Inside the Earnings Call: Xponential Fitness Confirms Boutique Fitness is a ‘Must-Have;’ Shares Climb
The boutique fitness franchisor announced its fourth quarter and full year 2022 financial results
Xponential Fitness, Inc. has reported its financials for the fourth quarter and full year 2022, once again reporting positive results that led to its shares climbing 14 percent.
The largest global franchisor of boutique fitness brands opened a new studio approximately every 17 hours in 2022, and had system-wide sales surpassing $1 billion for the first time, reports Anthony Geisler, CEO of Xponential Fitness.
Xponential’s brands include Club Pilates, Cyclebar, Stretchlab, BFT, Rumble, Pure Barre, and Row House.
Here are some key highlights of Xponential Fitness’s recent earnings call:
Wins for 2022 that show boutique fitness is a ‘must-have’ and created momentum into 2023
Last year was another successful year for Xponential, said Geisler on the Q4 & FY 2022 earnings call Thursday. The boutique fitness franchisor achieved double-digit growth across North America memberships, same-store sales, and AUVs, which Geisler said represents that boutique fitness is considered a “must-have” and not a discretionary spend by studio members.
“The demand for our offerings is demonstrated by our North American studios, generating over 1 billion in system-wide sales in 2022,” Geisler said.
Xponential now has a combination of franchise, master franchise, and international license agreements in place in 16 countries and says it will continue to grow globally.
Total members across North America increased approximately 32% year over year in 2022 to a total of 590,000, and membership momentum has carried into 2023, said Geisler.
“In the month of January, we officially surpassed 600,000 North American members, with nearly 90% of these customers on recurring membership packages,” he said, adding that the figures represent the long-term growth of a passionate and loyal member base.
Studio visits in North America increased 32% last year, reaching 39.2 million. The brand reports that system-wide sales in North America increased 46% in 2022 and surpassed $1 billion in annual sales for the first time in Xponential’s history.
“For the year, we posted net revenue of approximately $245 million, an increase of 58% year over year,” Geisler shared.
XPOF’s Growth plan
Xponential closed 2022 with 2,641 studios, opening 156 new studios in the fourth quarter. “For the full year, we opened 511 net new studios globally or a new studio opening approximately every 17 hours,” Geisler said.
The fitness franchisor also sold 257 franchise licenses globally in Q4, totaling 5,450 sold. In North America, Xponential has nearly 2,000 licenses sold and slated to open.
Over time, as Xponential continues to sell territory in each of its brands, Geisler said on the earnings call that the franchisor would need to acquire another brand eventually, but not necessarily in the new future.
“We’re not in a hurry to buy an 11th brand. We don’t necessarily need an 11th brand for the next few years. But, you know, we’ll most likely be opportunistic when need be,” Geisler confirmed.
Xponential also plans to continue its international expansion, with over 1,00 studios anticipated to open and a master franchise agreement in Portugal to license Club Pilates.
A master franchise agreement in Japan for Rumble and AKT brands will result in a minimum of 100 new studios across both brands, Geisler said.
“Our third key growth driver is to expand margins and drive free cash flow conversion,” he said. “As our business continues to grow, we are increasingly reaping the benefits of our asset-light, scalable operating model, providing us with consistent and growing margin performance.”
In-studio is what fitness consumers want, says Xponential
Boutique in-studio offerings are exactly what consumers desire in a post-pandemic world, said Geisler. “Consumers have shifted their interest toward smaller classes that offer community and entertainment in a safe, healthy environment,” he added.
And it’s not just about the workout, Xponential’s CEO said.
“Our members come to our studios not only to work out, but also to socialize with one another,” he said. “It’s this sense of community that makes our studio membership so sticky and why the thought of giving up one studio membership equates with also giving up a community and a lifestyle, people are just not willing to make that trade-off.”
Omnichannel fitness offerings, new app & gamification platform in the works
Xponential confirmed it is capitalizing on other methods to engage with its consumers beyond the studio via its B2B XPLUS and XPASS offering.
“The success of our omnichannel fitness experience, which is helping drive more customers into our studios, is apparent in our growing visits,” reported Sarah Luna, President.
XPASS served as a lead generator for XPOF franchisees to drive in-studio memberships, she explained.
“In 2022, 17% of XPASS North America members had never interacted with Xponential brands prior to purchasing an XPASS membership. In addition, 64% of XPASS North American members were inactive before purchasing an XPASS membership.”
Xponential also plans to connect with its members virtually via XPLUS, its fitness-on-demand digital platform with over 117,000 subscribers by the end of 2022.
“With 72% of fitness club owners, according to ClubIntel, offering on-demand and live-stream workouts, we understand the need to continue to invest in our XPLUS platform,” Luna said on the latest Xponential earnings call. “We are constantly developing new content for XPLUS platform and are offering on Lululemon Studio.”
