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Xponential Fitness reported third-quarter revenue of $62.3 million, down 21% from a year earlier, and reduced its forecast for new studio openings. The company maintained its annual revenue outlook while its board continued a review that could result in a sale or merger, after shareholder Fund 1 Investments proposed taking it private.
Xponential Fitness reported that third-quarter revenue fell 21% to $62.3 million from a year earlier and reduced its forecast for new studio openings, as the boutique fitness franchisor’s board continues a review that could lead to a sale or merger. The results came about a week after major shareholder Fund 1 Investments floated a plan to take the company private.
Revenue declined from $78.8 million in the third quarter of the prior year. North American same-store sales fell 7.5%, following a 6.8% drop in the second quarter. Xponential reiterated its full-year revenue forecast of $250 million to $260 million, but lowered its expectation for net new studio openings to 124 to 130, down from about 150.
Franchise revenue fell 16% to $43.4 million. Xponential attributed the decrease to lower franchise territory revenue, including less revenue recognized from franchise agreement terminations. Equipment revenue fell 42%, which the company tied to fewer studio openings. Merchandise revenue dropped 92%; Xponential said that decline reflected its move from an in-house wholesale model to an outsourced retail model.
The company ended the quarter with 3,185 open studios worldwide across its brands, which include Club Pilates, Pure Barre, StretchLab, YogaSix and BFT. CEO Mike Nuzzo said on a call with analysts that Xponential had streamlined studio development and expected more openings and equipment installations in the fourth quarter. Jennifer Ryu, the company’s new chief financial officer, joined the call as interim CFO Robert Julian prepares to leave.
Falling Sales Test Franchise Growth
The results put pressure on Xponential’s near-term growth plans: its expected new openings are now below the company’s earlier projection, while same-store sales have declined for a second consecutive quarter. That matters to a franchisor whose expansion depends on studios opening and existing locations attracting customers. The company did not provide in the supplied report a revised full-year revenue forecast, but it kept its $250 million to $260 million range unchanged.
The possible ownership change adds uncertainty for franchisees, investors and potential buyers. A sale or merger could alter the company’s ownership and plans, but no transaction has been announced. The reported figures do not establish whether the shareholder proposal has board or investor support, or whether it will lead to a deal.
Xponential is also emphasizing Club Pilates as a growth driver even as the broader business reports weaker sales and fewer expected openings. Whether that brand’s expansion can offset the pressures shown in the quarterly results remains to be seen.
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A Strategic Review Meets a Rights Plan
Xponential has been weighing a sale since April, with Jefferies serving as its adviser, according to Athletech News. Nuzzo said the board remained actively engaged in its review, which could lead to a sale or merger, and declined to comment further until the process concludes. Fund 1 Investments, described in the report as one of Xponential’s largest shareholders, floated a private-takeover plan shortly before the earnings report.
Last month, the board announced a limited-duration stockholder rights plan. According to the source report, the plan can be triggered if an investor or group acquires 19.9% or more of Xponential’s Class A shares. The report does not say that the threshold has been reached or that the plan has been triggered.
Club Pilates is Xponential’s largest brand, with more than 1,500 studios worldwide. Nuzzo described it as the company’s biggest growth opportunity at home and internationally, citing an existing franchisee network and a pipeline of overseas master-franchise and sub-franchise partners. He said the long-term goal is to exceed 2,000 Club Pilates locations within five years.
“We are making progress in strengthening Xponential’s business with the initiatives we have implemented across marketing, technology and brand management.”
— Mike Nuzzo, Xponential Fitness CEO
No Deal or Fourth-Quarter Results Yet
No sale or merger has been announced, and the source report does not specify when the board’s review will conclude. It also does not detail the terms of Fund 1 Investments’ proposal, whether the investor has made a formal offer, or how other shareholders and the board have responded to it.
The company expects more studio openings and equipment installations in the fourth quarter, but those are forecasts, not reported outcomes. The report provides no fourth-quarter results, and it does not explain how many openings will be completed within the revised full-year range. It is also unclear whether the decline in same-store sales will continue or how the lower opening outlook could affect future revenue.
Board Review and Fourth-Quarter Openings
The immediate developments to watch are the conclusion of Xponential’s strategic review and the company’s progress against its revised forecast of 124 to 130 net new studios. The board has said it will not comment further on the review until it concludes, leaving the timing and outcome open.
Xponential has said it expects more openings and equipment installations in the fourth quarter. Its next results should show whether that projected pickup occurred and whether the company’s annual revenue outlook remained achievable. Until then, the reported sales decline, reduced opening estimate and ongoing ownership review are the main confirmed indicators of the company’s position.
Key Questions
How much did Xponential Fitness revenue fall?
Third-quarter revenue was $62.3 million, down 21% from $78.8 million in the same quarter a year earlier.
Did Xponential cut its full-year revenue forecast?
No. The company reiterated its full-year revenue forecast of $250 million to $260 million, while lowering its expected net new studio openings to 124 to 130 from about 150.
Is Xponential being taken private?
No transaction has been announced. Fund 1 Investments floated a plan to take the company private, and Xponential’s board is reviewing strategic options that could include a sale or merger.
Which Xponential brand is the company emphasizing for growth?
CEO Mike Nuzzo identified Club Pilates as Xponential’s biggest growth opportunity. The brand has more than 1,500 studios worldwide, and the company’s stated long-term goal is to exceed 2,000 locations within five years.
Source: athletechnews.com
