from 4.8% in the same period last year, driven by more stores at higher royalty rates, including stores that amended their existing franchise agreements to increase the royalty rate instead of paying certain fees and commissions, as I will discuss below. At the end of Q4, we had approximately 86% of our store base no longer on the commission structure, compared to approximately 60% in the prior period. Our franchise and other fees were $3.5 million, compared to $6.4 million in the prior year. These fees are received from processing dues through our point-of-sale system, fees from online new member sign-ups, fees paid to us for new franchise agreements and area development agreements, as well as fees related to the transfer of existing stores.
The decrease was primarily due to the number of stores that have amended their existing franchise agreements to increase the royalty rate instead of paying these fees just mentioned. In addition, the change in how we recognize ADA and FA fee revenue was about a $0.7 million headwind in Q4 of this year compared to the prior quarter. As we outlined previously, we now recognize these fees over the life of the agreement versus at the time the related franchise agreement and lease is signed. Also within franchise segment revenue is our placement revenue, which was $3.8 million in the fourth quarter compared to $4 million last year. These are fees we receive for assembly and placement of equipment sales to our franchise-owned stores.
Our commission income, which are commissions from third-party preferred vendor arrangements and equipment commissions for international stores, was $1.6 million, compared with $2.5 million a year ago. The decrease was primarily attributable to the number of stores that have amended their existing franchise agreements to increase the royalty rate instead of paying these commissions, as just discussed. National advertising fund revenue was $9.2 million compared to zero last year as the new GAAP rules related to how we account for NAF contributions went into effect on January 1, 2018. As a reminder, prior to this year, the NAF contributions really only had an impact on the balance sheet. Due to recent accounting changes, we now recognize these contributions as revenue and record the expenses associated with the national ad fund as marketing expenses.
Our corporate-owned store segment revenue increased 28.4% to $36.2 million from $28.2 million in the prior period. Of the $8 million increase, $4.5 million was driven by the 10 franchise stores we acquired in Long Island and Colorado earlier in the year. $1.6 million was due to primarily the four new corporate stores we opened in late 2017, and to a lesser extent, the four new corporate stores opened in the second half of 2018. $1.9 million was driven by corporate-owned same-store sales increase of 9%, as well as increased annual fee revenue. Turning to the equipment segment, revenue increased by $15.8 million or 24% to $81.6 million from $65.8 million. The increase was driven by higher replacement equipment sales to existing franchisee-owned stores. For 2018, replacement equipment sales were 44% of our total equipment sales compared to 38% for the prior year.
Our cost of revenue, which primarily relates to the direct cost of equipment sales to franchise-owned stores, amounted to $62.5 million compared to $50.9 million a year ago, an increase of 22.9%, which was driven by the increase in equipment sales during the quarter as discussed above. Store operation expenses, which are associated with our corporate-owned stores, increased to $19.9 million compared to $15.3 million a year ago. The increase was driven primarily by costs associated with the 10 new stores we acquired in 2018 and the opening of the four new stores in the second half of 2018, including pre-opening expenses. SGA for the quarter was $20.4 million, up 15.5% compared to $17.7 million a year ago, driven by incremental payroll to support our growing operations and higher variable and equity compensation.
National advertising fund expense was $9.6 million, more than offsetting the aforementioned NAF revenue of $9.2 million we generated in the quarter. Our operating income increased 24.8% to $52.7 million for the quarter, compared to operating income of $42.3 million in the prior period. Operating margins decreased approximately 130 basis points to 30.2% in the fourth quarter of 2018. This decrease was driven by the gross-up on the income statement from the NAF revenue and the NAF expense mentioned earlier, which negatively impacted operating margins by approximately 170 basis points compared to a year ago. On an adjusted basis, excluding certain one-time costs and the impact of NAF revenue, adjusted operating income margins increased approximately 10 basis points to 32.5%. Our GAAP effective tax rate for the fourth quarter was 15.6% compared to 99.8% in the prior period.
As we have stated before, because of the income attributable to the non-controlling interest, which is not taxed at the Planet Fitness corporate level, and any discrete tax items recorded during the period, such as the impact of tax reform or state tax rate changes, an appropriate adjusted income tax rate for 2017 was approximately 39.5% if all the earnings of the company were taxed at the Planet Fitness Inc. level. For 2018, following the passage of tax reform in late 2017, an appropriate adjusted income tax rate would be approximately 26.3%. On a GAAP basis for the fourth quarter of 2018, net income attributable to Planet Fitness Inc. was $24.8 million, or $0.29 per diluted share, compared to a net loss of $3.5 million or $0.04 per diluted share in the prior period. Net income was $28.8 million compared to $0.8 million a year ago.
