Life Time stock drops on growth worries

Life Time Fitness Inc. stock hit the mat Thursday after the company reported slower membership growth and a higher attrition rate among members.

Less-than-expected earnings guidance for the full 2012 year also contributed to the decline.

Shares in the Chanhassen-based health club chain fell more than 12 percent before an afternoon rally recouped some of the loss. Nevertheless, the stock closed at $45.15, down $4.13 a share, or 8.4 percent.

The decline followed release of Life Time's first-quarter results: Revenue rose 11.6 percent to $268.4 million from $240.6 million compared with the same quarter last year, and net income was $25.7 million, or 62 cents per share, compared with $20.8 million, or 51 cents per diluted share, for first quarter 2011.

At least one analyst thought the market overreacted to the first-quarter news and a year-end earnings-per-share estimate of $2.65 to $2.73 when Wall Street had expected $2.75.

"Big story obscured: Margins massively higher; growth may accelerate," said analyst Brent Rystrom in an early note to investors.

Piper Jaffray & Co. analyst Sean Naughton, who reiterated his buy recommendation on the company Thursday, said LifeTime's 3.8 percent increase in core membership was the lowest in six quarters. Naughton said the attrition rate increased as the company raised dues.

Among analysts covering the company, there are six buy recommendations on the stock, two holds and one sell.

Life Time President and CEO Bahram Akradi said that the company will continue to increase sales by adding square footage, pricing, ancillary services and by developing and promoting a brand strategy called "Healthy Way of Life."

The company increased membership 8.2 percent to 704,467 by the end of March compared with last year, but that included members acquired by acquisition. Membership dues rose 11 percent in the quarter, but new enrollment fees fell 24 percent. Life Time also managed to increase average per-member revenue.

In the first quarter, the company opened its first fitness center in Canada and continued remodeling and rebranding its Lifestyle Family Fitness facilities in Indiana, Ohio and North Carolina. This month it opened its first location in Oklahoma and will open its fifth center in Atlanta.

Life Time said it expects revenue to increase more than 10 percent in the coming year for a 21 to 25 percent increase in net income.