Planet Fitness (PLNT)

Inclusive gym franchise company (NYSE:PLNT) reported Q4 CY2025 results beating Wall Street’s revenue expectations, with sales up 10.5% year on year to $376.3 million. Its non-GAAP profit of $0.83 per share was 4.8% above analysts’ consensus estimates.

Company Overview

Founded by two brothers who purchased a struggling gym, Planet Fitness (NYSE:PLNT) is a gym franchise that caters to casual fitness users by providing a friendly and inclusive atmosphere.

The Consumer Discretionary sector, by definition, is made up of companies selling non-essential goods and services. When economic conditions deteriorate or tastes shift, consumers can easily cut back or eliminate these purchases. For long-term investors with five-year holding periods, this creates a structural challenge: the sector is inherently hit-driven, with low switching costs and fickle customers. As a result, only a handful of companies can reliably grow demand and compound earnings over long periods, which is why our bar is high and High Quality ratings are rare.

Leisure facilities companies own and operate theme parks, fitness centers, bowling alleys, and other venue-based entertainment destinations, generating revenue from admissions, memberships, and on-site spending. Tailwinds include consumer preference for experiential spending, tourism recovery, and technology-enhanced guest experiences that support premium pricing. Headwinds are notable: high fixed costs, such as real estate, labor, and maintenance, make profitability highly sensitive to attendance fluctuations during economic slowdowns. Weather, pandemics, and safety incidents can disrupt operations unpredictably. Rising construction and labor costs inflate expansion budgets, while competition from at-home entertainment alternatives and other experiential options limits pricing power in many markets.

Competitors offering a traditional gym experience include Life Time (NYSE:LTH), LA Fitness, and Crunch Fitness while companies offering a more boutique, class-based approach include Xponential Fitness (NYSE:XPOF) and Orange Theory.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Planet Fitness grew its sales at a 26.6% compounded annual growth rate. Though this growth is acceptable on an absolute basis, we need to see more than just topline growth for the consumer discretionary sector, which can display significant earnings volatility. This means our bar for the sector is particularly high, reflecting the non-essential and hit-driven nature of the products and services offered. Additionally, five-year CAGR starts around Covid, when revenue was depressed then rebounded.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Planet Fitness’s recent performance shows its demand has slowed as its annualized revenue growth of 11.2% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. Note that COVID hurt Planet Fitness’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

Planet Fitness also reports same-store sales, which show how much revenue its established locations generate. Over the last two years, Planet Fitness’s same-store sales averaged 5.9% year-on-year growth. Because this number is lower than its revenue growth, we can see the opening of new locations is boosting the company’s top-line performance.

This quarter, Planet Fitness reported year-on-year revenue growth of 10.5%, and its $376.3 million of revenue exceeded Wall Street’s estimates by 2.4%.

Looking ahead, sell-side analysts expect revenue to grow 10.9% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its newer products and services will not catalyze better top-line performance yet.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Planet Fitness’s operating margin has been trending up over the last 12 months and averaged 28.7% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports paltry profitability for a consumer discretionary business.

This quarter, Planet Fitness generated an operating margin profit margin of 28.2%, up 1.8 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Planet Fitness’s EPS grew at an astounding 153% compounded annual growth rate over the last five years, higher than its 26.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q4, Planet Fitness reported adjusted EPS of $0.83, up from $0.70 in the same quarter last year. This print beat analysts’ estimates by 4.8%. Over the next 12 months, Wall Street expects Planet Fitness’s full-year EPS of $3.08 to grow 14.3%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Planet Fitness has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 17.7%, lousy for a consumer discretionary business.

Planet Fitness’s free cash flow clocked in at $58.97 million in Q4, equivalent to a 15.7% margin. This result was good as its margin was 13.6 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts predict Planet Fitness’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 19.2% for the last 12 months will decrease to 17.2%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Planet Fitness historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 15.4%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Planet Fitness’s ROIC averaged 3 percentage point decreases each year over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Planet Fitness reported $518.7 million of cash and $2.9 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $551.6 million of EBITDA over the last 12 months, we view Planet Fitness’s 4.3× net-debt-to-EBITDA ratio as safe. We also see its $35.59 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Planet Fitness beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Overall, this print had some key positives. The market seemed to be hoping for more, and the stock traded down 8.5% to $83 immediately after reporting.

Before deciding whether to buy Planet Fitness or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Planet Fitness falls short of our quality standards. While its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its Forecasted free cash flow margin suggests the company will ramp up its investments next year. On top of that, its same-store sales performance has disappointed.

Planet Fitness’s P/E ratio based on the next 12 months is 25.8x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $130 on the company (compared to the current share price of $83).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.