Life Time Fitness officials are pleased with the company’s first quarter 2012 results despite analysts’ concerns about a slight increase in attrition and projected earnings falling short of estimates.
The Chanhassen, MN-based company released the results this morning before a conference call with analysts hosted by Life Time CEO Bahram Akradi and CFO Michael Robinson.
The company’s revenue grew 11.6 percent in first quarter 2012 to $268.4 million from $240.6 million during the same period last year. (Analysts had expected $271.2 million for first quarter 2012.) Net income was $25.7 million, or $0.62 a share, in first quarter 2012, a 23.2 percent increase from a net income of $20.8 million, or $0.51 a share, in first quarter 2011. (That beat analysts’ expectations of $0.61 a share for first quarter 2012.)
Memberships grew 8.2 percent to 704,467 on March 31, 2012, from 650,784 on March 31, 2011. Excluding memberships from the nine clubs acquired in last year’s Lifestyle Family Fitness deal, memberships grew 3.8 percent.
Attrition, however, increased to 8.9 percent in first quarter 2012 compared to 8.4 percent in first quarter 2011. Life Time said a membership dues price increase in late 2011 and early 2012 plus the membership transition involved in the Lifestyle deal drove the increase in attrition. Membership dues increased 11 percent while enrollment fees fell 24 percent.
The year-to-year attrition rate was down, however. Trailing 12-month attrition as of March 31, 2012, was 35.6 percent compared to 12-month attrition of 36.1 percent on March 31, 2011.
Yet more than one analyst on today’s call wanted to ask about the 0.5 percent attrition increase. And more than once, Akradi said the analysts were “overreacting.”
Akradi added that some clubs have attrition rates in the teens and 20s, and some have rates in the 40s. In addition to pricing and the membership situation at the former Lifestyle clubs, Akradi said the unseasonably warm weather this year has had an impact on membership numbers and attrition. He also reminded analysts that the company had a trailing attrition rate in the low 40s during the peak of the recession a few years ago and has since brought that rate down to around 36 percent.
“We expect to have attrition tick up in second quarter relative to last year,” Akradi said. “However, we are working on growing dues beautifully year on year. We are focused on our 36 percent mark and managing our attrition right around it, a tick down or a tick up, as long as we’re growing the dues. The problem would be, we can’t grow the dues and attrition persists or ticks up. That’s a problem. And it’s not a problem we’re anticipating or experiencing. We’re very pleased with how we’re moving forward.”
Robinson said of the eight leased former Lifestyle Family Fitness clubs in Ohio and North Carolina and the one purchased club in Indiana, four have been remodeled, and the rest will be remodeled this year. Akradi later added that it will take time for Life Time to get the membership it wants at those nine clubs, which are much smaller than the traditional Life Time Fitness clubs. Membership prices will rise from $19 a month to $40-$50 a month or higher at those former Lifestyle clubs, Akradi said.
“We are very comfortable with turning over that membership, getting the right type of customer for Life Time who’s willing to spend on programming and appreciates the higher quality in service,” Akradi said. “This is going to work. It’s going to work well over the next year or two. But they’re just like any other club. They’re going to be negative at first until we build enough membership and enough dues with those clubs that they turn around. The negative impact will remain as we continue to remodel and re-price the remainder of those clubs.”
Life Time’s revenue guidance remained unchanged compared to last quarter, the first time that has happened in some time. The company expects its revenue to be up 10 percent to 12 percent, or $1.11 billion to $1.135 billion. However, it expects its net income to be up 21 percent to 25 percent, or $112 million to $115.5 million. That’s a change from the 18 percent to 24 percent increase ($110 million to $115 million) it had projected last quarter.
“I can tell you right now that in no shape or form, this management is going to be satisfied with a 10-12 percent top-line growth,” Akradi said. “If we were a $50 billion company and doing that, that’s fine. We’re only a billion-dollar company.”
Life Time’s stock price decreased 8 percent during mid-day trading on the New York Stock Exchange to $45.34 from Wednesday’s close of $49.28. Shares went down as much as 12 percent during the day.
Life Time purchased Atlanta’s Racquet Club of the South in January and will rebrand it Life Time Tennis Atlanta. The company expects the club to be a small investment this year.
In March, Life Time opened a club in the Toronto suburb of Mississauga, Ontario, the company’s first club in Canada. Last week, it opened a new club in Tulsa, OK, and on May 2, the company will hold its 100th grand opening for a new club in Sandy Springs, GA. It will be Life Time’s fifth club in the Atlanta market.
Akradi said the early returns from the Canadian club were beyond expectations. He added that the company has been looking at expansion in that market, preferably with greenfield clubs, but acquisitions were not out of the realm of possibility.
At the end of the call, Akradi emphasized the positive outlook of the company.
“We just had our best dues revenue growth for a quarter in a long time. It was great. Not good, it was great,” Akradi said. “What we think the mood, the feeling here is that everything is working great.”