On an adjusted basis, net income was $32.5 million or $0.34 per diluted share, an increase of 38.1% compared with $23.5 million or $0.24 per diluted share in the prior period. Adjusted net income has been adjusted to exclude non-recurring expenses and reflect a normalized tax rate of 26.3% and 39.5% for the fourth quarter of 2018 and 2017, 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 21.6% to $62.3 million from $51.2 million in the prior period. A reconciliation of adjusted EBITDA to GAAP net income can also be found in the earnings release.
On an adjusted basis and excluding the impact of NAF revenue, adjusted EBITDA margins decreased approximately 50 basis points to 37.7%. The year-over-year decrease in adjusted EBITDA margin had three drivers. First, the higher SG&A expenses mentioned in my earlier comments. Second, higher losses from foreign exchange rates, reducing margins by approximately 25 basis points. Third, higher net NAF expense as a result of the timing of NAF expense exceeding NAF contribution revenue, reducing margin approximately 25 basis points. By segment, our franchise segment EBITDA increased 21.1% to $38.8 million, driven by higher 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 10.1%, as well as a higher overall average royalty rate. Excluding NAF revenue, our franchise segment adjusted EBITDA margins increased by approximately 100 basis points to 82.1%.
The increase in adjusted EBITDA margin was due to the 18.4% increase in revenue, excluding NAF, partially offset by the higher SG&A costs discussed above, and the net NAF expense reducing margins by approximately 90 basis points due to the timing mentioned above. Corporate-owned store segment EBITDA increased 29.4% to $14.6 million, driven primarily by the 9% increase in corporate same-store sales, higher annual fees, the 10 franchise stores we acquired in 2018, and the four stores we opened in late 2017. Our corporate store segment adjusted EBITDA margins decreased approximately 20 basis points to 42.5%. The decrease in margin was twofold. First, the impact of the four new stores opened in 2018 decreased margins by approximately 100 basis points as a result of the expected new store ramp. Second, higher losses on foreign exchange rates, which reduced margins by approximately 120 basis points.
Partially offsetting these reductions were increased margins of approximately 200 basis points across the remaining stores due to the increase in same-store sales of 9%, increased margin from the 10 acquired stores of approximately 10 basis points, and increased margins from the four new 2017 stores of approximately 30 basis points due to their expected ramp. Our equipment segment EBITDA increased 27.3% to $19 million, driven by higher replacement equipment sales to existing franchise-owned stores versus year ago. Our equipment segment adjusted EBITDA margins were 23.3%, up 60 basis points from 22.7% a year ago. Turning to the full year, let me quickly summarize the highlights for 2018. Revenue increased 33.3%. Systemwide same-store sales were up 10.2% on top of a 10.2% increase in 2017. Our average royalty rate for the year increased 136 basis points to 5.61%. Corporate store same-store sales increased 6.5%.
Equipment segment revenue increased 25.3%, which included a record 228 new store equipment sales. Our adjusted EBITDA increased 20.8% to $223.2 million, and our adjusted net income was up 45.3%. Turning to the balance sheet. As of December 31st, 2018, we had cash and cash equivalents of $289.4 million and undrawn borrowing capacity under our variable funding note of $75 million. During the fourth quarter, we entered into a $300 million accelerated share repurchase agreement with Citibank. Pursuant to the terms of the agreement, we retired approximately 4.6 million shares, which is approximately 80% of the shares we expect to repurchase under the ASR. We expect the ASR to be completed by no later than the second quarter of this year. As of 2018, approximately $158 million remained of the $500 million share repurchase plan that the board approved in August of last year.
Total long-term debt, excluding deferred financing cost, was $1.2 billion at the end of Q4, consisting solely of our whole business securitization, which includes $575 million of four-year notes due in September of 2022, with a fixed interest rate of 4.262%, and $625 million of seven-year notes due in September of 2025, with an interest rate of 4.666%. Let me discuss our CapEx for the year. With respect to cash used in investing activities, our total net spend in 2018 was approximately $86 million, which included approximately $46 million for the 10 franchise stores we acquired in Long Island and Colorado, driving $4.5 million of additional revenue in 2018. We incurred approximately $10 million for four new corporate stores, $3 million for replacement equipment of our corporate store base, and $5 million for a building and land purchase related to an existing corporate store.
