Hey, thank you. We're going to get started here. Thanks for joining. I'm Jonathan Komp from Baird. I cover the active lifestyle and fitness sector. Very pleased to be up here with Planet Fitness. Planet, as you may know, is the largest gym chain with over 2,700 clubs today, almost 20 million members. Really the disruptor within the high-volume, low-price segment of the industry. Joining me today on stage, Colleen Keating. Colleen joined Planet in June after a distinguished career in hospitality and real estate, and then Jay Stasz, who joined as CFO just recently in November after 25 years in finance across a range of retail and consumer businesses. Pleased to have you both here on stage. Thank you.
Great to be here. Thanks.
Colleen, I think it's still fitting, roughly seven months into the CEO role. If you could maybe start just highlighting where you're focused currently and some of your observations today.
Yeah, absolutely. You know, I guess I'll start with initially was crafting the overarching strategic imperatives and making sure that we really kind of codified the strategic growth of the organization. And that's really four things. We have an ambition to continue to grow at an accelerated pace and make fitness and wellness really accessible to almost everyone. And that started with refining our brand promise and our brand positioning. And once we codified our brand promise, making sure that we really pulled that through in our marketing and how we were communicating with prospective members. And as most of you know, we're the fitness club. And club is important because we are about our relationship with our members. We are the club that really democratized access to fitness and wellness. At the same time, we were hearing from consumers an inclusion of more strength in their workout routines.
And we started to see that across generational cohorts. So that helped inform our brand promise, which is really to grow stronger together. It conveys that sense of community while also conveying that you really can get strong at a Planet Fitness. And when we think about that, pulling that through our marketing and how we communicate with prospective members, it also helps us to think about our relationship with our members. So that means our second strategic imperative is really leaning in on member experience. And member experience is about the relationship we have with our members, both inside and outside the four walls of our clubs, and ensuring that they can get their workout their way at Planet Fitness and that we enhance the stickiness of our relationship with our members. And then the third that is a fast follow to that is really in format optimization.
So when we talk about ensuring that our members can get their workout, the workout that they desire at a Planet Fitness or in their relationship with our app, that's format optimization. And many of you have probably heard us talk over the past months about shifting our equipment mix and making sure that we've got the right complement of strength and cardio in our clubs. It also means optimizing the floor plan so that our members can utilize the club in the way that they want. So if they want space to drop a mat, grab a couple of free weights, and again, do their workout their way. So format optimization and refining that is really the third.
And then the fourth is when we get all of that right, and that format optimization is also accretive to the unit economics of our franchisees because the density of cardio versus strength and shifting that mix to a greater complement of strength actually lowers the equipment cost for our franchisees. And when we think about format optimization, we're putting the things in the club that are going to be most meaningful for our members, but not putting things in the club that aren't going to be accretive to the member experience. So we're also looking at reducing our build cost. And we've been able to make some substantial reductions in the cost to construct for our franchisees. We get all of that right. We're delivering on the member experience and giving them what they're looking for. We're being thoughtful about unit economics for our franchisees.
That gives us the opportunity to really turn up the afterburners on growth, so accelerating unit growth is the fourth strategic imperative, so really, that's been the focus for my first few months, and I'll say I've now visited over 100 clubs. It's been really informative to see how our members are utilizing our clubs and talk with our club team members about member feedback and how we can continue to refine our offering and stay most relevant for today's customer, and I touched on a little bit on the marketing, and I don't know if now is an OK time, but maybe I thought maybe I'd share a couple of the commercials. We've talked a lot about the marketing and branding and growing stronger together, and we're all strong on this planet.
So I thought maybe we'd start by sharing a couple of the commercials that we're running in the new year.
At Planet Fitness, no two members are alike. Their routines are different. They use different equipment.
One, two.
They do it for different reasons.
You're a mythical beast.
But they all have one thing in common.
They're all strong.
That's right. We're all strong on this planet, Planet Fitness.
One more, everybody.
One more? I got five more.
Check out the newest strength equipment at Planet Fitness. Join today for $1 down and save.
We're trying new machines in the new year.
We're building new muscles.
Finding new things.
