10-Q: Xponential Fitness Reports Q2 2026 Results Amid Revenue Decline

Xponential Fitness, Inc. reported a 13.4% decrease in total revenue for Q2 2026 compared to the prior year, driven by lower merchandise and equipment sales, alongside increased operating expenses and a net loss.

Summary

• Total revenue for the three months ended June 30, 2026, decreased by 13.4% to $66.0 million from $76.2 million in the same period of 2025.
• Franchise revenue saw a slight decrease of 3.0% to $44.0 million, impacted by lower same-store sales and brand divestitures.
• Equipment revenue decreased by 25.8% to $7.1 million, and merchandise revenue dropped by 90.3% to $0.5 million due to strategic outsourcing.
• Operating costs and expenses decreased by 8.0% to $56.5 million, largely due to a significant reduction in 'Impairment of goodwill and other noncurrent assets' and lower costs of product revenue.
• Selling, general, and administrative expenses increased by 33.0% to $32.0 million, primarily driven by higher legal expenses and professional services.
• The company reported a net loss of $4.8 million for the quarter, compared to a net income of $1.3 million in the prior year.
• Adjusted EBITDA decreased to $21.9 million from $28.1 million in the prior year's comparable period.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to a significant revenue decline, increased operating costs, and a net loss, despite some strategic divestitures and restructuring efforts.

Positives

• Costs of product revenue decreased significantly by 46.9% due to strategic shifts in inventory management and reduced equipment installations.
• Selling, general, and administrative expenses saw a decrease in salaries and wages due to headcount reduction, and a decrease in equity-based compensation expense.
• The company is actively managing its restructuring plan, with expected annualized savings of $13.5 million to $15.5 million upon completion.
• The company has entered into a sublease agreement for a portion of its headquarters, expected to generate aggregate rental payments of approximately $2.4 million.
• The company continues to expand its franchise network, with 3,165 studios operating globally as of June 30, 2026, and 694 additional studios contractually committed to open in North America.

Negatives

• Total revenue decreased by 13.4% to $66.0 million in Q2 2026 compared to $76.2 million in Q2 2025.
• Merchandise revenue saw a drastic 90.3% decrease, and equipment revenue fell by 25.8%.
• Selling, general, and administrative expenses increased by 33.0% to $32.0 million, largely due to a significant rise in legal expenses.
• The company reported a net loss of $4.8 million for the quarter, a reversal from a net income of $1.3 million in the prior year.
• Same store sales growth was negative at (7%) for the three months ended June 30, 2026, compared to 2% in the prior year.
• Marketing fund expense increased by 29.2% to $11.4 million, while marketing fund revenue decreased, leading to a deficit.
• Adjusted EBITDA decreased by 22.0% to $21.9 million from $28.1 million in the prior year's comparable period.

Risks

• The company's review of strategic alternatives may not result in a transaction and could adversely affect its business, operations, and stock price.
• Recent board and management changes, including a reduced number of independent directors, could disrupt governance and business operations.
• Delays in franchise license sales and studio openings could lead to slowed growth and reduced anticipated royalty or franchise revenue.
• The company's ability to retain and motivate personnel, maintain franchisee engagement, and execute operational initiatives could be adversely affected by the ongoing strategic review process.
• The company is subject to ongoing legal proceedings and government investigations, including a federal securities class action lawsuit and an FTC investigation, which could result in material adverse effects.
• The company's financial performance is subject to macroeconomic factors such as inflation and recession, which could impact franchisee economics and discretionary consumer spending.
• The company's reliance on franchisees means that their ability to increase same-store sales and manage their operations effectively is critical to the company's revenue.

Future Outlook

The company expects to recognize additional restructuring charges throughout 2026 totaling between approximately $8.2 million to $11.7 million. Annualized savings from the restructuring plan are estimated at $13.5 million to $15.5 million upon completion. The company believes its available cash balance and cash generated from operations will be adequate to meet its obligations for at least the next twelve months.

