10-Q: Xponential Fitness Reports Q1 2024 Results, Revenue Up 12.5% Amid Restructuring

Xponential Fitness, Inc. reports a 12.5% increase in revenue for the first quarter of 2024, while navigating a restructuring plan focused on franchise operations.

Summary

• Xponential Fitness, Inc. reported a net loss of $4.356 million for the first quarter of 2024, an improvement from a net loss of $14.979 million in the same period last year.
• Total revenue increased by 12.5% to $79.521 million, driven primarily by a rise in franchise revenue, which grew by 26.7% to $41.754 million.
• The company's restructuring plan, initiated in the third quarter of 2023, led to $6.934 million in restructuring charges during the quarter.
• System-wide sales reached $401.113 million, a 24.6% increase year-over-year.
• The number of operating studios globally increased to 3,156, with 111 new studio openings during the quarter.
• Same-store sales grew by 9%, a decrease from 19% in the same period last year.
• The company divested its Stride brand on February 13, 2024, and acquired Lindora on January 2, 2024.

Sentiment

Score: 5

Explanation: The document presents mixed results. While revenue growth is positive, the net loss and restructuring charges indicate challenges. The decrease in same-store sales growth is also a concern. The sentiment is neutral to slightly negative.

Positives

• Total revenue increased by 12.5% year-over-year.
• Franchise revenue grew by 26.7% year-over-year.
• System-wide sales increased by 24.6% year-over-year.
• The company opened 111 new studios globally.
• The net loss improved from $14.979 million to $4.356 million year-over-year.

Negatives

• The company reported a net loss of $4.356 million for the quarter.
• Other service revenue decreased by 30.1% year-over-year.
• Same-store sales growth decreased from 19% to 9% year-over-year.
• The company incurred $6.934 million in restructuring charges.

Risks

• The company's restructuring plan may not achieve the anticipated cost savings.
• The company is negotiating lease terminations for certain studios, which may result in higher than expected costs.
• The company is subject to a federal securities class action lawsuit and an SEC investigation.
• The company's future success depends on its ability to attract new franchisees and assist them in opening studios.
• Macroeconomic factors such as inflation and recession may impact the returns generated by franchisees.

Future Outlook

The company expects to recognize additional restructuring charges throughout 2024 totaling approximately $16.0 million to $20.0 million. The company estimates annualized gross savings of approximately $13.5 million to $15.5 million under the restructuring plan.

Management Comments

• The divestiture allows us to better focus and utilize our resources on our other brands.
• Lindora complements our existing brands and will help us deliver on consumers increasing demand for a holistic approach to health.

Industry Context

The company operates in the boutique fitness industry, which is experiencing growth and increased consumer demand for personalized workout experiences. The acquisition of Lindora reflects a trend towards holistic health and wellness solutions.

Comparison to Industry Standards

• Xponential Fitness is the largest global franchisor of boutique fitness brands, with a diversified platform of ten brands.
• The company's same-store sales growth of 9% is lower than the 19% reported in the same period last year, indicating a potential slowdown in growth at existing locations.
• The company's focus on franchise operations aligns with industry trends towards asset-light business models.
• The company's acquisition of Lindora is a strategic move to capitalize on the growing demand for medically guided wellness solutions, similar to other fitness companies expanding into adjacent markets.

Legal Proceedings

• The company is involved in a federal securities class action lawsuit.
• The company is involved in a shareholder derivative lawsuit.
• The company is cooperating with an SEC investigation.

Related Party Transactions

• The company divested the Stride brand to a member of management and shareholder of the company.
• The company has transactions with a franchisee who is also a member of senior management.

Stakeholder Impact

• Shareholders may be concerned about the net loss and restructuring charges.
• Franchisees may benefit from the company's focus on franchise operations.
• Employees may be affected by the restructuring plan.
• Customers may benefit from the company's continued investment in its brands.

Next Steps

• The company will continue to execute its restructuring plan, which involves exiting company-owned transition studios.
• The company will focus on pure franchise operations and reducing costs to achieve long-term margin goals.
• The company will continue to invest in its brands to deliver positive consumer experiences and support franchisees.

Key Dates

Keywords

franchise, fitness, revenue, restructuring, studios, same-store sales, EBITDA, acquisition, divestiture, Lindora, Stride