New focus.
We bet you love that new equipment now.
So, you in?
Join the club today. Save $28 or more when you join for just $1 down, $15 a month. Cancel anytime. Deal ends January 10. Planet Fitness. We're all strong on this planet.
So you can see in the marketing messaging, we're conveying our brand promise. At the same time, we're showcasing the experience that our members are going to enjoy in their relationship with Planet Fitness. Still leaning in on high value, low price. However, when I think about high value, low price, I often say I think about the HV of HVLP in capital letters and the LP in lowercase because it really is about the incredible high value our members are getting for a very modest price at Planet Fitness.
Yeah, those spots are great. Very different brand character, and everything you mentioned comes through well. Maybe to go further, this morning you shared a little bit of an update on 2024 results, but if you're willing to talk more about the results you released and what you're seeing in the business coming out of Q4?
Yeah, so we did have a key metrics release this morning. And we have 19.7 million members as of the end of December. We have a 5% comp for the year. We did 150 openings and 124 placements. So a lot of good information there. And I'll just touch on a couple of items. I mean, the placements, I'm sorry, the openings, you know it's always a bit of a sprint to the finish in this business. We did 86 openings in the fourth quarter, landing at 150, which is at the very top of our guidance range. So we're excited about that. The comp standpoint, five, that was actually right again, right at the top of our guidance. So we're excited about that. And we've talked a little bit in meetings earlier about the Classic Card price increase that we did in June.
So we increased that from $10 to $15. And we did it in June specifically. We wanted to let that bake into the market. So we're seeing great benefit of that. We're actually seeing from a net membership basis that the expectations we had coming out of the way we tested that Classic Card price increase, we're actually performing a little bit better. We expected a headwind on joins. And the headwind's not as big as we would have thought. And we expected the attrition rate to get a little bit better because people are holding on to their $10 Classic Card versus leaving and coming in for $15. And that's actually trending a little bit better, which is helping drive that net membership increase that we saw, which was ahead of our expectations.
Maybe just to elaborate further on pricing, Colleen, maybe your thoughts on pricing coming in. I know there's a range of tests still going on. But given what you're testing, but also the results you're seeing from the actions you've taken already, what are some of your broader thoughts on the pricing?
Yeah, so we lifted the Classic Card pricing in June. It was the 28th, I think, of June. So we've had it in place for two full quarters. We did extensive testing on that $15 Classic Card price increase before we rolled it out. And a couple of things. First of all, at the end of the day, we had not raised the Classic Card price in more than 25 years, 26 years, I think. So the $15 price point today is actually a better value than $10 was when it was established more than 25 years ago. And the other thing I'll say is that we see a greater proportion of our membership choosing our Black Card at a higher price point, more than 60% of our membership choosing Black Card. We've actually seen an increase even over the past couple of quarters in Black Card penetration.
So that's also telling us that our members are really valuing the experience at Planet Fitness, that it's not just price. So that kind of goes back to what I was saying about really leaning in on high value being so important, not just low price, because again, more than 60% of the membership has chosen the Black Card. And we have, as Jay said, we've had favorability versus what we modeled in the test environment over the last couple of quarters on joins. And we've also had favorability on churn rate. And to Jay's point, certainly part of that could be kind of the bit of a vapor lock on the folks who are in our member base at the $10 Classic Card pricing, because one of the beautiful things about our model for our members is we do not increase our members' price once they join.
So the rate that they join at, for the continuity of their membership, that price remains in place. So maybe that's influencing some of the churn. But at the same time, we're also seeing our utilization up. And that's a great indication of stickiness with our members. So pre-COVID, where we would see utilization of about six times a month, today we're seeing utilization of 6.4 to 6.5 times a month. So a significant increase there. And then I think, oh, go ahead.
I'm sorry. I was just going to tack on. We are running two Black Card pricing tests in the market. These started last year. Currently, the Black Card is priced at $24.99, which is historically a smaller gap than it would have been with the Classic Card price increase. Normally, it would typically be about double, if not more. We're running a test at $27.99 in certain markets and $29.99 in certain markets. No updates here for that. We're going to continue to run that test at least through the end of Q1 and then assess the results at that point.