We incurred approximately $9 million on IT infrastructure investments, and the remaining expenditures were primarily associated with corporate store renovation projects. To our outlook for 2019. For the year ended December 31, 2019, we currently expect the revenue to increase approximately 15% over 2018 levels, driven by same-store sales growth in the high single digits and the sale and placement of equipment in approximately 225 new stores. We anticipate that replacement equipment sales to be slightly under 50% of our total equipment sales in 2019. While the number of new store equipment sales and placements for 2019 is projected to be similar to 2018, the quarterly cadence will be different.
Based on the current timing as we see today, we expect to see an increase in the number of new store equipment sales and placements during the first half compared with last year, particularly in the first quarter, and a decline in the second half, with the biggest reduction on a year-over-year basis coming in the fourth quarter. We see good continued momentum coming into 2019. With respect to profitability, we currently expect adjusted EBITDA to grow approximately 20%, adjusted net income to grow approximately 18%, with diluted EPS increasing approximately 25% based on the fully diluted share count of 92.4 million shares. For 2019, we anticipate CapEx to be approximately $50 million, including approximately five new corporate stores. Compared to 2018, our 2019 spend includes approximately $10 million of additional expenditures on corporate-owned stores and approximately $5 million of additional expenditures on IT infrastructure investments.
I'll now turn the call back to the operator for questions.
Thank you. At this time, I'd like to remind everyone, in order to ask a question, simply press star, then the number one on your telephone keypad. The first question comes from the line of Oliver Chen of Cowen. Your line is open.
Thank you very much. Congratulations. Given the momentum that you've seen, how are you thinking about new unit growth and the new unit growth opportunity, particularly as you see such great real estate availability? Also, there's some clubs that are probably very saturated in terms of number of members. Just would love your thoughts there. Chris, you mentioned membership segmentation and customer journey mapping. As we align that with our financial models, how do you think that will play into the comp store sales or the shrink in terms of turnover? That would be great to get your views. Thank you.
Great, Oliver. It's Dorvin. I'll take the first part of that, Chris can add to it and then take the segmentation question. I would say that as we discussed back on the last two to three quarterly conference calls, the trends from a real estate perspective continue to be in our favor. As our scale gets bigger, as we get more stores in markets, the presence of the brand, the landlords that are looking at either vacant real estate, we know them, we know the major landlords regionally in markets. We know the national big landlords. We meet with them regularly, and they're looking to fill little boxes. Then including stores that are going to be coming off lease, whether it's the next 12, 24, 36 months.
We've also said that we continue to talk to some of the major retailers that are looking to downsize their real estate, some of their boxes. I know we've talked about whether it would be Kohl's or someone else like that. I think that we're the perfect tenant for that because we do drive the traffic, and we drive the traffic early in the week as opposed to the end of the week when maybe some of the other tenants are driving traffic to their centers. I would say, if you look, our results for the quarter came in just slightly ahead of where we had guided the Street to at the end of Q3 based on a full year, and a pretty healthy increase over 2018. Our guidance reflects very similar number of new units in 2019 as well.
We continue to see really good favorability on the real estate front. As Chris made some comments on his first part, our franchisees now are, with their size and scale and sophistication, are willing to put the capital work when those opportunities come up. In the past, maybe they were only going to do three or four a year. Well, now if real estate comes up, they might do eight or 10 a year. That's what happens when you have franchisees that are sophisticated with market planning and have the talent in place to keep their pipeline in development mode. I guess I'd summarize by saying, I think real estate trends are as good as they've ever been. We are a tenant that a lot of these guys look to.
We see, as I made in my prepared remarks, we see good trends coming on into 2019 as well.
Hey, Oliver, it's Chris. With the customer member segment study as well as the journey mapping, it's still too early to tell as we just wrapped it up. For the first time now that we've done this, now to figure out the segments that our members fall in, what's the right way to communicate with them, connect with them, and the channel of preference, and how we interact with them, as well as the customer journey mapping. What each of those segments really like, and what's their experiences that they really want from our brand. It's still early to tell, but I can only imagine it can only move the needle as we learn how to communicate with these people better.