Luna also confirmed that Xponential would develop a new app and gamification platform to drive awareness this year.
B2B Partnerships continue, with new addition of LG
Xponential will continue with its B2B partnerships, which the boutique fitness franchisor says will enable its brands to reach an even broader demographic.
XPOF joined forces with multiple brands in 2022, including Lululemon Studio and Optum Health, a division of UnitedHealth, Aktiv Solutions, and Princess Cruises.
“Our growth in B2B partnerships has continued in 2023 with LG, Territory Foods, and ONE Brands now all on board,” Luna said.
Xponential announced in January an XPLUS partnership with LG, where LG televisions will feature an app providing access to its entire XPLUS library.
“Xponential’s partnership with LG is another example of our holistic approach to fitness, engaging with our consumers and raising awareness for our brands far beyond the physical studio locations,” Luna said on the Xponential earnings call.
An interest in the wellness space
Xponential reports that it’s done an “amazing job” with StrechLab, a wellness product rather than a fitness product projected to be in the health and fitness space since day one.
The fitness franchisor may pursue the wellness space in the future.
“There are still a handful of modalities in the fitness space in which we could acquire and even more so on the wellness side,” Geisler mentioned. “I think anything that’s a 1,500 to 2,000-square-foot franchise retail box in the health and wellness space is something that is right up our alley,” he added.
Xponential isn’t facing the same headwinds other fitness businesses are experiencing
Simplicity may be key, as Xponential said on the earnings conference call it’s not experiencing the same macro headwinds as other competitors because it isn’t crafting massive build-outs of 20,000+ square feet.
Regarding studio locations, Geisler suggested that keeping it simple has worked out well.
“You’ve got to remember we’re building 1,500 to 2,000 square feet. We’re using whatever air conditioning was already sitting on the roof when it was a sandwich shop or a bike shop or an ice cream store or whatever it was before us,” Geisler said.
“We also are doing an amazing job last year at 511 and doing way better, you know, than we even would have done this last year. There’s no major construction that we do,” he continued. “It’s really kind of modifying the previous use that was there into our use. And in some brands like StretchLab or Club Pilates, it really is just a rectangular box with no walls and a single bathroom in the back. So, it’s not major construction.”
Looking ahead to the future
The fitness franchisor says it plans to expand its presence past studio locations and will continue to use B2B partnerships for customer acquisition.
“The idea is to continue to put Xponential and its brands in the forefront of people’s minds and not just have it be a brick-and-mortar location that, you know, is sitting next to a Starbucks and some grocery- anchored center,” Geisler said.
But, from a competitive standpoint, CFO John Meloun stated on the earnings call that Xponential continues to take market share. “I think when you look at the boutique space and you look at our white space, you know, we see ourselves being able to grow to about roughly 8,000 studios in the U.S. alone,” he said.
The fitness brand will also continue to expand into all of the Princess ships, adding its digital capabilities to the cruise liners and training new instructors to put on board. Geisler said Xponential has been selling retail through the Princess cruise ships, and is looking to make the company a lifestyle, health, and wellness platform.
XPOF Financials at a Glance:
Q4 2022 Compared to Q4 2021
- Revenues grew 44% to $71.3 million.
- North America system-wide sales increased by 38% to $294.1 million.
- North America same-store sales grew 17%, against the growth of 53%.
- North America quarterly run-rate average unit volume (AUV)3 increased to $522,000, against $446,000.
- Net loss was $0.4 million, or a loss of $1.13 per share, on a share count of 26.8 million shares of Class A Common Stock, against a net loss of $29.8 million, or a loss of $2.45 per basic share, on a share count of 22.6 million shares of Class A Common Stock.
- Adjusted net income was $6.8 million, or $0.07 per basic share, against an adjusted net loss of $6.1 million, or a loss of $0.21 per basic share.
- Adjusted EBITDA4 was $22.2 million vs. $8.6 million.
FY 2022 Compared to FY 2021
- Revenues grew 58% to $245.0 million.
- North America system-wide sales increased by 46% to $1.03 billion.
- North America same-store sales growth was 25%, against the growth of 41%.
- Net income was $2.9 million, or a loss of $0.87 per share, on a share count of 25.3 million shares of Class A Common Stock vs. a net loss of $51.4 million, or $2.85 per share, on a share count of 22.4 million shares of Class A Common Stock.
- Adjusted Net Income was $9.5 million, or a loss of $0.07 per share, against an Adjusted Net Loss of $24.4 million, or $0.80 per share.
- Adjusted EBITDA4 was $74.3 million, compared to $27.3 million.