Yeah, that's great, and then we're sitting here on the stage in January. January is obviously an important period for Planet and for the industry. Just given the changes you've made already around the strength equipment, the marketing you showed us, what are you hoping to see and achieve as you think forward to the current periods here?
I'll start, so I think with the format optimization, and I touched on it a little bit in the strategic imperatives, is making sure that we're delivering the experience that our members are seeking in our clubs today, while at the same time making sure that our offering is broad enough that we're still the club experience that attracts the 80%, and I will say I've spent a lot of time in clubs since I joined. Just since the holidays, I've been in more than 20 clubs, so over 100 to date, and I did more than 20 club visits coming through the holidays because part of it is I wanted to see the plate-loaded equipment in place and hear from our club team members, our club managers, and our team members in the clubs, what's the feedback from our members.
Generally, the feedback has been incredibly positive where we've got that equipment placed. I think we shared this at the end of last quarter. We had over 1,700 of our clubs opt in to put the plate-loaded equipment in place before the end of the year. We've got it across a majority of our estate today.
I'll just add, I mean, we're not going to say anything about January, right? It's too early. We're a couple of weeks in. But to your point, January and Q1 are big months for us. We did end the year at the 150 openings, which was great, 86 openings in the fourth quarter. When we think about growth, we talk internally about a couple of things. I mean, one, the strategic imperatives that Colleen has mentioned, two, building the Blue Ribbon team, which we had two great additions to the team that we announced today. I've only been here a little over two months, but I have spent some time, not in 100 clubs like Colleen, but I've been in a few clubs and talking to the franchisees and really understanding their perspective and insight and how we can partner with them to drive growth.
The team before I joined has done a lot of work in that area with the new growth model with the Classic Card price increase. So when we think about growth going forward, we think 200 units is achievable. Kind of we like that nice round number. But we think it's going to take a few years. But there is more excitement, I think, in the franchisee base to get behind that. So we're going to see consistent, steady growth, I would say, until we reach that benchmark in the future.
And maybe just to go a little bit further on that, could you talk about some of the pressures on the unit economics model? I know you're working to address them. The pricing certainly helps. But just talk about sort of where unit economics have come from, maybe where they are and some of those actions.
Yeah, for sure. Well, I can start with that. Pre-COVID, right, we had the problem that franchisees would develop ahead of their schedule. The unlevered IRRs were probably 30 or a little bit north of that. Then we got into COVID, and we saw some compression. We saw increased debt costs. We saw increased construction costs. And so the IRRs went closer down to 20. And now with the new growth model, again, getting cost out of the build and the remodels and extending the requirement for re-equips and remodels, as well as the Classic Card price increase, we've really gotten the IRRs on an unlevered basis back to the high 20s, which is, it's world-class. So maybe not back to what some of our longtime Zees are used to, but still very solid returns. And that's what we're working on. And we're going to continue to focus.
We've done that work, and now with Chip on board, I'll partner with him and try to drive out continued value without denigrating the member experience at all in these clubs, both from a build and a top line standpoint.
Maybe that's a good point too, not to bury the lead. But Colleen, you made a couple of senior hires that you announced today. Could you maybe talk more about the individuals? Jay, I know as well that you brought on board as part of your Blue Ribbon team here.
Yes, happy to. Yeah, so Jay came aboard two months ago. We're thrilled to have Jay's deep consumer business background as well as deep experience in real estate and site selection. We complement Jay's hire with two new hires that we announced this morning. Next week, Chip Ohlsson will be joining as our Chief Development Officer. Chip was most recently the Executive Vice President and Chief Development Officer at Wyndham Hotels, where he had 24 brands and was responsible for taking that brand. It was when he joined had very soft unit growth to positive unit growth every year and grew close to 2,000 hotels during his tenure at Wyndham. One of the other unique things in Chip's background is that he's also been a franchisee. He had several units with two different food and beverage franchise brands.
