News Column

Membership drop crimps Life Time's 2Q sales, profits

July 24, 2014

By David Phelps, Star Tribune (Minneapolis)



July 25--Life Time Fitness, fresh off a disappointing earnings report, said Thursday that it wants to personalize its service and get to know its customers better in order to reverse a troubling decline in membership.

With lower-than-expected profits ($29.8 million) and sales ($326.6 million), shares in the Chanhassen-based company spiraled down 12.7 percent, or $6, to $41.26 by the end of the day.

Life Time CEO Bahram Akradi called the second fiscal quarter "challenging" and told stock analysts that the depressed results were the result of "unexpected erosion of membership" at its older ­fitness centers.

"The health-and-fitness sector continues to fragment at a rapid rate," Akradi said in reference to competition for consumer attention. "Retention of membership is where we see our opportunity, but it will take some time to show material change -- maybe up to a year."

Analysts agreed that it will take time before it's known whether Life Time can arrest its recent membership decline.

"There's just a lot of competition and a lot of choice out there," said Kurt Frederick of Wedbush Securities in Los Angeles. "We'll see what happens over time."

Sean Naughton of Piper Jaffray in Minneapolis said: "They've opened six new clubs in the last 12 months, and they have fewer members. That's concerning."

Although Life Time's second-quarter revenue rose 6 percent above the same period in 2013, net income was down 11 percent.

A company spokesman told the Star Tribune that there was no geographic or demographic trend that contributed to the decline in membership.

Not all clubs saw drop

"The impact was within our mature club portfolio," said Jason Thunstrom, Life Time's vice president of corporate communications. "Even among those clubs, the impact was upon very few locations."

In a conference call, Akradi said Life Time is dedicating teams of two to three staff members per facility to personally interact with ­members to help them make full use of their club membership.

"We want a tighter relationship with our members," Akradi said. "We are attacking retention like we've never attacked it."

Akradi said 80 percent of the members who leave Life Time do so for one of three reasons: a physical move from the area, under-use of club facilities and dues.

"We can't do anything about a move and money," he said. "The only opportunity we have is to get members to use the club."

Akradi said Life Time is seeing "good growth" from its new facilities, five of which opened this year with one in Las Vegas still in the works. Those locations "outperformed our financial expectations," Akradi said.

He said Life Time also plans to open six new clubs in each of the next two years in existing and new ­markets. Among those slated for opening in 2015 are clubs in Toronto, New York, New ­Jersey, Boston and Sacramento, Calif.

Akradi downplayed the impact of smaller and cheaper so-called studio fitness centers on Life Time's business.

Building more programs

"For five or six years, we've been building programs better than any studio. We have cycling classes, yoga classes. We haven't been sitting on our butt waiting for things to come and go," Akradi said. "We're seeing some of these studios with low barriers to entry putting the hurt on each other."

But Frederick of Wedbush noted that studio fitness centers are attractive to consumers because of their neighborhood-like locations as opposed to big-box fitness centers that draw from a larger geographic area but are a longer drive to reach.

Naughton said the average monthly dues for a Life Time member is $84 compared to $20 to $40 for a smaller center like Snap Fitness or Anytime Fitness.

"People may be at a point wondering if they need to be paying $84 a month," Naughton said.

Life Time also announced Thursday that its board of directors has approved a $200 million share repurchase ­program.

David Phelps -- 612-673-7269

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(c)2014 the Star Tribune (Minneapolis)

Visit the Star Tribune (Minneapolis) at www.startribune.com

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Source: Star Tribune (Minneapolis, MN)


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