Management Comments

• The decrease in total revenue was primarily due to lower merchandise revenue and lower equipment revenue related to a decrease in equipment installations.
• The decrease in franchise royalty fees was primarily due to a decrease in same store sales coupled with a decrease due to brand divestitures in 2025.
• The decrease in merchandise revenue was primarily due to the change in strategy to outsource our retail merchandise inventory and lower overall demand from studios compared to the prior period.
• The increase in selling, general and administrative expenses was primarily attributable to an increase in legal expenses of $5.7 million related to various legal matters including government investigations.
• The company believes that its available cash balance and the cash generated from its operations will be adequate to meet its anticipated debt service requirements and obligations under its TRA, capital expenditures, payment of tax distributions and working capital needs for at least the next twelve months.

Industry Context

StockSavvy.ai notes that Xponential Fitness operates in the highly competitive boutique fitness industry. The reported revenue decline and increased SG&A expenses, particularly legal costs, are concerning trends that could impact its market position relative to competitors who may be experiencing more stable or growing revenues.

Comparison to Industry Standards

• The reported negative same-store sales growth of (7%) for Q2 2026 is a significant concern when compared to industry benchmarks that often aim for positive same-store sales growth, indicating potential challenges in customer retention or market penetration.
• The substantial decrease in merchandise revenue (90.3%) suggests a strategic shift away from this revenue stream, which is common in the industry as companies focus on core franchise operations, but it significantly impacts overall revenue figures.
• The increase in legal expenses, a significant driver of SG&A growth, is a red flag. While litigation is not uncommon, the scale of the increase suggests potential systemic issues or significant ongoing disputes that could be more prevalent or severe than in comparable fitness franchise companies.
• The company's Adjusted EBITDA margin has decreased, which, if not addressed, could put it at a disadvantage compared to more profitable peers in the fitness franchising sector.

Corporate Governance

Legal Proceedings

• A federal securities class action lawsuit was filed alleging violations of securities laws related to financial statements, press releases, and SEC filings.
• Shareholder derivative lawsuits have been filed against current officers and directors alleging breach of fiduciary duty and other corporate governance failures.
• A putative class action complaint was filed by former employees of a former franchisee alleging violations of labor laws.
• A settlement was reached for $22.75 million with approximately 509 current and former franchisees regarding alleged misstatements and omissions in Franchise Disclosure Documents.
• The company agreed to a $17,000 stipulated consent agreement with the FTC to resolve claims related to compliance with Section 5(a) of the FTC Act and the Franchise Rule.
• A settlement was reached with the New York Attorney General's office for $3,971 regarding alleged misrepresentations in Franchise Disclosure Documents.
• A putative nationwide class action alleging violations of the Telephone Consumer Protection Act was settled for $18.

Related Party Transactions

• The company has a receivable from a shareholder (Rumble Seller) for debt financing provided, with adjusted interest rates and extended maturity dates.
• The company entered into an agreement with the former owner of Row House, involving restricted stock units and a multi-tranche term loan.
• Spartan Fitness Holdings, LLC, which owns 171 Club Pilates studios and is managed by a member of the company's board of directors, entered into a unit purchase agreement with a special purpose vehicle also managed by the same board member. The company recognized franchise, equipment, and marketing fund revenue from Spartan Fitness.

Stakeholder Impact

• Shareholders: Potential negative impact due to revenue decline, net loss, and ongoing strategic review uncertainty. Stock price volatility is expected.
• Franchisees: Impacted by negative same-store sales growth and potential delays in studio openings. The company's focus on core brands and outsourcing of retail merchandising may affect franchisee support and product availability.
• Employees: Potential impact from headcount reductions and uncertainty related to the strategic review process.
• Creditors: The company's debt levels and financial performance are key considerations. Compliance with debt covenants is being monitored.

Next Steps

• Continue to focus on core brands and other opportunities that align with long-term strategies.
• Continue to invest in data warehouse project and other initiatives to become a data-driven company.
• Complete the restructuring plan, which is expected to continue throughout 2026.
• Pursue registration of FDDs in remaining states to resume franchise sales.
• Continue to manage and monitor the ongoing strategic alternatives review process.

Key Dates

Recommendation

The significant year-over-year decline in revenue, shift from net income to net loss, negative same-store sales growth, and substantial increase in legal expenses, coupled with ongoing strategic review uncertainty and delays in development, present a weak financial and operational picture. These factors suggest a deteriorating business performance that is likely to negatively impact the stock price.

Keywords

franchise, fitness, boutique fitness, studio, royalty fees, brand, revenue, operations