Hello, everyone. This will be a fun one.
Oh, my God. Over here.
You can pick which chair you want. I'll go to the other one. Hi. Simeon Siegel. I cover Planet Fitness over at BMO. I'm excited to have the Planet Fitness team here.
Good to be with you.
Chris and Tom, nice to be back in person.
Sure is.
We did this last time on the screen.
Yeah.
This is kinda nice. They set the chairs up pretty close, too. We've got, we'll hold hands in the middle. Since. What I wanna start with is you're now at two ICRs with announcements. One more, and we can guarantee that you're gonna do it every year. Why don't we talk about what you just put out because we got something from you. We had a nice-
Yeah.
-number last night.
Yeah. Sure. Yeah, we have the fourth quarter noted our best fourth quarter on record from net member growth. Approximately 17 million members, so super excited about that, which, you know, couldn't be better leading into first quarter. Those of you who aren't aware, 60% of our net member growth for the entire year is the first quarter. This industry and Planet Fitness, if you think about it, this is the first first quarter in almost 4 years to have been uninterrupted, right? This is a big first quarter for us, and that kind of momentum in the fourth quarter is just a great sign for us.
Talk about the why. We'll have some fun conversations about the what and the numbers, but let's talk about the why, because obviously this is, I think, a better number than people were expecting, maybe...
Yep.
than you guys were expecting.
Sure.
To your point, now we're leading into the strong period. Is this share taking? Has the landscape changed? We can say we're sort of post-COVID. I mean, why do you think this is happening?
Yeah, I'd say a few things. Definitely, there's no doubt that the Gen Z conversations we've been having now for a year and a half, Gen Z really took away from COVID the benefits of fitness, not just waistline, but mental health. The acceleration, think about Gen Z today are our second largest member base of our 17 million. Pre-COVID, they were our smallest member base. Think of how fast that grew over the last three years, right? We just did the High School Summer Pass last summer. We opened our doors for free for all high school-aged kids to work out, no charge whatsoever, no strings attached. We got 3.5 million kids off the couch during the summertime. In 2019, that was only 1 million, think about that.
In third quarter, we announced that 5% of them had already joined. That's also leading to the momentum in the fourth quarter. I think lastly, we have the marketing, three marketing agencies that are working together. Been a really great relationship. We're getting best practices and fine-tuning each sale after each sale, which we use the learnings to go into the January sale, right? I think we have just, you know, big, big tailwind, and I think, you know, the COVID is gone, and people are getting back to reality.
Is that 5% number, is that the right way to go past 3Q as we think about bringing in the teens?
Yeah. It's hard to really say. The 5% is ahead of 2019 acquisition. In 2019, you know, 7 months later, COVID hit. It's a little bit screwy on how that all math worked out. When we launched the High School Summer Pass this earlier last year, May of 2022, at that point, the 2019 teens, 25% had become members at one point.
Okay.
11% were still members last May. Here we're only at 5%, so there's a lot more tailwind there and knock on wood, but no COVID to mess that up.
Are they different customers? Do they interact differently, different frequency? Like, how do you think about that new cohort?
Sure. Sure. I think it started happening with the Millennial generation. Today, believe it or not, we have almost 10% of every Millennial in the country is a current member. We already have almost 10% of every Gen Z is a current member, of the ones of age, so 15 and over. There's still another five or six years of aging in of great penetration, right? What we noticed with the Millennials is definitely more functional training, TRX, BOSU balls, kettlebells. We started putting those in our gyms about five years ago. I think with the now Gen Z being our second largest part of our member base, that we'll have more focus on probably a little larger functional areas. Treadmills still get used just as much, the ellipticals and bikes aren't, not as much.
Cool. All right. I'm gonna give you a breath right now. You just had your analyst day. It was great.
Yeah.
You outlined an algorithm. Why don't you talk to that a little bit and maybe talk about it in the context of where we are now, and presumably you had this somewhat in mind when you provided it? Maybe just help us think through the multi-year versus any color you wanna think about right now for this year, because I think we are in this interesting time period where hopefully your business will now be predicated on decisions you make as opposed to external factors.
Mm-hmm.
As you think about that, maybe give that context of the multi-year path, what we just got today, and how to blend the two in the middle for this year.