So he's got great perspective, growing franchise brands as a Chief Development Officer and also brings the unique perspective of having been a franchisee. So really excited for the ability to partner with Chip and have him join our team and help us continue to grow our business in the right locations with great clubs while at the same time being very thoughtful about franchisee economics, which is critical to accelerating our growth. And then we also announced Brian Povinelli will be joining as our Chief Marketing Officer. And Brian was most recently the Global Head of Brands and Marketing at Marriott, where he had 25 brands in his portfolio of responsibility and has very deep experience in consumer brands, franchise businesses, partnering with franchisees, leveraging marketing spend across all platforms. He's got loyalty, digital, traditional marketing, media.
Very, very strong depth of experience to help us really execute on our new brand promise and make sure that we're continuing to refine our marketing messaging and reaching prospective consumers where they're going to show up and have a propensity to buy.
Sounds like your team is pretty well built out then at this stage.
Yes, excited.
Great. Maybe going back to the unit development discussion and as we think about the ramp back up to 200 openings for the system on an annual basis, what are some of the factors as we think forward the next couple of years here that could impact that pace in terms of what's the right pace to go for the system?
Yeah, I mean, I think about four things. So we know our business is very much a top line play. We've been thoughtful about our pricing strategy, which you heard us talk about today, and lifting that Classic Card pricing while at the same time testing what's the sweet spot for Black Card pricing as well. That's being thoughtful about unit economics for our franchisees from a top line perspective. Jay touched on the enhancements we've made that have been creative to the IRRs, getting our IRRs back up to the upper 20s. That's been with reduction of build cost. We've done that in a way that not only doesn't denigrate the brand experience or the member experience, but actually enhances it through format optimization.
Our franchisees are spending less money today on equipment, putting the new complement of strength versus cardio, a more balanced complement of strength and cardio that's meeting the needs of today's consumer that actually reduces their cost both for new build and for re-equips and remodels, and we're continuing to look for ways to enhance their unit economics, and then I think when we talk about real estate site availability, you've heard us say before the absorption of open air or strip mall retail space has been quite robust, very different from enclosed retail. At the same time, we did not have one club permanently close for financial reasons coming through the pandemic. That speaks to the durability of our cash flows and the resilience of our business model.
And we think we have an opportunity to continue to lean in and partner with our franchisees on site identification, relationships with brokers, with landlords, with developers to tell our story. Because when space is coming available, we should be in the pole position for that space availability. So that's really the third way we think we can help. And then certainly the interest rate environment. There's been a lot of conversations today about the ten-year and what's happening in the economy. But at the end of the day, rate escalation has certainly moderated. We've seen our franchisees who do utilize some level of debt in their development able to secure debt at pretty fair, pretty moderate coupons, pretty moderate rates. And at the end of the day, there aren't too many places you can put your money and get this kind of a return.
So we think those things together really make us very attractive for our franchisees to continue to grow with us.
Maybe to wrap up here, I know most of your business is domestic today. International is a small part with several countries you're in. But it looked like a pretty strong development year in 2024 for a few of those countries. So maybe share more on the international opportunity?
Yeah, we launched Spain this year. One of the things we said is we would launch Spain on our balance sheet. We were able to put a great team on the ground in Spain so that we could launch that market in a healthy way. We're very pleased with our first kind of stub year. We opened our first club in July, and we've got five clubs open in Spain today, had five by the end of the year. They're ramping really well. Great locations. We're in Barcelona and Madrid. I drove a number of prospective locations earlier this year and very excited about the opportunity. That's indicative of how we think we'll enter a market. We'll go into a new market. We're not going into flag plant.
We're going to go in where we can get real scale, real density, and really bring the brand to life in a healthy way, and I don't know if you want to touch on maybe what you've seen with the Mexico results.
Yeah, I mean, I was just going to say that we have seen we've had nice openings in Mexico and Australia, and the Mexico clubs have ramped very quickly. They've started with membership levels that far exceed what we see domestically, so we're very excited about that. Spain is not too far behind that, so we're excited about that, so while the big engine is domestic growth, we're just scratching the surface on international, and to your point, we had a very nice year for international in fourth quarter.
That's great. It's helpful to hear about the emerging opportunity globally as well as everything keeping you busy here domestically. I think that was a great discussion. Thank you for the time.