Planet Fitness (NYSE: PLNT) shareholders are feeling a bit stronger this week. The stock rose 13% through Thursday trading, beating a nearly flat S&P 500 during that time. That rally only erased a small part of the fitness club's losses for the year, though, and shares remain in deeply negative territory. Planet Fitness is down 20% so far in 2023 compared to a 13% increase in the wider market.
This week's boost was sparked by some positive operating results and the announcement of further cost cuts by the company's management team.
New cost-cut plans propelled Planet Fitness stock higher
Planet Fitness on Nov. 7 announced generally solid sales trends in the third quarter that ran through late September. Same-store sales were up 8%, mainly thanks to the chain's rising membership pool. The company added 26 new gym locations, too, helping push overall revenue up 14% to $278 million.
Earnings improved as well, with operating profit landing at $72 million, or 26% of sales. Planet Fitness ended the quarter with 18.5 million paying members, up from 18.4 million in the prior quarter.
Here's what it means for investors
Investors were more focused on the company's outlook, which contained two important pieces of news. First, Planet Fitness boosted its 2023 sales and earnings forecasts after having reduced these predictions in the prior quarter. This week's upgrade implies more stability in the fitness industry, which has been under pressure as consumer spending rates slow.
At the same time, Planet Fitness is prioritizing efficiency as it prepares for a potentially weak period ahead for membership growth. Executives for a second straight quarter lowered their target for store openings and remodels. Interim CEO Craig Benson said this move reflects management's "focus on enhancing returns on stores."
The move will likely mean higher short-term earnings, but the big question going forward is whether Planet Fitness can accelerate its membership growth over the coming quarters. That's why investors should watch subscriber trends for any signs of a rebound ahead.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Planet Fitness. The Motley Fool has a disclosure policy.