Yeah. We thought it was important to lay out how we saw the next 3 years in terms of the algorithm, something we hadn't done before. You know, in terms of revenue growth, we said, low double digits, you know, high double digits. Sorry, low to mid, low double digits, teens, high double digits, high teens, Adjusted EBITDA growth. We thought it was important also to lay out the fact that we wanna commit to a consistent return of capital, cash to shareholders. We committed to buying back a minimum of 1 million shares a year. Historically, we would lever up and do an ASR and take a bunch of shares off the table.
We thought going forward it made more sense to have a consistent level. We pegged it at 1 million shares a year with the opportunity to top it up where we saw fit. People could count that. We'll see adjusted EPS grow even faster. So, we thought it was also important to say we'll get to how 2023 looks, particularly as it relates to new stores on our Q4 earnings call when we provide our outlook. We get asked a lot, when are we gonna return back to 200 new stores a year? An important metric. We were at 260-ish in 2019 at our peak.
New stores per years or in 2019. We thought it was important to not necessarily talk about a given year, but we feel very confident that over that three-year period, we'll build 600+ new stores and Planet across the globe. What's gonna happen exactly in 2023 with some of the HVAC issues we'll get to when we provide the outlook. If you look beyond that, 'cause we think it's a temporary problem, not a permanent problem. When we get beyond that, given the trends we see, the rebound for sort of from the trough of COVID membership and how it's come back and how our same-store sales have performed, both corporate stores and our franchisees. You know, we think the future's very bright.
We wanted to make sure that we could convey, again, not necessarily a near-term piece, but how we saw the next three years in the aggregate.
Okay. I wanna come back to the HVAC thing because there's nothing more riveting than talking about HVACs. Before that, just thinking about, I think the analyst day, it feels like it was forever, but I think it was October. Now we have this update.
It's November. Yeah.
In November. Okay. From then till now, would you characterize the update we just got as an outperformance versus where we were at that time in line with what you were expecting? Like, how do we think about where... We can see this number. We don't know what you were thinking into it.
The member growth? Or you're thinking-
Yeah, member growth.
Yeah. I think, it, you know, November sale was good. I did not expect December to perform how it did. I knew it was gonna be good, but it was real good, you know.
Great.
It couldn't have been at a better time.
Yeah. Okay. All right. Let's go to the beauty that is forced air. When you think about right now that 200-
Mm-hmm.
-swing factor, what is external versus what are your franchisee wanting to open? What's the financing environment? Like, help us think through that path there. How much of it is simply a timing thing because there are simply no HVACs and permitting takes longer and all of those pieces?
Mm-hmm.
The secondary piece there is how much just because it's higher build-out costs, and so franchisees might wanna wait.
Yeah.
The third being, there's actually a decision to slow it down because they wanna take pause.
I'll start then. I think the costs are definitely up to build a Planet. If pre-COVID, it was $2 million and change, it's up 20% today. Now, some of those inflationary pressures are coming down. Franchisees pre-COVID were typically ahead of their area development new store build obligations. We talk to our top 30 franchisees every year, and we've heard from them, a few of them that they may slow it down a little bit, wait for some of those construction costs to come down a bit. If they were ahead by X, historically, they might be a little bit less than X going forward. There's still an incentive to build. The stores generate great returns. We see our own corporate stores, and we're quite pleased with those returns.
Clearly, they vary by market. What's also important, you may have seen, is we raised our annual fee from $39 for every member to $49, every new member that joins. We also raised our PF Black Card membership. It was about 63% of our membership. In May of 2022, we took it from $22.99 to $24.99, again, on all new members. The beauty of that is, while there are some headwinds on construction costs, every new store that gets built will now have virtually all of the new members paying $49 annual fee when they come up and also paying $24.99 for the PF Black Card. There may be a few transfers from other clubs, but generally, all those new members are paying the new rates.
That adds a few points of four-wall margin for every new store. It's not insignificant. That sort of depending on the location and the different operating costs can more than offset the headwinds that they're facing. Maybe the last piece, our system has about 120 franchisees. It was probably 140 or so last time we were here in 2020. It's consolidated a little bit. About 12 of them are private equity-backed. They're among the largest, but they're not the top 12. We do have a couple independents who are in the top 12. They have a defined timeframe that they wanna get out of this business or exit, take some chips off the table in whole or in part.
