Life Time Fitness gets pressure from new rivals

  • Article by: STEVE ALEXANDER , Star Tribune
  • Updated: April 24, 2014 - 9:45 PM

Memberships rose, but at a slower rate than dues, as boutique clubs spring up.

Life Time Fitness Inc. beat first-quarter earnings and revenue expectations Thursday, but executives signaled some difficulties attracting members to the chain of upscale health clubs.

Bahram Akradi, the company’s chief executive, described to investors and analysts a “challenging environment” created by new competition. Membership growth was “lower than we would like,” he said.

“We continue to have to work very hard to attract new members, and based on what we have, what we are seeing now, we don’t expect that to change anytime soon,” Akradi said.

He cited new boutique gyms offering yoga and other focused services for affluent customers, but noted that Life Time has in the past seen such firms rise up and then fall away.

“This has happened for the last 20, 30 years, with a variety of different styles of low barrier-to-entry models,” Akradi said. “And our strategy has been to build something with a high barrier to entry.”

Life Time shares fell 76 cents, or 1.5 percent, to $49.97 on Thursday.

The Chanhassen-based company said it earned $28.3 million, or 69 cents a share, beating analyst estimates by a penny. Revenue was $312 million, about 1 percent higher than the $309.5 million Wall Street had been expecting.

The company opened gyms in New York and Tampa, Fla. Total memberships grew slightly from a year ago to about 812,000, while total operating expenses of $257.9 million were up about 8 percent from a year ago.

The company reaffirmed its 2014 financial guidance, with full-year net income of $125 million to $130 million, which would be an increase of 3 to 7 percent. Revenue is expected to be $1.3 billion to $1.32 billion, up 8 to 9.5 percent.

The company said it expects revenue to be driven by price and mix optimization, square footage expansion and sales growth within the clubs.

Steve Alexander • 612-673-4553

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