Bear of the Day: Planet Fitness (PLNT)
Planet Fitness (PLNT) reported weaker second-quarter 2020 results, as earnings and revenues both missed the Zacks Consensus. The top and the bottom lines also declined sharply year over year owing to the coronavirus pandemic.
Subsequently, the company has withdrawn its 2020 guidance due to the uncertainty tied to the crisis.
Quarterly Details
On August 4, Planet Fitness reported an adjusted loss per share of 32 cents, wider than the Zacks Consensus Estimate of a loss of 17 cents. In the prior-year quarter, the company had reported adjusted earnings per share of 45 cents.
Quarterly revenues of $40.2 million missed the consensus mark of $43.3 million by 2.5%. The top line also declined 77.9% from the year-ago quarter primarily due to the weak performance across Franchise, Corporate-owned Stores and Equipment segments.
Franchise revenues fell 70.8% year over year to $21 million. The Corporate-owned Stores segment’s revenues declined 76.3% year over year to $9.4 million. In the Equipment segment, revenues declined 86% year over year to $9.8 million owing to lower equipment sales to new and existing franchisee-owned stores.
Moreover, EBITDA in the Franchise segment declined 92.9% year over year to $3.5 million. The decline was primarily attributed to temporary shutdowns owing to COVID-19. At the Corporate-owned stores segment, EBITDA fell 135% year over year to ($6.3) million. EBITDA in the Equipment segment declined 92.2% year over year to $1.3 million.
Total adjusted EBITDA at the end of the second quarter deteriorated to ($9.3) million from $76.5 million in the year-ago quarter.
The Technical Outlook
My colleague Jeremy Mullin wrote about PLNT as the Bear of the Day in early May right before their Q1 report, as downward analyst estimate revisions ahead of that event had already taken the stock to the cellar of the Zacks Rank.
Here's what he observed at the time when shares had bounced hard in April and were still trading near $60...
Planet Fitness is a Zacks Rank #5 (Strong Sell) that is one of the leading franchisors and operators of fitness centers. The stock fell over 70% after all the gyms in the country were closed due to COVID-19. However, with the potential for a reopen of gyms and the economy it bounced significantly, moving up over 170%.
Now that the run higher has stalled at technical resistance, it looks like the stock could fall again.
Overview of Company
The Hampton, New Hampshire company has over 14 million members and 2000 stores in 50 states. PLNT is valued over $5 Billion and has a Forward PE of 52. This high valuation gives the stock a Zacks Style Score of “F” in value.
Gyms Closed
The big issue the company faces is that its business is closed due to COVID-19. This obviously is hurting the company as it can’t collect the revenue from members that are typically going to the gym. The company has frozen all memberships in April, which means the quarter will essentially have no member revenue if they don’t open soon.
While there has been momentum for economies to open, gyms are tricky in a COVID environment. Investors should question whether people will feel comfortable going back to a place where sweat droplets are essentially everywhere.
Technical Resistance
The March lows brought PLNT down to $23.77 from $88.77 the month before. Those lows were a great buy, as the stock has rallied all the way to the mid-$60s in the recent weeks. However, the move has stalled at a 61.8% Fibonacci retracement, which happened to be lined up with the 200-day moving average.
The stock could find support around the $50 level, but a break of the recent momentum could bring the April lows of $40 into play.
(end of excerpt from Jeremy's May 1 article)
Planet Fitness may become a routine again in workout enthusiasts' lives, but right now the company numbers aren't pulling their weight. When analysts have more visibility on gym membership sales and profits, their estimates may stop going down. The Zacks Rank will let you know.
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