They have an incentive to build because while it might cost you two and a half million dollars to build a new Planet, you're gonna get $6 million-$8 million on the exit for that store. It's the more you build, the more you're gonna make. We want people to build thoughtfully and not build aggressively so that the membership growth can keep up and support the store and the economics that they're used to, but they do have an incentive to hit the gas.
That's an interesting point. How do you approach the turnover of your franchisee base? As that happens, how do you deal with bringing in a new, ushering the new top player as if that is changing?
Yeah, we always interview them to be sure that culturally they fit, you know, interests are aligned, they believe in the model. I mean, we're a very different gym model in a lot of ways, that we don't have the heavy dumbbells and the Tootsie Rolls in the counters and stuff like that, and our equipment's purple and yellow, looks like Barney. We're a little bit different when it comes to a gym model. We make sure they're aligned and believe in the business. In the Judgement Free Zone, we really wanna cater to casual first-time gym goers. Still to this day, and has been for decades, almost 40% of our joins had never belonged to a gym in their entire life. We're truly just growing that pie and everybody else is catering to the fit, getting fitter.
I love to talk to you guys about data and low-hanging fruit and kind of curious the progression there. Before we do that, talking about the pricing, how do you test whether it's churn with the PF Black Card members where you're raising their price or whether it's anticipated pushback from raising the annual fee? How would you test that, and what have you seen?
Yeah. I mean, that's the beauty of having corporate stores. You know, we usually always test something well, even if it's a piece of equipment, quite frankly.
Right.
We'll test it in a few corporate stores. If it seems to start working, we'll expand it to franchisees that wanna play a part of the test, and then watch retention, watch take rates and closing percentages, and if it ends up that it works, then we then roll out, you know. That's why the Black Card, we've done it multiple times now, and reciprocity is the most used function of the Black Card. One in five workouts are not at their home club. They're traveling and using it, so 20%. As we open more stores, that's a better value. The White Card to us, you know, the $10 is really sacred. I call it the get-you-off-the-couch price.
To believe that 60% of these people come in and they see the benefits, and they end up buying the Black Card, I mean, it's a great business.
Within that, how do you think about however within the report we just had, speaking of churn versus new joins, anything worth calling out? Anything you talk about?
Yeah. No, no, everything's been as far as the retention and attrition, it's right where it should be. You know, over the last year it's been slightly better, you know, this much, but nothing has changed there.
Okay.
I'm good. Yep.
Awesome. All right. Last year, we were sitting here virtually having this same conversation. You had just potentially transformed the structure of your business. Speaking of corporate stores, you had a big acquisition. We're now a year in reflection. What have we learned from owning a lot more corporate stores? Does it change your approach towards corporate versus franchise at all? Really just any thoughts along the lines of just looking back.
Yeah. I think, Tom, you can add to it. You know, I think our goal was to be at 10%, has been for a while, but the franchisees were growing faster than we could. We have some of the oldest, most mature markets with less development, so we didn't have a lot of years to build. With the Sunshine acquisition down in Florida and a few other states, they're all in southern states, very diversified from our northern states, a lot more units to build there. You know, you probably recall one of the reasons we bought them is they were some of the best pre-performing franchisees in our entire system, even better than the corporate stores. We were hoping that they would have some influence on our original legacy fleet.
You probably saw we had double stronger same store sales in the third quarter than the system, which had just never happened before. They're having some influence, which is great, and I think we'll continue to see that trend.
I don't know what the closest overlap from a franchisee to the newly franchised stores are. Is there anything that was from population-wise, was there anything that was close that now they're competing against corporate or operating with corporate, as opposed to before they had a franchise partner?
Uh-
A neighboring store that as you brought Sunshine in, whatever the closest geographic that's a franchise.
Yeah. There's a few, but most of them are area development agreements.
Yeah. Yeah, I think they're typically part of a co-op anyway, so they're advertising together. It's not necessarily a competition.
Okay.
What it does do. Sorry, Simeon, we talked about this a little bit. We wanna stay at the 10%.
Yeah.
We may sell a satellite market. We sold six stores in Colorado last year. We may do a tuck-in of somebody that adjoins our existing territory. We're not gonna make any big acquisitions. We like the 10%. It's just for that reason, 'cause sometimes there is a line there where if one franchisee, or in this case corporate, owns the whole territory, not two different people, there may be a place for another store there because you wouldn't worry about some of the factors you would if there were two people there.