Okay. Very helpful. Just last question. One question we get is your approach to PF Black Card pricing. You're really offering a compelling value with PF Black Card pricing, what's your framework for thinking about future potential increases? Dorvin, as we model the comp in the year ahead, do you expect that ratio of pricing versus member growth to be 70/30? Just would love parameters around that. Thank you.
October of 2017 was when we moved it last. That was that $2 increase, which we've talked about. That was the first time we've moved it in, well, essentially forever. The reason for that one was reciprocity, which we had back then probably 1,500 stores, now we're close to 1,700. It does beg the question that as we get more stores, can the reciprocity by itself push more price? I think there's some opportunity there, for sure, as we continue to open more stores. On top of that, as we look at the Planet Fitness experience and the technology we're rolling out with the new app that's coming out in second quarter and more functionality for the members, whether it's content inside and outside the club, maybe some nutrition components in the future.
Just more options for them as services to PF Black Card option could also push price or acquisition or both. That's definitely top of mind for us. I do think there's room probably in the future for movement, for sure.
Yeah, I think on comps, Oliver, we set our guidance high single digits. I think the pricing impact in 2019 ought to be in the, call it, 150 basis points range, that we'll continue to see some of the benefit that we obviously got in 2018. I'd say 150 is probably a good target as to the impact on same store sales this year.
Thank you very much. Best regards. Congrats.
Thank you.
Thanks, Oliver.
Your next question comes from the line of Jonathan Komp of Baird. Your line is open.
Yeah. Hi, thank you. First question. Obviously, the comps look good at the system level. The company comps acceleration to +9 stands out. It might be the highest I can recall in the model. Any more color on what's driving the sequential improvement there for the company comps?
Yeah, John, as we talk about the maturity of stores that go in comp, in the comp base, obviously we have a smaller number of total stores. We had four new stores that came into comp in Q4, that opened up in the previous year. That's a good piece of that. I will say is, if you can go back and look at Q1, Q2, Q3 comps, there's been continued momentum in our kind of corporate fleet base, but a good pickup in Q4 with respect to the four new stores coming in.
Okay. Understood. Dorvin, I want to follow up on the unit outlook for the year. I can't ever recall a year that's been front-weighted in terms of the openings. I wanted to maybe dig in a little bit more and understand why you see that as being the case this year. Is there any opportunity, I know there's fairly short lead time, but as you look to the second half openings, is there any potential to sustain some of the momentum you're projecting in the first half?
Yeah. Obviously, we got line of sight into the nearer term. I've always told you guys that roughly speaking, getting on a lease and negotiating a lease, if you take kind of the opposite ends of the spectrum out, is probably a five, six-month time period. Depends on turnover from the landlord, but probably a good timeframe is about three months, about 90 days, give or take, if you get a good plain vanilla box and the town's not too restrictive on the permitting, et cetera. What we've always said is we have a pretty good line of sight into, call it, the next four to six months, knowing there'll be some fallout, there'll be some delays, and then there could even be some that might hit the stride and come in on the shorter end of the timeline.
I think that I'll go back to part of my answer to the question earlier, is that we've got enough of large franchisee groups today where it's not just the franchisee that's running the store, running the back office, doing real estate deals, et cetera. A lot of these franchisees are extremely talented management team and have built out various functions, including their real estate and development teams. As you know, John, a lot of the bigger guys have multiple ADAs, maybe across different states. Their level of really working their pipelines and the private equity guys that got in, they're not looking to slow down growth. They're obviously working with their teams as well. You have all these larger groups that are working the development side, and sometimes it's just pure timing.
You're working on two or three sites, and you hope one or two come together and three or four come together at the same time in maybe a market, et cetera. We got good line of sight into the front end of the pipeline here, and the franchisees are very excited and continue to invest their cash flow in the business. Lesser into the back end. When you have franchisees that are building a higher percentage of their required number of development stores in the first half of the year, it depends on how they fill out the back end pipeline as well. We feel good about that, call it 225, that we mentioned in our guidance.
We see that being more front end loaded than back end and especially Q1, it just shows you that the trends are good and are taking advantage of the real estate with our great development franchisees out there.
