Is Life Time Fitness Still a Growth Company?

Analysts weigh in on the state of Life Time Fitness, which has had three executives sell more than 42,000 shares of company stock combined the past three months and has taken on an activist investor.

So what's with all of these Life Time Fitness executives sharing so many shares of company stock lately?

If you've been an avid reader of WatchList News, which apparently includes me of late, you've noticed that three Life Time executives have sold several thousand shares of company stock.

  • In May, Executive Vice President Jeffrey Zwiefel sold 25,000 shares of Life Time stock for a value of $1.375 million, leaving him with 130,486 shares at about $7.2 million.
  • In June, Senior Vice President John Hugo sold 3,875 shares of Life Time stock for a little more than $184,000, leaving him with 26,001 shares at $1.23 million.
  • Then this week, Bahram Akradi, Life Time's founder, chairman and CEO, sold 13,439 shares of company stock for more than $672,000, leaving him with almost 2.5 million shares at close to $125 million.

Two analysts who cover Life Time Fitness, Sean Naughton of Piper Jaffray and Sharon Zackfia of William Blair, told me that the shares Akradi sold represent a minimal part of his ownership. As Naughton points out, the shares Akradi sold amount to 0.53 percent of his total holdings in the company.

(A Life Time spokesperson told Club Industry that as a matter of company practice, it does not comment on internal practices.)

So what can we determine from this? And is Life Time Fitness considered a growth company? It's hard to imagine a company that produced $1.206 billion in 2013 revenue anything but a growth company, but it did increase its revenue by only 7 percent from the previous year ($1.127 billion). Zackfia says a company is considered "growing" when it increases its revenue by 10 percent or more each year.

"It's not a pure growth stock as it was prior to the recession," Zackfia says.

Life Time Fitness, fueled by its large, multipurpose club model, is "coming under some pressure," Naughton says. Increased competition from lower-priced club models and studios are affecting the company, he adds.

"It's pretty clear when we look at the numbers based on the fact that they're opening up more clubs, the total number of members is declining," Naughton says. "That tells you that they're not rolling the membership base with the rate that the clubs are growing, and that is mildly concerning, for sure. I think they're having trouble bringing more members into the club.

"The consumer has more choices on where they want to go in this particular industry," Naughton adds. "They're choosing Life Time a little bit less."

The not-as-rapid membership growth and recent flurry of stock selling by Life Time executives comes at an interesting time for the company. In May, Marcato Capital Management, a hedge fund firm run by Richard "Mick" McGuire, bought a 7.2 percent stake in Life Time Fitness through share and stock option holdings as an activist investor. A Yahoo! article on Marcato Capital's stake in the company mentioned Life Time's difficulty in increasing its membership base. From Yahoo!: 

And consumer-growth stocks that begin feeling their age while still being run by a charismatic go-go founder or an imperial CEO often find activist professional investors coming by uninvited.

The go-go founder/imperial CEO referenced in the Yahoo! article is Akradi. Could Marcato Capital one day overtake Akradi to control the company? Naughton says he does not know Marcato Capital well enough to comment before he added: "[McGuire] is trying to maximize returns for the people that have invested with him. And if he thinks this is a very good way to do that, I think he would definitely go after that."

Zackfia says Marcato Capital has not identified what form its activism will take, but taking over Life Time Fitness would be unlikely, she adds.

"I think any CEO would be curious to have a new major shareholder that's filed as an activist investor," Zackfia says. "Typically, activist shareholders don't want to take over companies. Usually, they just want to implement change and maximize their profit on the stock through that change. I would be highly surprised if Marcato wanted to take over the company. But there's no question that they have some sort of agenda or else they wouldn't have filed as an activist investor."

Had Marcato Capital purchased more than 10 percent of Life Time stock in the company, Zackfia says, it likely could have had a seat on the Life Time board of directors, and "that's where you can really start to implement change," she adds.

"I don't think founders usually leave willingly," Zackfia says. "It's Bahram's baby. I'm sure that he believes that he's been charting the right course for the company. It doesn't mean he's not open to new ideas. He is the one who has grown it to this point, and he's still young. He's not at that age (53) where you assume he's going to retire to Boca anytime soon."

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