Xponential Fitness, Inc. Class A ((XPOF)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Xponential Fitness, Inc. Class A painted a mixed picture for investors. While there were commendable strides in sales growth and strategic partnerships, these were offset by challenges such as revenue declines, brand divestitures, and a slowdown in same-store sales growth. The transition in leadership and a strategic refocus add an element of uncertainty, but also hold the promise of potential improvements in the future.
North American System-wide Sales Growth
North American system-wide sales saw a notable increase of 12% year-over-year, reaching $474 million. This growth was largely driven by an increase in the number of actively paying members and a modest 1% rise in same-store sales, indicating a positive trend in consumer engagement.
Club Pilates Expansion and Performance
Club Pilates marked a significant milestone with the opening of its 150th international studio, continuing to demonstrate strong same-store sales growth. The brand is gearing up to launch its first national brand marketing campaign, which is expected to further bolster its market presence.
New Retail Agreement with Fit Commerce
A new retail partnership with Fit Commerce is set to enhance service offerings and reduce selling, general, and administrative expenses. This agreement includes a $50 million minimum guaranteed royalty over five years, promising a steady revenue stream.
Adjusted EBITDA Increase
The company reported an adjusted EBITDA of $28.1 million for the second quarter, representing a 14% increase from the previous year. This was primarily driven by an uptick in high-margin royalties from franchise revenues, highlighting the profitability of its franchise model.
Decrease in Total Revenue
Total revenue for the quarter fell by 1% to $76.2 million, impacted by a significant 26% decrease in equipment revenue and an 8% decline in merchandise revenue. This decline underscores the challenges the company faces in its non-franchise segments.
Same-store Sales Growth Slowdown
Same-store sales growth slowed to 1% year-over-year, a decrease from the previous quarter. This slowdown was notably affected by a negative same-store sales comp at StretchLab, which weighed on overall growth figures.
Brand Divestitures and Strategic Focus
The divestitures of CycleBar and Rumble are part of a strategic initiative to enhance the overall health of the company’s portfolio. While these moves are aimed at focusing on high-ROI brands, they have resulted in a reduction in projected system-wide sales.
Increase in Studio Closures
The second quarter saw 57 global studio closures, with a significant number attributed to CycleBar and Rumble. The annualized closure rate stood at 6.9%, reflecting the company’s ongoing portfolio optimization efforts.
Lower System-wide Sales Guidance
The company has revised its guidance for North American system-wide sales downward, now projecting between $1.78 billion and $1.8 billion. This adjustment reflects the impact of brand divestitures and a more conservative outlook amidst market headwinds.
Forward-looking Guidance
Xponential Fitness provided significant guidance for its future financial performance and strategic initiatives. Despite a moderated same-store sales growth, strategic actions such as the divestiture of CycleBar and Rumble and a new retail partnership are expected to sharpen the focus on high-ROI brands. The updated 2025 guidance projects North American system-wide sales between $1.78 billion and $1.8 billion and adjusted EBITDA between $106 million and $111 million, reflecting a more conservative revenue outlook due to market challenges and increased marketing investments.
In summary, the earnings call for Xponential Fitness, Inc. Class A highlighted a mixed bag of outcomes. While there are positive developments in sales growth and strategic partnerships, the company faces challenges with revenue declines and brand divestitures. The strategic refocus and leadership transition present both uncertainty and potential for future growth. Investors will be keenly watching how these strategic moves unfold in the coming quarters.