Okay, excellent. Maybe last one just for Chris, I wanted to ask specifically about some of the marketing spend opportunities that you see. I guess, first of all, is there any more initiative to make sure that the local advertising requirements are being spent by the franchisees? Secondly, any updated thoughts on if you might go to the franchisees and look at that national versus local mix at some point?
Yeah. We initiated what we call the spend tracker, I think it was earlier last year, which we're now getting the spends from the franchisees, so we now have visibility on their spending at the club level. That's good that we know now what they're doing. I think to that question, we get that a lot, is if or when we'll be able to say, okay, it said 9% in total, 2% national, 7% local, could we actually flip that in the future? I think we will get economies of scale, if we were to do that in the future. I think as we continue to develop stores here in the Northeast where almost 6% of the population's a member, but we're a lot less penetrated out west.
I think as we get more coverage and more national advertising can play a bigger part, I think you're right. I think we can start flipping some of that over, for sure.
Okay, great. Thank you very much.
Thanks, John.
Thanks, John.
Your next question comes from the line of John Heinbockel from Guggenheim Securities. Your line is open.
Two things. If you think about the 2019 marketing spend, which will be north of $200 million, what will be different this year, if anything, one or two things compared to a year ago in terms of how you spend that money, different focuses, et cetera? Chris, you said potentially expand the Teen Summer Event. Is there anything holding that up or is it just a question of how broadly you want to expand it?
Not too much really holding up, just making sure all our ducks in a row on the Teen Summer Challenge with all the franchisees. We have all the right levers to push so that we can get the big splash we're intending. To your first part of the question, again, that's another initiative that will be part of that marketing spend increase is how do we launch that Teen Summer Challenge. If you extrapolate that nationwide compared to results in New Hampshire, it'd be over 1 million teens that would be active over the summer. It is definitely a good way to build affinity as well as introduce the younger generation to fitness and wellness, hopefully for the first time. More digital this year is also, we're doing more digital each year.
I think back in the IPO, we were talking about we were barely starting to do digitally at all back two and a half years, or three and a half years ago now. Definitely more digital spend as far as the marketing is concerned.
Secondly, if you think about, we've talked about the non-club Black Card opportunity for a long time. Are you starting to get, with 12.5 million members, more interest from other potential partners who see that as big enough where it's worth their while and yours?
We've brought on Roger Chacko as the Chief Commercial Officer last summer, which is a much broader role than just a Chief Marketing Officer. That's part of his plan. We actually have someone now in charge, that work under him that is in charge of just partnerships. Another one on top of like we did the 800 Flowers, which we've done for a couple of years. The Audible, Amazon's Audible, we did. Then, recently we just launched with the Black Card members where they get discount vacations through ILG, the Interval Group. Again, leveraging our size and scale to gain partnerships to give more value to that Black Card membership or even all memberships for that matter.
Okay, thank you.
Thank you, John.
Your next question comes from the line of John Ivankoe of JPMorgan. Your line is open.
Hi, thank you. Firstly, just a clarification, if I may. Are the legacy Black Card pricing members or Black Card members still locked in at that $19.99 price point or is there some flexibility that's being taken market by market?
Yeah. They grandfather, and we let them stay at their older rate. The one thought there also was, which we haven't seen an increase just yet, but does that help some stickiness with the older generation members in the sense that if they cancel that membership, they never get that rate back. So, we haven't seen any real significant change there in the retention of those people. But yeah, they are grandfathered in the system, when they joined.
I think the percentage of Black Card, it's ticking up maybe a little bit, but year-over-year, I think it's within 100 basis points or so. Are you surprised at this point in the fourth quarter of 2018 that the contribution of comp from Black Card pricing is, if I heard it correctly, is still up 300 basis points? Because that would assume some very large churn in the Black Card member base year-over-year, if the legacy members are still locked in at that $19.99 original price point.
Yeah, John, it's Dorvin. You're right, that was the impact in Q3. I don't think it necessarily surprises us. It's close to what we said back at the beginning of the year that we thought the impact could be, and we've reported that each quarter. I mentioned it's going to be, call it 150 basis points in 2019. Our attrition with respect to the two different memberships really hasn't changed in terms of that mix in the last several years, when you go back and look at the data. We get the question a lot. Does someone that's paying the higher price churn at a faster rate than the $10 price point? It's not. Any seasonality is pretty consistent across the memberships. It's a matter of canceling out some members at the $19.99 and picking up slightly more of the members at the $21.99.