17 million is a big number, something to be proud of. Talk about how you're now in uncharted territory for yourself in terms of you've been for a while because you keep growing, but you're in, as you think about benchmarking, as you think about growing, what's the approach to know how high is high from 17?
Yeah. I don't think we really know how high is high. You know, we think about, you know, we had 1,000 stores at the IPO. We had, you know, 2,000 in 2019, now we're at 2,400. Even leading into COVID, we had over 13 straight years of positive comps averaging 12%, right? The vast majority of that is member growth. Even in our oldest legacy store that's, you know, 25 or now 31 years old, it's still member growth. The towns in, you know, Hampshire that aren't growing, you know, they're all moving south. It just shows you that there's more propensity for people to join. The younger generations have, are more apt to join a health club than they ever were before, way more than boomers or Gen Xers.
The general awareness of wellness, especially after COVID, is just elevated, you know. The younger generations, they're growing up with wearables and Fitbit and apps and YouTube. Like we were just talking out there, you know, in the nineties, you only had Muscle & Fitness, if you were lucky. There was no place to learn to work out. We talked about how bad our form was. Interestingly enough, the High School Summer Pass, these high schools are coming in, they have the best form in the gym because they have all the technology in the world to learn how to work out, you know? People just-
Inspiring me to sit up.
Yeah. People are just growing up in a different world today that, fitness isn't going away, you know. Here we are with 2,400 stores. Our next closest competitor has got about 400.
Right.
With the marketing horsepower and the word of mouth with 17 million members, you know, back what I said earlier, there's almost 1 in 10 millennials is a member. If you're not a member, somebody your roommate is. You know, it's just so, it's so powerful that it just, it's a, it's a flywheel effect. The marketing budget, which, you know, last year would be about $240 million, every incremental member is fueling tomorrow's join with new marketing dollars.
Let's talk about that tangentially. One of the Black Card opportunities or one of the Black Card benefits is bring a friend, right?
Mm-hmm.
Are you targeting those friends? Yeah, like how are we thinking about data?
Yeah, absolutely.
How are we thinking about the progression of how much you know your customer and how you bring them in and find new customers?
Yeah, the app has been something that you think about. In 2019, we had just launched the app right before COVID hit, right in the summer of 2019. At that point, it was simply find a location. It had a lot of functionality there. Now it's got all kinds of free content. It has content for the Black Card members that are premium content. It has. You could pay your balance. You couldn't do that. Last year, we took about $30 million of balance payments. Somebody's dues didn't go through.
Yeah.
Didn't exist. Also it's engagement, right? Whether it's workouts, but also perks.
Right.
We have a Shell gasoline perk, which was perfect for the last 12 or 18 months. I think it was 2 million gallons of gas were redeemed. I think our members saved like half a million dollars in gas. Even if you're not using the club, you're getting value from being a member of Planet Fitness. The Crocs was a great promotion. They loved it. We sold $1 million of Crocs in 3 months. It's how we are engaging with the members. If you think about it, Simeon, this industry, unless somebody happens to walk through our door, we have no way to service them or give them any value, right? They're paying us every single month. This is allowing us to engage them outside the four walls and inside the four walls.
How are you thinking about those add-ons, whether it's those, whether it's your digital, any offering as separate revenue drivers versus more of Black Card retention and the ability to raise price within Black Card? Like, how do you think about that?
Yeah, I mean, it's. We're always thinking if there's a way to make money at it. Again, if we can just get 'em, you know, our members to stay one more month, 70 million of them, that's probably a lot more than we can make from any kind of commission.
Right. Okay. Where do you think we are on the gym closure conversation, the pandemic-related-
Mm-hmm.
-gym closure? As you think about where you got the incremental, the 400,000, where you think about you're going to get the next... We've always talked about person on the couch. Are you seeing a share shift within users that no longer have a home to go to? Or is that-
Yeah, we saw it early on where I think at the height was about 5% of our joins were coming from former gyms, then it went to four, then three, then it was, like, less than one, I think. I think to keep in mind with the gym closures, we're just 25% of them, so out of the 40,000 gyms, 10,000 are shut. That was made up of about 30% boutiques, about 14% full-sized gyms. You know, a typical boutique only has about 250 members.
