Xponential Fitness, Inc. Class A ((XPOF)) has held its Q3 earnings call. Read on for the main highlights of the call.
Meet Your ETF AI Analyst
- Discover how TipRanks' ETF AI Analyst can help you make smarter investment decisions
- Explore ETFs TipRanks' users love and see what insights the ETF AI Analyst reveals about the ones you follow.
The recent earnings call for Xponential Fitness, Inc. Class A revealed a mixed sentiment among stakeholders. While the company celebrated significant growth in its Club Pilates brand and successful strategic divestitures, it also faced challenges such as a decline in same-store sales, high delinquent licenses, and a decrease in revenue. Despite these hurdles, the company’s focus on growth initiatives and core brand strategies provided a balanced outlook.
Record-Breaking Growth in Club Pilates
Club Pilates has been a standout performer for Xponential Fitness, with openings in 2023 and 2024 showing record-breaking year-one revenue ramps. These openings have exceeded the previous three vintages by an average of 27% at the 12-month mark, highlighting the brand’s strong market presence and consumer demand.
Successful Divestitures
Xponential Fitness has streamlined its brand portfolio by successfully divesting CycleBar, Rumble, and Lindora. This strategic move is expected to result in SG&A savings of approximately $6 million annually, allowing the company to focus more on its core brands and improve operational efficiency.
Strong System-Wide Sales Growth
The company reported robust system-wide sales growth in North America, reaching $432.2 million, a 10% increase year-over-year. This growth was primarily driven by net new studio openings, showcasing the company’s expansion strategy and market penetration.
Improved Adjusted EBITDA
Xponential Fitness reported an adjusted EBITDA of $33.5 million for Q3, marking a 9% increase from the previous year. The adjusted EBITDA margin also improved, rising from 38% to 42%, reflecting the company’s effective cost management and revenue growth strategies.
Same-Store Sales Decline
Despite overall growth, same-store sales saw a decline of 0.8% for the quarter. This was attributed to challenges in lead flow and member conversion, as well as specific issues in StretchLab due to reductions in Medicare Advantage coverage.
High Number of Delinquent Licenses
The company faces a significant challenge with approximately 40% of global licenses being over 12 months behind their applicable development schedules. This backlog could impact future growth and operational efficiency if not addressed promptly.
Revenue Decline
Consolidated revenue for the quarter was $78.8 million, reflecting a 2% decrease from the prior year period. This decline highlights the need for the company to address its revenue generation strategies amidst operational challenges.
Anticipated Q4 Challenges
Looking ahead, Xponential Fitness anticipates marketing fund expenditures to exceed revenue by approximately $5 million in Q4, driven by a national brand campaign for Club Pilates. This indicates a strategic investment in brand visibility, albeit at a short-term cost.
Forward-Looking Guidance
Xponential Fitness provided detailed guidance for the future, maintaining its projections for 2025 net new studio openings, revenue, and adjusted EBITDA. However, the company adjusted its North America system-wide sales projections to account for recent brand divestitures. With a backlog of over 1,000 studios in North America and 700 international franchises, the company remains focused on expansion and operational efficiency.
In summary, Xponential Fitness, Inc. Class A’s earnings call presented a balanced sentiment with both growth achievements and operational challenges. The company’s strategic focus on core brands and expansion initiatives, coupled with effective cost management, positions it well for future growth despite current hurdles.