At the end of the day, that's the math. No, it really didn't surprise us.
Okay. That leads me into the next question and maybe the most important one, is what your customer segmentation study is telling you about that churn. It did seem that one point we were talking about maybe churn that was ticking down. As you have gone back and understanding at a more data-driven level versus what you maybe have believed to be true a little bit more anecdotally, what can the brand do at this point in terms of reducing churn at this point? I guess, for a gym club membership like this, what do you think the optimal level of churn is that you'd like to achieve over time?
I think the thing that I looked at, which was interesting to me, is when we launched the premium consoles, for example, with the manufacturers, and they had the Netflix and the Hulu and the Spotify, it was an assumption that the members would have wanted that. The interesting thing that we found is they wanted more education around fitness and wellness and nutrition, and that they wanted to be able to collect their data back on their app, which is kind of good because that's the road we were going down to begin with, that they want to leave the gym and have their data there to be able to compare how they did last week or last month, also challenges with their fellow and friend Planet Fitness members, to see how they stack up against their friends.
It's interesting that they really wanted more fitness component and not distraction, I guess, is the way to put it, from the fitness or exercise they were doing. I think that was not what we expected to see. Now it's how we act on that. What you'd think, if that's what they're into, that should only help with their results longer term as opposed to watching TV. That was probably good learnings.
In terms of where you think churn level could be, are there any really distinct differences regionally, for example, that's different in churn or maybe even on a DMA or city basis, where there really are differences, or is that something that's a more common level across the system?
It's very consistent across the system. There may be minor outliers, John, you can go back and look at our business for several years, and the trends are pretty consistent. I think it's because we're going after the 80% of the population. People work out about the same number of times they've always worked out. We have people that'll take off a couple of weeks or take off a month, then they come back. We've talked about that publicly in the past, that it's affordable, it allows for people to be able to do that. Working out is not the highest priority amongst a lot of our members. It's family, it's kids activities and things like that.
We haven't seen a regional-based issue, and we haven't seen anything in terms of any major trends looking back over the last three years or so.
Thank you.
Thanks, John.
Our next question comes from the line of Peter Keith of Piper Jaffray. Your line is open. Peter Keith of Piper Jaffray, your line is open.
Sorry about that.
Thanks for taking my question and congrats on the great results, guys. I wanted to follow up on some of the technology warranty questions. Chris, could you help us understand maybe what the roadmap looks like with the app integration you're launching, version 1.0? Do we have to wait maybe a full year until 2.0, and are you going to wait a full year to see how that plays out, to see if you expand it? Following on it, is it just Black Card members that will be able to use the app and use the fitness collection data? Thank you.
Sure. Yeah. 1.0 will not necessarily have that, but it gives us the opportunity to pipe in all that data. Our current app is an off-the-shelf third-party app product that doesn't give us any flexibility, which is the reason why we had to move to a new platform here. It really does give us the platform to be able to pipe in anything we want to do. I think that back to that customer segmentation study, what they want data for, and they want to track what they did and how to recommend what to do tomorrow as well as challenge their friends. I think it's definitely what the app will do in the future as well, connect with the cardiovascular equipment and the wearable. Right now, unlike your wearable, it tracks steps. You get off a treadmill, it doesn't go anywhere with anybody.
It doesn't follow anywhere. It just goes away and disappears. In time, as the premium consoles and all that data collection works in, we can pipe that back to the member. Makes a lot of sense. It's not going to be the first quarter, it'll probably be 2.0 or 3.0, but it gives us the ability. As well as, I think, content, which is important, and that education piece that we learned, that they want to learn and they want content. How we can pipe in that, whether it's through a third-party partnership with a different brand that's piping into them so they get better experience, whether it's in the club or outside the club. That'd be also interesting for us to see is that somebody leaves the club for three months.
Is that because they're not working out or because they're doing something at home or running outside? I think that's all good for us to be able to watch and monitor so that we're providing value to the member, and hopefully drive retention longer term.
Okay. Thank you. Just to make sure I understand or just to maybe put a little timing around it. The data collection for version 2.0 or 3.0, do you see that as a 2019 event? Are you envisioning that would just be for Black Card members or is this for all members?
