Shares of Planet Fitness, Inc. (PLNT Quick QuotePLNT - Free Report) gained 35.6% in the past year, outperforming the Zacks Leisure and Recreation Services industry’s 1.9% growth. The uptrend is most likely attributable to the efficient execution of its new growth model, favorable pricing strategies across its different membership cards, and international expansion initiatives.

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However, ongoing market uncertainties and inflationary pressures remain headwinds.

Let us discuss the factors that highlight why investors should retain the stock for now.

Factors Supporting PLNT’s Uptrend

Strategic Growth Model: Planet Fitness spent a significant part of 2023 developing a new growth model to enhance returns from new stores. The plan focuses on reducing capital requirements for opening and operating its franchises, and identifying ways to lower operating expenses. At the beginning of 2024, the company reported progress on the execution of this new business growth model to achieve the target of reducing new units and remodeling building costs by at least 10% before the end of 2024.

During the second-quarter 2024 earnings call, it was reported to have benefited from this new growth model and was able to improve the IRR. Also, it reported more leverage from the model once the classic card price increase at $15 had feathered in. The company is optimistic about the alterations undertaken as part of its new franchisee growth model as it believes these will aid it in earning greater returns on investments and exploring long-term store growth opportunities.

Pricing Strategies: Planet Fitness is undertaking effective pricing strategies to counter the impacts of the inflationary environment. The company is focusing on offering top-tier services to its members, which suffice more than the price increases, along with creating growth opportunities for the long term.

After initiating pricing trials for its Classic Card membership in 2023 fall, the company finally increased the price of the card membership from $10 to $15, which was effective from summer 2024 only for new members. It expects existing stores to see a low to mid-single-digit percentage increase in average unit volumes, with new stores witnessing a greater impact, after a year of the price being in effect. Furthermore, during the second quarter, it also initiated two Black Card pricing tests, one at $27.99 and the other at $29.99, at its select markets. With the success of either of these tests, the company’s store returns could witness a potential increase.

International Expansion Efforts: The Zacks Rank #3 (Hold) company stands out as one of the largest and most rapidly expanding franchisors and operators of fitness centers in the United States. Leveraging this brand presence, it is continuously seeking opportunities to expand in the international market. During the second quarter, the company reported its first European club in Barcelona, Spain, to be just in the early stages of international store growth prospects. Currently, there are two international clubs under construction with several sites under consideration.

As of the first six months of 2024, PLNT reported system-wide 43 new store openings. It expects to open 140-150 new stores, which include both franchise and corporate locations. With favorable market dynamics and a strong growth trajectory, the company is confident about achieving this goal.

Concerns

Persisting Inflation: Planet Fitness has been facing serious consequences in its business because of the ongoing inflationary conditions in the market. The possibilities of persistent increases in shipping, labor and equipment costs are potentially affecting both the company's and its franchisees' profitability. Furthermore, any escalation in the minimum wage would result in higher labor costs. It’s ability to fully offset such cost increases in the future remains uncertain. The company is, therefore, cautious of the uncertain macroeconomic environment.

Macroeconomic Risks: The company relies heavily on franchisees rather than corporate-owned stores. While this franchise business helps reduce costs, it bears several risks that can lead to a crack in the business model. Increasing reliance on franchisee exposes the company to the risk of blemishing its brand name, in case any third-party franchisee action increases. Also, the company’s business could be damaged in the event of any third-party misappropriation, dilution, infringement or other violation of intellectual property.

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