Planet Fitness shares tumble on guidance cut despite strong Q1 revenue
The gym chain's stock fell nearly one-third after lowering revenue growth forecasts and failing to raise Black Card fees amid a 36% drop in new sign-ups.
Planet Fitness shares plummeted by nearly one-third following the release of its first-quarter earnings report, sending the stock price down approximately 58 per cent for the year to date. While the company reported a robust 22 per cent rise in revenue to $337 million and a 23 per cent surge in net income to $52 million, investor sentiment turned negative due to significant downward revisions in future guidance.
The market reaction was driven primarily by the company's decision to lower its 2026 revenue growth forecast to 7 per cent from a previous expectation of 9 per cent. Furthermore, net income expectations were revised to a 2 per cent decrease, a stark contrast to the previously projected 4 to 5 per cent increase. Analysts noted that the trailing price-to-earnings ratio has settled at 17, while the forward ratio has dropped to 13.
A major point of concern for investors was the company's decision to maintain the price of its premium Black Card membership despite rising operational costs. Management decided not to increase the fee, a move that appeared to spook the market given the broader context of inflationary pressures. This hesitation comes as the chain, which has historically positioned itself for budget-conscious consumers, faces challenges in raising fees without alienating its core customer base.
Underlying these financial adjustments was a concerning trend in membership acquisition. New member sign-ups fell by 36 per cent year on year, raising questions about the sustainability of the company's growth model. Despite the stock's volatility, the firm expects between 180 and 190 new club openings for the year, which would add to its existing portfolio of 2,909 locations as of March 31.
Looking ahead, the company anticipates that between 150 and 160 franchisee-owned locations will purchase new equipment, a move expected to boost competitiveness. Additionally, the delayed price increase for the Black Card membership is expected to be implemented at a later date. However, the immediate market response suggests that the combination of slowing growth expectations and stagnant pricing has created a volatile trading environment for the NYSE-listed firm.
The Motley Fool, which holds a position in and recommends Planet Fitness, published the analysis highlighting the divergence between the strong quarterly results and the weak forward outlook. While the publication's Stock Advisor team did not include the stock in its current top ten buy list, the firm maintains that the forward price-to-earnings ratio may limit downside risk if the current pessimism proves to be an overreaction.
