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November 28, 2023

Planet Fitness races against rate hikes

Planet Fitness races against rate hikes

View of the Planet Fitness logo at the their location in Clifton, New Jersey, U.S., January 6, 2023. REUTERS/Jennifer Saba Acquire Licensing Rights

NEW YORK, Sept 18 (Reuters Breakingviews) – Planet Fitness (PLNT.N) is struggling to adapt to a high-interest-rate diet. After 10 years, boss Chris Rondeau on Friday abruptly stepped down from the $4 billion gym chain, sending shares to their lowest level in three years. With growing debt-servicing costs crimping franchisees, the company can’t outrun rising rates unless its next coach reconsiders rock-bottom prices.

Under Rondeau, Planet Fitness benefited from a post-pandemic exercise rebound, notching annual sales growth of over 40% in the last two years as location count expanded by 13%. But last month, it lowered projections for further growth, blaming boosted construction costs that have left franchisees under heavy debt burdens, doubly painful given the higher cost of interest.

Allowing franchisees to hike prices might be unpopular for a company that prides itself on accessible dues. The price of a base membership hasn’t budged from $10 a month despite inflation. But rival Life Time (LTH.N) has shown it can work, having jacked up dues by 12% per location since 2019. Its stock is up 32% this year, while Planet Fitness’s is down by roughly the same amount. Life Time boss Bahram Akradi said his old approach of keeping prices low was a “mistake.” Planet Fitness can fix the same error. (By Anita Ramaswamy)

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

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Editing by Jonathan Guilford, Sharon Lam and Aditya Sriwatsav

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