Brody Longo trains on his Peloton exercise bike on April 16, 2021 in Brick, New Jersey.
Michel Loccisano | Getty Images
The fitness industry appears to be heading for a strong holiday season, but not everyone will see a boost.
The category has been on a roller coaster for more than two years, with the Covid pandemic altering workout routines and hitting new industry winners. Now, inflationary pressures and a post-lockdown reset look set to benefit traditional gyms and commercial options – threatening home-connected fitness equipment like products made by Platoon and lululemonmirror.
Inflation remains a major concern for consumers, although October data showed a slight easing. Holiday spending projections show that rising costs could lead to fewer gifts this year.
The demand seems to be higher for experiences than for things. The fitness category has a history of surviving price pressures, and it typically benefits from a bump in New Year’s resolutions.
“In 2008 and 2009, fitness industry revenue and memberships actually grew relative to much of retail,” Jefferies analyst Corey Tarlowe told CNBC, referring to the crisis. financial situation and the recession of that time.
Tarlowe, which covers Planet Fitness and Lululemon, said fitness spending remains stable, even among low-income and inflation-prone consumers. But he sees gyms trumping more expensive home equipment. People are negotiating and moving more towards value, he said, “and that bodes well for Planet Fitness.”
Back to gyms
Planet Fitness posted record membership numbers and expanded its full-year guidance when it released its third-quarter results on Nov. 8. The company said it had 16.6 million members at the end of the quarter, an all-time high – even from the pre-pandemic era – and said it added 29 new sites during the period.
Planet Fitness CEO Chris Rondeau said members are also exercising more: six times a month compared to five times a month when Planet Fitness went public in 2015. The company also reported a drop in its rate of exercise. ‘cancelation.
Rondeau said engagement for all age groups is near or above pre-pandemic levels. The company, known for its affordable memberships compared to more upscale gyms like Life Time and Equinox, boasted that it has acquired strong customers through its discounted offerings.
Chris Rondeau, CEO of Planet Fitness.
Adam Jeffrey | CNBC
Luxury gyms are also seeing positive trends. Lifetime on November 9, reported a 9% increase in membership over 2021 and 4,000 additional members over the prior quarter.
The pace of additions is slower than between 2020 and 2021, but the luxury fitness brand continues to attract its higher-income clientele with in-person experiences such as pickleball, an increasingly popular sport.
Is fitness on the wish list?
Clothing retailers hope to continue to benefit from fitness resilience.
lululemon in September showed strong demand for activewear from its high-income consumer base. The company said it “sees no significant shifts” in consumer behavior despite the macroeconomic environment and has in fact raised its 2022 guidance range by around $200 million to between 7.87 and $7.94 billion.
The company will release its third quarter results in December.
Other retailers are hoping home fitness will continue to be on wish lists in the months to come. Dick Sporting Goods and Lowe’s — which recently expanded its assortment of exercise equipment and accessories — both touted the stability of the industry, even despite inflation.
But, as Jefferies’ Tarlowe notes, there’s more risk with capital-intensive, low-margin gear compared to higher-margin products like activewear. Nonetheless, retailers like Lowe’s are confident that demand will continue.
“Demand for home fitness equipment has held steady since the pandemic,” Lowe’s executive vice president of merchandising Bill Boltz said in a statement to CNBC. “Particularly during the holiday gifting season, we are bringing an increased selection of fitness accessories to stores.”
Can Peloton pedal bikes?
Home luxury goods like Platoon, however, have struggled in recent months as consumers move out of the house and back into offices and gyms. The stationary bike maker reported first quarter results earlier this month well below Wall Street expectations, posting a quarterly loss of subscribers and, according to UBS calculations, a parallel drop in engagement – 16% year over year.
Even though the company is looking to attract new customers — selling its bikes on Amazon and at Dick’s Sporting Goods, launching a rental program and putting bikes in hotels across the country — analysts don’t think the value proposition attracts more subscribers.
“It took a global pandemic to go from 1 million subscribers to 2 million. Can you really grow that base?” Arpiné Kocharyan, leisure, gaming and accommodation analyst at UBS, said in an interview with CNBC. “We’ve seen churn rates double year over year.”
Peloton expects second-quarter revenue of between $700 million and $725 million, about $150 million below Wall Street’s $874 million, according to Refinitiv’s consensus estimate at the time of the report.
Lululemon, which acquired home fitness company Mirror in 2020 for $500 million, could face similar headwinds at home. Executives did not disclose Mirror’s sales in the latest quarterly update, but the acquisition remained a charge to the company’s financial statements.
“I just don’t think Mirror was strategically the best option for Lululemon,” Jefferies’ Tarlowe said. “It’s probably still diluting earnings. They’re investing in the business to help improve the Mirror segment, but I wonder how much value will actually add to the overall business.”
Mirror subscriptions have been included in Lululemon’s new $39 per month membership program, which also includes access to exclusive Lululemon products and select in-person workouts. The subscription is part of the company’s five-year plan to double revenue to $12.5 billion by 2025, a plan that has drawn skepticism from some analysts.
“Connected fitness as a phenomenon is here to stay,” said UBS’s Kocharyan. “But are you going to see significant growth rates compared to what they are now, given that they’ve seen this unusually high growth rate in the middle of the pandemic? I would say there’s more questions about keeping those subscriptions and engagement high.”
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