Yeah. Black Card members probably to begin with, again, if we can show better retention, you can make a case that you open it up to everybody if it pushes enough. It's not just price that's actually driving long spenders. I wouldn't say 2019. I see longer term, next two, three years. It depends on where it's coming from, because the cardio component's going to take longer because it's only in 15 clubs today, and it's going to have to be retrofitted over time. As far as wearable data is concerned or other app collection that pipes into it, could be sooner than the cardio piece.
Okay. Maybe then it's a good segue to the cardio piece. On the new technology equipment, it's 15 gyms right now. Is there a thought to then opening that up to all new gyms or allowing those that want to replace it at a faster rate to begin to get some of that more advanced equipment?
Yeah, we're going to launch a next section, a next group of pilot clubs this year, later this year, with what we learned about all that data collection and challenges and stuff, and get rid of or clean up, I guess, some of the other apps and Facebook and other things that were on there that weren't getting any traction. We're going to retool the interface that's on the cardio today and the newer clubs going forward to see how that interaction is with the members. After that, depending on how that plays out, would be how do we start rolling it out to the system, and/or retrofitting, because the current cardio that we're selling today can be retrofitted. You don't got to replace the whole treadmill, you just replace the screen. That's better as opposed to waiting for the re-equip timing.
Okay. Thank you very much, and good luck.
Thanks, Peter.
Thanks, Peter.
Your last question comes from the line of Dave King of Roth Capital. Your line is open.
Thanks. Afternoon, guys.
Hey.
First on the high single-digit comp guidance, how should we think about the comp for just the corporate-owned piece, if you can? Then with the growth in corporate-owned greenfields and acquired locations, what do you see as the optimum mix of system-wide revenue longer term?
What was the last part of your question, Dave?
With the growth in the corporate-owned greenfields and the acquired locations that you've had over the last year or so, what do you see as the optimal mix of that longer term?
Got it. We don't break out our guidance in terms of a breakdown between franchise and corporate stores. I'll go back to kind of the earlier question. Historically, our corporate same-store sales has always been lower because we have a much more mature fleet of stores. We opened four last year. It'll be probably in that four or five this year or so. A lot of it depends on timing and just back to my earlier comment on real estate and when deals come to fruition. Kind of in that five range. I think five to six, four to six a year is probably where we would be, at least let's just say in the next, call it two, three years or so. We have the opportunity on a ROFR when any of the transactions come about. We usually look at it strategically.
Does it fit within our existing current fleet, synergies, geographical synergies, et cetera. I think if you go back and look at what we've done, all the transactions we've done have fit within that.
I doubt that we would get to a point of where it's going to be a meaningful percentage change in total development, whether it's our own corporate store development or even an acquisition here or there, just because our franchisees are building at such a faster rate than we are. We are predominantly a franchise model. I think we'll continue to be that in the near term, albeit our corporate store segment is a significant driver of both our revenues and profits and a very important piece of our business. We don't look to really accelerate a faster growth of that than we've had in the past.
Understood. I guess that last comment is the reason for the question. Just, it feels like with you opening more corporate-owned stores, even though it's small as a piece of the overall development, it feels like that could be a material driver of revenue in terms of comps. The fact that you can do a 9% comp there, versus mid-single digits historically, it feels like that could be a driver going forward. Chris, just a question for you real quick. In terms of the New Year's promotion, any effect on sign-ups versus prior years? Anything to share in terms of significant success of that this year? Anything to share on California versus the New York piece? Thanks.
Nothing overwhelmingly surprising. It constantly is a big splash for us. It's not really a call to action per se, so it's hard to really directly tie membership sales that night to New Year's Eve. We continually remain number one in aided brand awareness. That started when we first did New Year's Eve and has maintained that status ever since. I think it's a great splash for us, gets all the highlight. There's so many viewers, it blows the Super Bowl away, and it's all us for four hours. It's a great thing that we plan on doing, hopefully for many years to come.
Okay. Sounds great. Thanks for taking my questions. Good luck with 19.
Thanks, David.
Thank you.
We have no further questions at this time. I'll now turn the conference back over to the presenters.
Well, thank you everybody for joining us today for our Q4 and 2018 year-end earnings. We had a great year. Looking forward to continuing this momentum in 2019, and a lot of good initiatives and learnings today in this past year from a customer segmentation and member journey and technology that's coming up in our app launch. A lot of good stuff happening and looking forward to 2019 and the first quarter earnings. Thank you.
This concludes today's conference call. You may now disconnect.