Xponential CEO Not Worried About Recession Fears: ‘Our Consumer Is Resilient’
Anthony Geisler said Xponential is well-positioned to thrive post-pandemic, highlighting the brand’s ability to grow during COVID
Xponential Fitness and its brands, Club Pilates, CycleBar, StretchLab, Row House, AKT, YogaSix, Pure Barre, Stride, Rumble and BFT, entered 2023 “fully energized.” The boutique fitness franchisor is now taking a moment to reflect.
In an interview with Athletech News in 2022, Xponential CEO Anthony Geisler stated that he sees goals and challenges as a game to win. It’s a philosophy that has undoubtedly fueled the boutique fitness franchisor’s strength and growth in recent years, while competitors have crumbled.
Last month, Xponential reported strong growth in same-store sales, membership and new studios, with revenue increasing $20 million in Q1 when compared to the same quarter last year.
Geisler and John Meloun, CFO, discussed Xponential’s successes and all that the boutique fitness franchisor has to look forward to during TD Cowen’s 7th Annual Future of the Consumer Conference.
Here are some highlights:
Success during COVID
It would be remiss to discuss Xponential without acknowledging the pandemic, during which the boutique fitness franchise did the impossible, adding 350 new stores in 2020, growing 30%.
Geisler said Xponential returned to its pre-COVID average unit volume (AUV) in March of last year.
“We’ve been at a pre-COVID AUV for over 15 months,” he noted. “We comped at 17% 18% and 21% over the last three quarters on our three-year plus mature stores and 17, 17 and 20 on our three-year minus old stores. We used to comp about 8, 9% in a pre-COVID world. So we went from comping at high single digits to high teens and now into the low twenties.”
“The average AUV across all the clubs grew quarter over quarter for nine quarters in a pre-COVID world, it grew 11 quarters quarter over quarter in a post-COVID world,” Geisler added.
According to Geisler, the boutique fitness franchisor made the right moves during the unprecedented time in history — choices that paid off substantially.
“We made a distinct decision when COVID happened to stay in business as late as humanly possible and open as early as possible,” he said. “It makes logical sense, but a lot of our competitors didn’t. They closed nationally when COVID happened and they reopened once the nation was open.”
This decision allowed Xponential Fitness to take a large market share, as competitors closed their doors and took a while to reopen. As a result, Xponential had an advantage over its fitness competitors when the world re-opened.
“While others were shrinking, we were growing,” Geisler said.
With the pandemic behind us, Geisler sees an opportunity lingering for which Xponential is designed to meet.
“In a post-COVID world, people are devoting dollars to experiential retail and health and wellness. And so we kind of sit in the crossroads of both of those,” he said.
Real estate & franchisees
Xponential also sees many opportunities due to its real estate profile, acting as an anchor for shopping centers.
Geisler points to what Procter & Gamble discovered in the eighties: that women tend to make household buying decisions, adding that 90% of Xponential consumers are female.
“Given that we are a 90% female consumer, we’re bringing exactly who they want [into the shopping] centers,” Geisler said. “We have templated leases with all the big real estate investment trusts.”
Xponential has 2,500 stores bought and paid for that are currently in development, 66% of which are led by existing franchisee owners. That gives Geisler a high degree of confidence that the stores will be open and operated properly. The company is also selective.
“We’re only accepting 2% of our lead flow that comes through,” he added. “So we’re putting people through a kind of very vigorous Harvard situation to get a franchise.”
Could Xponential make another acquisition?
Another aspect of Xponential’s success has been its ability to avoid oversaturating the market and taxing its team, resulting in a very sustainable model.
“If this was a private company, I’d probably have 12 or 13 brands today, because it’s my money and my optics. But being that I’m a steward of people’s equity and people’s debt, I need to err on the side of sustainability and caution and conservatism,” Geisler said. “And so for that reason, we haven’t acquired anything lately.”
As for adding another brand to the portfolio, Meloun, Xponential’s CFO, made a prediction: “I strongly believe knowing Anthony that we will be adding an eleventh, twelfth, and thirteenth brand someday.”
Leaning into community
The community aspect sets Xponential’s model apart from larger fitness businesses, giving fitness consumers an opportunity for socialization.
“I love my big box guys,” said Geisler, referencing Planet Fitness, but he added, “We’re in a different business.”
He paints a picture where the front desk at a big box fitness facility wouldn’t call a member and follow up after they didn’t show up to work out as planned.
“If anything, I say there’s anti-community because if you have 20 treadmills lined up and you’re on that far right side treadmill and someone’s walking up, what’s the one place you don’t want them to go to? It’s the treadmill next to you,” Geisler points out. “But when you’re in a CycleBar or you’re in a Stride class and John is sitting on the bike and I’m walking in, it’s like, ‘Hey John’s right next to me. Like let’s ride together.’ There’s community.”
Geisler made it clear that he’s not knocking larger fitness entities but is simply drawing a distinction.
“Those businesses are great,” he said. “It’s just a different consumer that we’re trying to go after.”
The instructors across Xponential’s brands are also devoted, adding to the community aspect.
“We didn’t have issues during the Great Resignation,” Geisler points out. “No one was leaving their job at yoga to go join a cubicle at IBM or anything. It was the opposite of that. Our instructors are passionate about what they do.”
Xpass, Xponential+ and B2B
XPass and Xponential+ have also proved successful for Xponential, along with its B2B partnerships with brands such as LG, Aktiv Solutions, Territory Foods and Princess Cruises.
Geisler touched on the Princess Cruise deal at the conference.
“Princess paid us to put physical gyms on the cruise ships, but we also put X+ on in the 23,000 state rooms playing our digital product,” he said. “And then when people leave, they get an XPass to go use when they get home. So all of these verticals really play together.”
The XPass subscription business, where a consumer purchases one pass and gets access to all ten brands, is designed to “fill the last butts in seats,” Geisler said, comparing it to the airline industry.
“This is a part of a mission that we had with franchisees – no seat left behind,” he said. The way to fill an empty seat is with the XPass, where fitness enthusiasts can pop into a class without a subscription or commitment.
No recession fears here
Despite economic challenges, Xponential is confident in its ability to deliver.
“One of the major misconceptions is that this macro is really discretionary, and this macro is going to eat the consumer up,” said Geisler. ‘We’re not being cavalier or naive. We are staring into the eye of the storm every seven days, looking at 30 different ways this could possibly see some turbulence, and we’re 0 for 30.”
Ultimately, Geisler says there are misconceptions about how sticky Xponential’s customers are and the resiliency of the brand as a whole.
Perhaps Geisler’s confidence stems from the fact that the worst-case scenario for him has already occurred, and Xponential appears to have sailed through the turbulent times with ease.
“In 2008, I was in this business,” said Geisler. “I lived through an economic crisis — not a recession. People used to ask, ‘What keeps you awake at night?’ I used to say that they make my business illegal, and that happened in March of 2020 with no notice. So I would pick an economic downturn or recession that people talk about for two years long before I would take, ‘You’re gonna get closed in five days and we’ll let you know when you can reopen, maybe never.’“
Despite the difficult time in history, he added that Xponential processed $443 million in systemwide sales in 2020 and opened 350 stores.
“Sales are resilient, franchisees and their openings are resilient. And that’s because our consumer is resilient,” Geisler said.
