Industry Voice: Case study - making a positive impact on people

clock • 6 min read

Regular exercise helps improve peoples' overall health, fitness, and quality of life. It also helps to prevent chronic illnesses, such as type 2 diabetes and heart disease, and obesity. Covid-19 has further increased the awareness of the benefits associated with exercising, as it can cause more severe symptoms and complications in people with obesity-related conditions.

We recently added Planet Fitness, a leading fitness chain operator in the US with an expanding global presence, to our portfolio. By making fitness more accessible to all and encouraging heathier eating, the company can improve life expectancy and quality, thereby creating positive impact.

Planet Fitness has a unique value proposition in the market, with its average membership rate only 25% of the industrywide average. The group operates 2,059 stores (as of 30 June 2020), offering personal fitness training programmes for its members as well as providing sauna and massage facilities. Planet Fitness has a leading market share in the US, accounting for 5% of about 40,000 health clubs and 22% of health club members, and it plans to increase its store count to 4,000 in the US and 300 in Canada to help broaden access to fitness[1]. In the next three years alone, it has committed to opening 500 new stores. Together, its attractive pricing points as well as its large and growing unit presence make the company's business model highly attractive and defensible, thereby making fitness more accessible.

In 2019, the group recorded revenues of just under $700m, an increase of $280m on the previous year, and its membership doubled from 7.1m to 15.2m (as of 30 June 2020)[2]. It is a highly cash generative company with a strong balance sheet ($424m in cash as of 30 June 2020), which should help it grow its market share as it navigates the Covid-19 crisis.

The future of fitness

In the last decade, global fitness industry revenues have grown at a compound annual growth rate of 3%[3]. In the US, this figure was 6%[4]. By 2018, there were over 180m global health club memberships, and over 60m in the US. Global revenue industry-wide totalled $94bn in 2019[5] - and this growth is expected to continue once trends normalise and gyms reopen as coronavirus lockdown measures lift around the world.

Planet Fitness is likely to emerge from the current coronavirus-induced downturn stronger than before. That's because the fitness industry has proven resilient during recessionary periods in the past, recording revenue growth of 2% in the US during the Great Recession in 2008-2009, as people tend to exercise when they are out of employment or suffering from increased stress levels[6]. What's more, in 2017, Planet Fitness was forced to close 11 gyms for up to six months owing to the impact of Hurricane Maria. During that period, members were not charged, the company had few cancellations, and, within 12 months, these locations had generated higher monthly revenues than before they closed[7]. During the current period of uncertainty, the group could also benefit thanks to its attractive pricing as other gym-goers may look to trade-down. Planet Fitness also moved quickly to freeze memberships when lockdowns were enforced, which should help it to retain its members.

We believe that Planet Fitness is well-positioned to benefit from any material dislocation in the fitness space as a result of Covid-19. While the virus creates a headwind for all gyms, those businesses lacking strong cash balances may be forced to shutter their doors permanently. In turn, this could present opportunities for Planet Fitness: its franchises could acquire more stores and, should its membership model resonate with value-oriented consumers, gym-goers could look to trade-down from boutique and high-end gyms. Indeed, this could help Planet Fitness increase its market share substantially from its current level of 22% to close to 30% in next few years.

Beyond the coronavirus pandemic, we believe Planet Fitness has a durable franchise model with the potential to sustain its normalised earnings per share growth, driven by strong double-digit store expansion, margin expansion and healthy cash returns.

Read our full Federated Hermes Impact Opportunities Fund H1 2020 report, to find out more about our recent activity and performance, our engagement progress, and how we have been investing in pandemics through our impact themes.

 

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Any investments overseas may be affected by currency exchange rates. Past performance is not a reliable indicator of future results and targets are not guaranteed.

For professional investors only. This is a marketing communication. This document does not constitute a solicitation or offer to any person to buy or sell any related securities, financial instruments or products; nor does it constitute an offer to purchase securities to any person in the United States or to any US Person as such term is defined under the US Securities Exchange Act of 1933. It pays no regard to an individual's investment objectives or financial needs of any recipient. No action should be taken or omitted to be taken based on this document. Tax treatment depends on personal circumstances and may change. This document is not advice on legal, taxation or investment matters so investors must rely on their own examination of such matters or seek advice. Before making any investment (new or continuous), please consult a professional and/or investment adviser as to its suitability. All figures, unless otherwise indicated, are sourced from Federated Hermes. All performance includes reinvestment of dividends and other earnings.

Federated Hermes Investment Funds plc ("FHIF") is an open-ended investment company with variable capital and with segregated liability between its sub-funds (each, a "Fund"). FHIF is incorporated in Ireland and authorised by the Central Bank of Ireland ("CBI"). FHIF appoints Hermes Fund Managers Ireland Limited ("HFMIL") as its management company. HFMIL is authorised and regulated by the CBI.

Further information on investment products and any associated risks can be found in the relevant Fund's Key Investor Information Document ("KIID"), the prospectus and any supplements, the articles of association and the annual and semi-annual reports. In the case of any inconsistency between the descriptions or terms in this document and the prospectus, the prospectus shall prevail. These documents are available free of charge (i) at the office of the Administrator, Northern Trust International Fund Administration Services (Ireland) Limited, Georges Court, 54- 62 Townsend Street, Dublin 2, Ireland. Tel (+ 353) 1 434 5002 / Fax (+ 353) 1 531 8595; (ii) at https://www.hermes-investment.com/ie/; (iii) at the office of its representative in Switzerland (ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich www.acolin.ch). The paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1/am Bellevue, P.O. Box, CH-8024 Zurich.

Issued and approved by Hermes Fund Managers Ireland Limited ("HFMIL") which is authorised and regulated by the Central Bank of Ireland. Registered address: The Wilde, 53 Merrion Square, Dublin 2, Ireland. HFMIL appoints Hermes Investment Management Limited ("HIML") to undertake distribution activities in respect of the Fund in certain jurisdictions. HIML is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET. Telephone calls will be recorded for training and monitoring purposes. Potential investors in the United Kingdom are advised that compensation may not be available under the United Kingdom Financial Services Compensation Scheme.

 

1,3,4,5,6 "Research note: "In A Universe Of Black Holes, This Planet Will Continue To Shine," published by Jefferies in April 2020

2 Source: Planet Fitness, as at 30 June 2020.

7 Research note: "A Planet for the Taking - Highlights from Mgmt Call," published by Jefferies in April 2020.from Mgmt Call," published by Jefferies in April 2020.

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