Planet Fitness (PLNT)

Inclusive gym franchise company (NYSE:PLNT) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 11.5% year on year to $276.7 million. Its non-GAAP profit of $0.59 per share was 4.1% below 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.

Leisure facilities companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted their spending from "things" to "experiences". Leisure facilities seek to benefit but must innovate to do so because of the industry's high competition and capital intensity.

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.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Planet Fitness grew its sales at a 12.6% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

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 11.6% over the last two years was below its five-year trend. Note that COVID hurt Planet Fitness’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

We can dig further into the company’s revenue dynamics by analyzing its same-store sales, which show how much revenue its established locations generate. Over the last two years, Planet Fitness’s same-store sales averaged 6.4% 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’s revenue grew by 11.5% year on year to $276.7 million but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 10.7% over the next 12 months, similar to its two-year rate. This projection is underwhelming and implies its newer products and services will not lead to better top-line performance yet.

Planet Fitness’s operating margin has been trending up over the last 12 months and averaged 27% over the last two years. On top of that, its profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

In Q1, Planet Fitness generated an operating profit margin of 28.6%, up 2.1 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 solid 13.4% annual EPS growth over the last five years aligns with its revenue performance. This tells us its incremental sales were profitable.

In Q1, Planet Fitness reported EPS at $0.59, up from $0.53 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Planet Fitness’s full-year EPS of $2.64 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 robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 18.2% over the last two years, quite impressive for a consumer discretionary business.

Planet Fitness’s free cash flow clocked in at $110.9 million in Q1, equivalent to a 40.1% margin. This result was good as its margin was 14.5 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 are more important.

Over the next year, analysts predict Planet Fitness’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 19.5% for the last 12 months will decrease to 14.5%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 13.4%, 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. On average, Planet Fitness’s ROIC decreased by 1.1 percentage points annually 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 $453.6 million of cash and $2.60 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 $498.4 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 $33.1 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 good to see Planet Fitness narrowly top analysts’ same-store sales expectations this quarter. On the other hand, its revenue, EPS, and EBITDA missed. Overall, this quarter could have been better. The stock traded down 2.2% to $99.50 immediately after reporting.

Updated: June 14, 2025 at 10:50 PM EDT

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

Planet Fitness isn’t a terrible business, but it doesn’t pass our quality test. For starters, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its impressive operating margins show it has a highly efficient business model, 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 34x. At this valuation, there’s a lot of good news priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $112.45 on the company (compared to the current share price of $102.62).