Sector financial performance:

This company, which primarily franchises (most of stores) and operates fitness centers earning revenue from membership fees and dues, has been grouped into gyms, fitness, and spa center sector in sport centers industry.

It seems that the demand for fitness clubs/centers of those companies in this sector has become strong in the past three years as indicated by the largely increased revenue in their same store sale (average 6% annually in 2017 and 2018) during the same period. The increase seems to be due to higher average monthly dues per member and, to less extent, to increase in members. The initiative and processing fees decreased due to companies’ business strategy. Companies, benefited from increased same store sales, expand its new store fast (13% annual growth in number of stores in 2017 and 2018).

The increase in demand and thus the increase in revenue (dues) and cost cutting helped largely improved companies’ gross margin. The typical gross margin of companies (including operating costs and depreciation) is about 29% with a large range of 10-50%) in 2018, SG&A as percentage of sales is about 10%, and operating margin is about 20% in 2018.

The typical enterprise price/EBI (adjusted with tax field) ratio is 50.

 

                                                                                                       click for reading more about this industry

Company performance:

It seems that the demand for fitness stores (both franchised and owned) of this company has been strong and increasing fast in the past three years as indicated by the same store sales and expansion of its stores.

The first three months of fiscal 2018 compared with the same period of 2017 (ended April 1, 2018)

Net revenue increased 22% (excluding advertising fund).

Same store sales (system wide) increased 11%.

Number of stores increased 16%.

Fiscal 2017 compared with fiscal 2016

Net revenue increased 14%.

Same store sales increased 10%.

Number of stores increased 17%.

Fiscal 2016 compared with fiscal 2015

Net revenue increased 14%.

Same store sales increased 9%.

Number of stores increased 22%.

Its gross margin (including direct operating costs and depreciation) has been continuously improved in the past several years from about 38% to about 48%. With an improved SG&A as percentage of sales (14% in 2018), we have seen much improved operating margin during this period (about 34% in 2018).

Stock performance

This company is having an enterprise price/EBI ratio of 56.  We think that its stock was relatively fairly compared with its peer - Town Sports International Holdings.