Yeah.
If they're doing yoga, we don't have yoga. They went to the one remaining yoga studio in town, probably, you know? I think that is somebody we're not gonna capture. Again, very small. You know, the average full-sized clubs only get about 1,500 members in the store, right? If they didn't make it, they're probably maybe 800, you know? Yeah, we got some of those. How I've always looked at it, and even pre-COVID when we would go into a market, we had third club in town, five, 10 years later, we're the last guy standing. I think it's the, it's the go forward that every month you're selling an additional 25 members you just wouldn't have sold. There's no workshop, nowhere else to shop, there's no other marketing out there but yours.
I think it's the go forwards where you make the benefit, more so than overnight you sign up an extra 500 members.
Right. Okay. Has anything changed in terms of optimal member like, effectively capacity or size of target format?
No. 20,000 is our sweet spot, you know, just for retooling that box, meaning more of that functional training stuff. You know, same locker rooms. Black Card areas, we're now putting in meditation pods in them, which are manufactured by the same company who invented the HydroMassage beds.
Yeah.
It's basically a virtual reality meditation. You can choose invigorate, relax. You choose. It's really cool. There's a big screen above you. It even has scent. If you walk through the woods, there's scent of evergreen. If the ocean, you smell the ocean. It's really a cool experience. For Black Card members, it's in our spa. We're always looking at ways of enticing and making that a better benefit.
Since we're in a room of just your closest friends, anything on royalty rate and marketing requirements? Anything you wanna talk about? I know we've talked historically...
Sure.
about potential flexibility.
Yeah. I look at that in two buckets, and some of them cross a little bit. You know, we were, like I said earlier, 13 years of positive comps. I think if COVID wouldn't have happened, we already would've been there.
Yeah.
Right? Now we're coming back out of this and we're about 30% of our clubs are above what they were pre-COVID, so that's fine. I think we'll come out of first quarter with a much bigger piece of that, for sure, and at a higher rate, members per store, but we're also getting the $49 annual fee and $24.99. The margin or revenue will grow faster than the members per store, which is good. I think once our margins get back to and ahead of where they were, that's the conversation to be had about increasing royalty. I think probably 24 months, let's say, give or take. I think the other lever is the 9% they spend on marketing, you know.
With the efficiencies we're seeing from the three ad agencies, although new, there could be a point in time where maybe they don't need to spend 9%, you know. Like I said, it was about $240 million last year on 2,300 stores or so. You know, next 2,000 stores and it's $500 million, is it, you know, commission return. Maybe that 9% goes to 7% or 8% and we take a point or two, you know. I think there's two levers there. We can think about this and call it 24+ months.
Cool. All right. We're gonna start running out of time. You did put equipment sales in the release, so just talk to these.
Yeah.
Equipment. Talk to the context you wanna give there, 'cause it's been a big topic of conversation. I wanna hear your view on your latest marketing campaign with the Low E. I have to get that. I'll give you any quick floor if there's anything you wanna follow up on.
Yeah. On equipment, I think we... well, not think. We had originally guided 170 placements for the year, took it to 150-160 because of some of these HVAC issues and whatnot, and ended up right in that range. And I think we're gonna continue, if this is what you're asking, Simeon, we're gonna continue to see reequips be a bigger percentage of equipment revenue just because our base is obligated to replace their cardio every 5 years and their strength every 7 years. As we see the base of stores growing that have those obligations compared to new stores, that will just become a bigger part of the mix. It's currently about 50% or so, ± pre-COVID. It'll inch its way towards 60 here over the coming years.
It's an annuity, it's an obligation that franchisees have to invest in. We feel good about that. We'll talk more about how we see new stores with HVAC on the Q4 call.
Give you the closing word before they pull us off.
Okay. No, I think, Simeon, this is my 30th year here, and I think I couldn't be more excited about the business, more excited about what we're seeing in trends. We made it through COVID. That didn't take us down. I don't think anything will. Our new President and COO, Edward Hymes, just started. Today is day 2. As we build out our team and then look to build the international team, it's just great to have some great people to help drive the ship.
Wow.
Good years ahead.
Great to watch. Congrats on the progress. Great.
Thank you.
Appreciate it. Thank you.