Life Time Fitness posts strong earnings

  • Article by: JACKIE CROSBY , Star Tribune
  • Updated: October 20, 2011 - 9:14 PM

Membership rolls are growing, though sluggishly, in a soft economy.

Life Time Fitness Inc. said Thursday that club memberships are growing modestly, fewer people are dropping out after a year and sales of in-club services are continuing to rise.

The Chanhassen-based fitness chain posted third-quarter profit of $27 million, or 66 cents per share, up 15 percent. Absent a $1 million non-cash compensation program, net income rose to an adjusted $27.6 million, or 67 cents.

"They're the best in class in fitness in terms of the offerings they provide," said Sean Naughton, an analyst with Piper Jaffray Cos. who covers active and healthy lifestyle companies. "They've done a good job with pricing and a very good job with retention. I'd like to see more new members coming into the club. Right now they need more of an economic tailwind to help them in that regard."

Life Time operates 92 fitness centers, mostly in suburban locations, in 21 states. It opened three locations in the past year.

While Life Time entices new members with bargain-priced introductory fees, its rate of growth has been slowing for several years due to a fragile economy.

Memberships, which represent about two-thirds of total revenue, grew nearly 5 percent during the quarter. The company had about 653,300 members at the end of September.

Despite continuing hard economic times, Life Time has improved its ability to keep customers beyond the trial period and for a year or more. Part of that has to do with its strategy of reaching a more affluent customer who is less focused on price.

"Strategically, we've been focusing on a customer base who can decipher and can appreciate that we are not offering hollow boxes full of equipment," CEO Bahram Akradi said. "They can appreciate the quality of facilities ... and the depth of proven products that can give them results. Not every customer is astute enough to appreciate that."

Revenue increased more than 11 percent during the quarter to $265.4 million, driven by the seventh consecutive double-digit increase in products and services sold. Revenue from cafe, spa services, personal trainers and fitness assessments rose 16.3 percent.

Naughton said that while these services aren't high-margin offerings, they set Life Time apart from competitors and support the company's branding as a "healthy way of life" company.

In 2003, members spent an average of $231 a year on fitness center services. Naughton projects that will rise to $475 this year.

Jackie Crosby • 612-673-7335

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