Despite High Post-COVID Operating Costs, Planet Fitness Development Has Not Slowed, Says Analyst – Planet Fitness (NYSE:PLNT)

D.A. Davidson analyst Linda Bolton Weiser reiterated a Hold rating on Planet Fitness Inc (NYSE:PLNT) with a price target of $67 on the stock.

The analyst conveyed insights from a meeting with Gilliane Kahn, a seasoned professional with over a decade of experience in the Planet Fitness system, serving as Vice President of Operations.

According to her, operating costs in California are high, with monthly unit expenses of $30,000-$34,000 for labor, $28,000-$34,000 for rent, and $6,000-$10,000 for utilities.

She noted that following the post-COVID reopening, cleaning expenses for franchisees surged by 90%, and these costs have yet to revert to pre-pandemic levels.

Kahn reported that the key metrics for the franchisee she most recently worked with have bounced back to 2019 levels. These metrics include EFTs (electronic fund transfers, which represent monthly revenue), foot traffic, and EBITDA margin.

However, she did not observe any slowdown in opening new units by the franchisees, adding that they are well aware of the high cost of remodels, so they usually plan a year ahead and budget for the associated expenses.

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HVAC system shortages are still an issue, but usually, solutions could be found, she added.

She thinks the greatest potential risks for PLNT are the struggles of the 2019 cohort (because the pandemic prevented them from ramping adequately), getting units to ramp fast enough and achieve adequate membership levels in markets with smaller populations, and saturation in the more developed markets.

The analyst thinks driving Black Card membership is perhaps the most important lever of 4-wall profitability, and equipment replacement part availability will be an issue.

HVAC system shortages are still problematic, but workarounds generally prevented opening delays, the analyst added.

Price Action: PLNT shares are trading higher by 1.04% at $67.04 on the last check Tuesday.

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