Planet Fitness, Inc. PLNT is likely to benefit from store expansions, strategic partnerships and membership growth. This and the emphasis on the New Growth Model bode well. However, uncertain macroeconomic environments are a concern.

Let us discuss the factors that highlight why investors should retain the stock for the time being.

Growth Drivers

Planet Fitness is focused on strategic partnerships and international expansions to drive growth. The company is enthusiastic to announce its entry into the Spanish market, with plans to inaugurate a store by 2024-end. Only 10% of the population in Spain holds a gym membership, indicating a significant opportunity for the company to extend its brand presence beyond the United States and promote fitness accessibility in a non-intimidating environment. This strategic move follows the company's recent progress in developing markets such as Mexico and Australia. The company has set its sights on New Zealand, with plans to open 25 locations over the upcoming periods.

As part of its global expansion efforts, PLNT unveiled a joint venture in Mexico, teaming up with a prominent local retail services company and one of its major U.S. developers. This partnership aims to develop a minimum of 80 new stores over the next five years, complementing the company's existing presence in the country. It is optimistic about the long-term domestic store opportunity, aiming for over 5,000 gyms in the United States, indicating an increase from 4,000 units projected in 2015.

Increased focus on membership levels bodes well. During the fourth quarter of 2023, the company reported a robust Generation Z presence, accounting for more than a quarter of the membership base and driving membership growth. The upside can be attributed mainly to the successful implementation of the High School Summer Pass program, backed by over 3 million teenage participants. The conversion rate from program participants to paying customers exceeded the 2022 levels. Recognizing the distinctive nature of gym memberships within the retail landscape, the company acknowledges the importance of finding the right balance in messaging and pricing strategies. Explorations are currently underway to assess the feasibility of adjusting pricing for the classic card offering.

Planet Fitness intends to capitalize on its scale advantage by refining its strategies to stay ahead of competitors. During the fourth quarter of 2023, the company unveiled to franchisees a New Growth Model, aiming to improve the economics of new stores and lower capital requirements. This involves modifications to franchise agreements, adjusting equipment re-equipping schedules based on usage patterns, and decreasing capital expenses for new constructions and renovations while streamlining operating costs. By 2023-end, nearly all franchisees had opted for the plan and the company is now focused on implementation. The company is confident that this fresh approach will be beneficial for franchisees and the franchisor.



Concerns Zacks Investment Research

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In the past year, shares of Planet Fitness have declined 17.9% against the industry’s 13.4% growth. A volatile macroeconomic environment primarily caused the downside.

Inflation concerns are a potent headwind. Chances of increase in materials, shipping, equipment and labor costs are likely to impact the company’s profitability. It's worth noting that a considerable number of hourly employees in its corporate-owned stores are compensated at or based on the relevant federal or state minimum wage rates. Consequently, any escalation in the minimum wage would result in higher labor costs for the company. The ability of the company to fully offset such cost increases in the future remains uncertain. The company is cautious about the uncertain macroeconomic environment. For 2024, our model predicts total operating costs to rise 6% year over year.

Zacks Rank & Stocks to Consider

Planet Fitness currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Consumer Discretionary sector are as follows:

Trip.com Group Limited TCOM sports a Zacks Rank #1 (Strong Buy). TCOM has a trailing four-quarter earnings surprise of 53.1%, on average. Shares of TCOM have gained 17.3% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for TCOM’s 2024 sales and earnings per share (EPS) indicates a rise of 18.2% and 8%, respectively, from the year-ago levels.

Royal Caribbean Cruises Ltd. RCL sports a Zacks Rank #1. RCL has a trailing four-quarter earnings surprise of 26.4% on average. Shares of RCL have surged 116.4% in the past year.

The Zacks Consensus Estimate for RCL’s 2024 sales and EPS indicates a rise of 14.7% and 47.9%, respectively, from the year-ago levels.

Hyatt Hotels Corporation H carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 17.8% on average. Shares of H have increased 45% in the past year.

The Zacks Consensus Estimate for H’s 2024 sales and EPS indicates a rise of 3.5% and 27%, respectively, from the year-ago levels.

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