Xponential Fitness (XPOF)

Boutique fitness studio franchisor Xponential Fitness (NYSE:XPOF) announced better-than-expected revenue in Q3 CY2025, but sales fell by 2.1% year on year to $78.82 million. The company expects the full year’s revenue to be around $305 million, close to analysts’ estimates. Its non-GAAP profit of $0.34 per share was significantly above analysts’ consensus estimates.

Company Overview

Owner of CycleBar, Rumble, and Club Pilates, Xponential Fitness (NYSE:XPOF) is a boutique fitness brand offering diverse and specialized exercise experiences.

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 fitness experiences include private company Equinox, Life Time (NYSE:LTH), and Planet Fitness (NYSE:PLNT).

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Xponential Fitness grew its sales at a 24.1% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly 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. Xponential Fitness’s recent performance shows its demand has slowed as its annualized revenue growth of 2.5% over the last two years was below its five-year trend. Note that COVID hurt Xponential Fitness’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

We can better understand the company’s revenue dynamics by analyzing its three most important segments: Franchise, Equipment, and Merchandise, which are 65.8%, 9.5%, and 6.1% of revenue. Over the last two years, Xponential Fitness’s Franchise (royalty fees) and Merchandise (apparel sold to franchisees) revenues averaged year-on-year growth of 13% and 81,702%. On the other hand, its Equipment revenue (workout equipment sold to franchisees) averaged 31.9% declines.

This quarter, Xponential Fitness’s revenue fell by 2.1% year on year to $78.82 million but beat Wall Street’s estimates by 3.9%.

Looking ahead, sell-side analysts expect revenue to decline by 5.7% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Xponential Fitness’s operating margin has been trending down over the last 12 months and averaged negative 4% over the last two years. Unprofitable consumer discretionary companies with falling margins deserve extra scrutiny because they’re spending loads of money to stay relevant, an unsustainable practice.

In Q3, Xponential Fitness generated an operating margin profit margin of 4.5%, up 12.7 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

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.

Xponential Fitness’s full-year EPS flipped from negative to positive over the last four years. This is encouraging and shows it’s at a critical moment in its life.

In Q3, Xponential Fitness reported adjusted EPS of $0.34, up from negative $0.04 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Xponential Fitness’s full-year EPS of $0.21 to grow 197%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Xponential 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 2.3%, lousy for a consumer discretionary business.

Xponential Fitness’s free cash flow clocked in at $8.22 million in Q3, equivalent to a 10.4% margin. This result was good as its margin was 6.2 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 carry greater meaning.

Over the next year, analysts predict Xponential Fitness’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 4.9% for the last 12 months will increase to 16.7%, giving it more flexibility for investments, share buybacks, and dividends.

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).

Xponential Fitness’s five-year average ROIC was negative 24.8%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

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, Xponential Fitness’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Xponential Fitness reported $41.46 million of cash and $375.1 million 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 $119.7 million of EBITDA over the last 12 months, we view Xponential Fitness’s 2.8× net-debt-to-EBITDA ratio as safe. We also see its $45.88 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 Xponential Fitness beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $8.27 immediately after reporting.

Updated: February 6, 2026 at 9:15 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We see the value of companies helping consumers, but in the case of Xponential Fitness, we’re out. For starters, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its low free cash flow margins give it little breathing room.

Xponential Fitness’s P/E ratio based on the next 12 months is 13.2x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $10.90 on the company (compared to the current share price of $8.55).

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.