Chanhassen, Mn — Despite announcing late last month a 22.8 percent revenue growth in the fourth quarter 2007 and 28.1 percent revenue growth for the year 2007, Life Time Fitness executives say they expect lower earnings in 2008 than they originally anticipated. The expected lower revenue is due to “the current challenging economic environment” rather than to anything specific with the company, Bahram Akradi, chairman and CEO of Life Time Fitness, said in a statement.
Life Time's revenue increased 22.8 percent in the fourth quarter 2007 to $171.1 million from $139 million during the same period in 2006. Revenue for the year was $655.8 million, up from $511.9 million in 2006.
Net income for Life Time during the quarter grew 35 percent to $19.1 million compared to net income of $14.1 million for the fourth quarter of 2006. For the full year, net income grew 34.5 percent to $68 million from $50.6 million for 2006.
In a call with analysts, Akradi predicted that the company's growth would continue this year despite concerns about a downturn in the economy. He said that the company would open 11 new centers this year. He predicts 2008 revenue growth will be 19 percent to 22 percent, which equates to $780 million to $800 million. Wall Street analysts had been estimating 2008 revenue of $806.8 million.
“The economy will go through ups and downs,” Akradi said in the call. “The growth rates we have demonstrated in the last five or six months and what we have experienced in January and so far in February are nothing to be embarrassed about. We love it. I love a tough economy every so often because we simply cannot distance ourselves as much as we like to. When you are going downhill [with] the wind [at] your back, it is easy. Everybody can do it. When it gets tougher, it is not tougher just for us; it is tougher for everybody else.”
He said the company would have many opportunities for better locations as more retailers bail on developers and developers ask Life Time to anchor their retail developments.
He also said that many operators are operating in single-digit margins, and he predicted that those operators would fall apart, meaning their members would then come to Life Time.
“We are positioned absolutely fantastic for taking advantage of what is to come in the next couple of years,” Akradi said.
Part of the company's revenue growth was from higher membership dues at 10 mature Life Time Fitness clubs where the company implemented the higher dues to decrease the number of members from 13,000 to about 11,000, Akradi said. Life Time classifies mature clubs as those that have been open for three years or more. Fifty-three percent of the company's 71 clubs are mature clubs.
Mike Robinson, executive vice president and CFO, said in the call with analysts that in the 10 mature centers where the company is specifically managing memberships down, there was a decrease of more than 5,000 memberships during the year. The company is “passively managing” another 10 mature centers down in capacity mainly with enrollment fees and marketing, which resulted in an additional 3,000 membership decrease for the year.
“We recognize that this loss of membership creates some short-term pressure on several metrics including membership growth and mature same-store sales,” Robinson said. “However, we firmly believe it is the right long-term answer as our whole business is built around an optimal member experience.”
Despite the membership decreases at mature clubs, total memberships grew 12.5 percent in the fourth quarter 2007 to 499,092, but that growth rate was slower than in the third quarter 2007, Robinson said.
The company also had a lower average enrollment fee for the year because it is offering prospective members lower enrollment fees or higher monthly dues memberships, Robinson said. The average enrollment fee has decreased by $20 per acquired member during the past few years, but incremental members are paying $120 to $240 more per year in dues, he said.
Life Time caters to a more affluent population that so far has continued spending on extras at the company's clubs, Robinson said. In 2007, non-dues revenue was up 9.1 percent from 2006. The typical Life Time member spent $387 in 2007 on services such as personal training.
Robinson says that the company continued to have strong performance in its personal training business, and he expected to continue that growth because less than 10 percent of the membership base is involved in personal training.
“We continue to grow the team-based aspect of that,” he said, adding that the company had also increased heart rate monitor sales. In addition, he said that the company's café business had also grown after adding new items to the menu.