Planet Fitness’ Road to IPO Started with Corporate Management Hires

Planet Fitness CEO Chris Rondeau is not shy when it comes to recognizing his corporate team and franchisees.

When the Newington, New Hampshire-based company debuted on the New York Stock Exchange last month, Rondeau invited a handful of franchisees to join him on the exchange floor to participate in the moment. In last week’s quarterly conference call with financial analysts, Rondeau called out corporate level employees and franchisees as a “great team to execute our growth strategy.”

The roots of the corporate team can be traced back three years when Planet Fitness started preparing for what became the initial public offering (IPO) by building out corporate infrastructure.

“We’ve more than tripled the size of our corporate office, servicing and supporting our franchisees, marketing support, operational support,” Rondeau told Club Industry in an interview after the IPO on Aug. 6. “We’ve put a lot of smart people on our management team to help build out our corporate office to get to this point.”

Some of those hires go back to 2013 when Planet Fitness hired former Radio Shack Corp. finance chief Dorvin Lively as chief financial officer, former Margaritas Restaurants CFO Bonnie Monahan as corporate treasurer, and former Robert Half International finance consultant Anna Arico as controller.

General Counsel Richard Moore, who led Planet Fitness through the sale to TSG in November 2012, became chief administrative officer in 2013. Moore assists Rondeau in building out Planet Fitness’ leadership and management team, and he manages the Newington headquarters. His focus is on creating infrastructure to support the company’s continued growth and expansion efforts.

With a base membership price of $10, Planet Fitness has more than 7.1 million members in more than 1,000 clubs and agreements in place to open 1,000 more clubs. Rondeau expects 500 clubs will be opened in the next three years.

Rondeau said there is potential for 4,000 Planet Fitness locations in the United States and potential for more than 300 in Canada. Franchising has started in Canada, where Planet Fitness opened its first international location in Toronto in October 2014 and a second in Brampton in 2015.

“We’re mainly focused on making sure we really build these markets up,” Rondeau said. “We want to get a strong hold of them.”

Last month, franchise owner Dave Leon signed a development agreement that will give him the rights to open 44 more clubs in British Columbia, Canada, and in Montana, Wyoming and Arizona. Leon, who heads the company’s national franchisee advisory council, was one of the franchisees who joined Rondeau on the NYSE floor for the IPO.

Rondeau’s timeline for further international expansion is “a couple years” out, and he did not outline any specific plans. However, he hinted at America’s neighbor to the south for possible growth.

“If you look at Mexico, for example, it beat out the U.S. last year as the most obese country in the world – the first time that’s ever happened,” Rondeau said. “I think our concept has legs in many other places.

Planet Fitness’ Wall Street Pitch

Planet Fitness entered the public market after other fitness club companies have traded on Wall Street with mixed results.

Bally Total Fitness, which began trading on the NYSE in May 1998, filed for bankruptcy in 2007. Life Time Fitness debut on the NYSE in 2004 and returned to private operations after the finalization of a $4 billion merger in June. Town Sports International went public on the NYSE in 2006, and its price per share has dropped nearly 84 percent since its IPO of $13.24 per share.

Rondeau said his pitch to potential investors starts with the Planet Fitness’ club model, which caters to the 80 percent of people who don’t have health club memberships, who never work out or who are intimidated by working out.

“I think we’re a very different brand,” Rondeau said. “We cater to a much bigger market. We’re also a model that works.”

Planet Fitness has locations in a variety of neighborhoods and next to a variety of competitors. It has locations in Manhattan next to Equinox clubs, clubs in Arkansas next to mom-and-pop clubs, Alaska clubs and clubs adjacent to Life Time Fitness locations, Rondeau said.

“We’re a model that works regardless of income, regardless of ethnicity, regardless of density – and we can still charge $10 a month,” Rondeau said. “It’s a much different model in that aspect. The fact that we’re a franchise company and we have almost 200 entrepreneurial groups out there beating the streets every day, caring about their businesses at a local level, running the stores, and keeping them judgment free and clean – it’s a very different business from both sides as compared to other public companies in the past.”

In addition to market expansion, Planet Fitness’ growth strategies include increasing brand awareness, expanding royalty rates on new franchisees (2.95 percent in 2014), and growing system-wide same store sales by attracting new members and increasing PF Black Card members.

PF Black Card Membership, at $19.99 per month, accounted for 55 percent of total memberships in 2014 – up from 38 percent in 2010. The card offers additional studio amenities and affinity partnerships with national retail brands.

Planet Fitness members receive 20 percent off Reebok products, and the company recently launched an affinity program with Regis Salons where Black Card members receive 10 percent off products and services.

“We’re constantly trying to put more value in that Black Card membership,” Rondeau said. “We’re trying to drive value outside the four walls, maybe like the AAA membership. With 7 million members now, there’s definitely people wanting some access to that, and it gives our members more value, which is really what we’re all about.”

Wall Street seems to be buying what Rondeau is selling, so far. Planet Fitness raised $216 million in the IPO, and its stock is trading up 16 percent since the IPO at over $18 per share.  The company had revenue of $79 million in the second quarter, an almost 26 percent year-over-year revenue increase, according to financials released last week.

“I actually believe we have developed something special,” Rondeau told analysts on the financial call last week. “I would like to say we’re lucky to have two types of customers, our members and our franchises. One we bring wealth, and one we bring health. I look forward to carrying on this tradition for many years to come.”

Planet Fitness was founded in 1992 by brothers Mike Grondahl and Marc Grondahl. Rondeau, 42, joined Planet Fitness in 1993. Rondeau has helped to refine Planet Fitness’ business model.

“I think that in some ways–I hate to say it–[Planet Fitness] single handedly helped the industry maybe do a better job of what they do,” Rondeau said. “We forced the industry to think smarter about the business and about making more people healthier, running their stores better. What we do at Planet is really about the best interest of the customer. Unfortunately, the industry, years ago, just really wasn’t about that. Bad cancellation policies and maybe not ethical marketing practices – so on and so forth. I think the industry has stepped it up to become more of a respected industry in recent years, and I hope we continue to do that. ”

Read the original article on Club Industry.