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Planet Fitness shares fall after board ousts CEO

Chris Rondeau, CEO of Planet Fitness

Adam Jeffery | CNBC

In a move that stunned investors and employees, Planet Fitness ousted company veteran Chris Rondeau as CEO, the workout chain announced in a press release Friday.

The stock fell 15% following the announcement, hitting a 52-week low.

Planet Fitness said it was looking for its next leader both internally and externally. Craig Benson, former governor of New Hampshire and member of the company’s board of directors, will serve as interim CEO. He is a Planet Fitness and Dunkin’ Donuts franchisee and has served on Planet’s board of directors for six years.

Rondeau’s departure appears sudden, and it’s unclear what exactly triggered the move, especially after reporting stronger-than-expected second-quarter results last month. Some employees close to Rondeau learned of his departure when the news was announced publicly, leaving them in shock, according to a person familiar with the matter. The person spoke on condition of anonymity because they are not authorized to speak publicly on the matter.

In a research note, Sharon Zackfia, an analyst at William Blair, called the news “abrupt” and said it did not “appear planned” as the company canceled two investor conferences planned for this week.

“The decision was characterized as that of the board and not Rondeau,” Zackfia wrote.

Planet Fitness President Stephen Spinelli Jr. said in a news release that the board “felt this was the right time to make a leadership transition.”

“In today’s evolving environment, Planet Fitness continues to enhance our competitive advantage, capitalize on our size and scale, and generate greater value for our shareholders,” he added.

Planet Fitness declined further comment. Rondeau could not be reached.

Rondeau is a longtime veteran of the company, having worked his way up from a front desk position nearly 30 years ago at the gym’s first location in Dover, New Hampshire, when it was owned by founders Michael and Marc Grondahl. Rondeau has served as CEO since 2013 and previously held the role of Chief Operating Officer. He will remain a member of the board of directors and maintain an advisory role “to help ensure a smooth transition,” the company said.

“My 30-year career at Planet Fitness has been an incredible journey, and it has been an honor to lead this company and serve our employees, franchisees and members, all of whom have played a key role in our tremendous growth and success,” Rondeau said. said in a statement. “I am grateful and look forward to supporting the management team in an advisory capacity, and I am confident in the long-term potential of Planet Fitness.”

During his tenure as CEO, Rondeau led the IPO of Planet Fitness and tripled the number of its clubs from approximately 700 to approximately 2,400 locations. When he took office, the company had annual revenue of about $200 million and is now expected to generate more than $1 billion this year, Zackfia said.

Reduced objectives

Chris Rondeau, CEO of Planet Fitness, at the New York Stock Exchange, May 17, 2022.

Source: NYSE

While the company has recently reported strong sales and profit growth, investors are increasingly wary of its equipment plans and new franchises, both of which are key revenue drivers for the company .

In August, Rondeau announced that Planet Fitness was reducing its forecast for equipment placement in new franchise stores for 2023 to about 140, down from 160 previously. Planet makes about a quarter of its revenue from selling its branded fitness equipment to franchisees.

At the time, Rondeau attributed the lowered forecasts to “an increase in the costs of building new stores and a rise in interest rates.”

On a call with analysts, Chief Financial Officer Thomas Fitzgerald noted that the company’s plans to open 600 new stores by 2025 may no longer be feasible. He said the target was still “achievable in the short term” but could take more than three years.

“While the returns on investment from our new stores are still strong, they have not returned to their pre-Covid levels due primarily to rising construction costs which have stubbornly remained up 25%,” he said at the time. Fitzgerald said.

“To put things in perspective, the amount of CapEx required to build six stores per year in 2019 will now only build four or five depending on the situation. … Additionally, the rapid rise in interest rates over the past year has had a cumulative impact on our franchisees’ ability to invest in new store growth. »

Additionally, vacancy rates for Planet Fitness’ gym-friendly 15,000-25,000 square foot locations are down approximately 16% from pre-Covid levels, making it more difficult for the company to secure new leases, Fitzgerald said.

In its most recent quarter ended June 30, Planet opened 26 new stores, up from 34 last year.

“[Planet Fitness] presented multiple reasons why franchise unit openings have slowed, without giving investors confidence about the likely growth rate, which we believe is the key factor impacting stock performance,” DA Davidson wrote in a research note Friday.

The company’s shares have fallen about 33% this year, giving it a market value of about $4.6 billion.

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