Chanhassen, MN — Life Time Fitness CEO Bahram Akradi expressed optimism about his company's club model during last month's conference call with analysts regarding Life Time's fourth quarter and year-end financials.
After the results were announced, an analyst asked Akradi how the club fared in the month of January. Akradi said that because of intensive marketing efforts and promotions, January was a strong month for Life Time, and he suggested club members still want to hang on to their memberships despite the difficult economy.
“In many of our clubs — two, three, four, five, six years old — we sold probably more membership units than we have ever sold before,” Akradi said. “We had a great January. Parking lots [were] packed. Some of our clubs were shuttling people back and forth from crossover parking. I don't think that the consumer has walked away from exercise whatsoever. They are dealing with pinching stuff in every way they can, but I don't think that this is one of those things that they will easily let go.”
Akradi called 2008 a bittersweet year, however, because it did not meet the company's expectations. Although revenue grew both in the fourth quarter to $194 million and for the year to $769.6 million (13.4 percent and 17.4 percent, respectively), Life Time's income in the fourth quarter decreased significantly. Net income in fourth quarter 2008 was $13 million — down 32 percent from $19.1 million in fourth quarter 2007. For the year, net income grew 5.6 percent to $71.8 million from $68 million in 2007.
Memberships grew 13.6 percent to 567,110 on Dec. 31, 2008, compared to 499,092 on Dec. 31, 2007. Membership dues increased by 14.5 percent in fourth quarter 2008 and by 17.2 percent for the year. In-center revenue grew 13.1 percent in fourth quarter 2008 and 19.7 percent for the year.
Operating expenses during fourth quarter 2008 totaled $164.6 million compared to $133.5 million for fourth quarter 2007. Full-year operating expenses for 2008 were $622.3 million compared with $518.4 million in 2007.
Life Time took a charge from its earnings of 8 cents per share related to previously announced plans to slow the development of new centers. The charges included severance costs and the write-off of assets related to land developments cancelled during the fourth quarter.
Akradi remained upbeat in his opening remarks, pointing out the 11 clubs that Life Time opened in 2008. He also highlighted the new Life Time member-only Web site and the more than 50 way-of-life events, such as indoor triathlons, that the club offered.
In fourth quarter 2008, Life Time opened four new centers in Mansfield, TX; Loudoun County, VA; Florham Park, NJ; and Westminster, CO. In February, the company opened two clubs, one in Berkeley Heights, NJ, and one in Atascocita, TX.
Akradi said that three to four more openings are scheduled for this year but added that the company is moving cautiously with its growth, keeping an eye on the credit market and internal cash flow. The company's revenue for 2009 is expected to be between $830 million and $860 million.
“There was much to be proud of [in 2008],” Akradi said. “We firmly believe in our business model. It has proven to be resilient and successful. Our most valuable asset, our membership base, maintains strong usage levels, and our feedback from our members continues to get better. We are a profitable company, and we intend to stay that way.”
When an analyst asked Akradi if he had reconsidered expanding with smaller-sized clubs, Akradi didn't rule it out, adding that he and the company are examining other possibilities.
“You're asking me to tell you what I don't want to tell any of my competitors what we're doing,” Akradi told the analyst on the call. “I'll answer you like this: Since 1983, since I've been in this business, I personally have built clubs as little as 14,000 square feet and as large as 300,000 square feet. In the initial stages of my career, every center we built was smaller facilities inside of existing space. So we have the total capability of taking advantage of the appropriate market, and I believe in the near future — in the next two to three years — there are going to be opportunities.”