SUMMARY
- CEO Chris Rondeau ousted in a surprising move.
- Shares plummet by 16% following the announcement.
- Interim CEO appointed as company searches for new leadership.
Planet Fitness has removed long-serving executive Chris Rondeau from his position as CEO, as announced in a press release on Friday. This unexpected development sent the company's shares plummeting by nearly 16%, hitting a 52-week low.
Planet Fitness has indicated that it is actively seeking its next leader, exploring internal and external candidates for the role. In the interim, Craig Benson, a former governor of New Hampshire and a board member of the company, will step in as the interim CEO. Benson, known for his franchise involvement with both Planet Fitness and Dunkin' Donuts, has been serving on Planet Fitness's board for six years.
The sudden departure of Rondeau has left many puzzled, particularly given the company's stronger-than-expected second-quarter earnings report last month. Some of Rondeau's close associates only learned about his departure when it was publicly announced, catching them off guard. The decision appears to be the board's, not Rondeau's, according to sources.
In a research note, William Blair analyst Sharon Zackfia described the news as "abrupt" and suggested it didn't seem planned, citing the cancellation of two scheduled investor conference presentations this week by the company.
Planet Fitness Chairman Stephen Spinelli Jr. stated in a press release that the board believed it was the right time for a leadership transition. He emphasized the company's commitment to enhancing its competitive edge, capitalizing on its scale, and delivering value to shareholders in today's evolving environment.
Planet Fitness has declined to provide further details, and Rondeau could not be reached for comment. Despite stepping down as CEO, Rondeau will remain a member of the board of directors and will continue in an advisory capacity to ensure a smooth transition.
During Rondeau's tenure as CEO, Planet Fitness achieved significant milestones, including its IPO and a threefold increase in the number of club locations, from around 700 to approximately 2,400. The company's annual revenue has surged from about $200 million to a projected figure of over $1 billion for this year, according to Zackfia.
Although the company has recently reported robust sales and profit growth, concerns have arisen among investors regarding its equipment plans and new franchise openings, both of which are crucial revenue sources.
In August, Rondeau announced a reduction in Planet Fitness's 2023 equipment placement outlook for new franchisee stores from approximately 160 to about 140. Approximately 25% of the company's revenue comes from selling its branded fitness equipment to franchisees. Rondeau attributed the downward revision to "higher new store construction costs and increased interest rates."
Finance chief Thomas Fitzgerald stated during an analyst call that the goal of opening 600 new stores by 2025 may no longer be feasible. While still attainable in the near term, it might take longer than three years due to persistently high construction costs and rising interest rates, according to Fitzgerald.
Furthermore, the company has encountered challenges securing new leases for suitable gym locations, as vacancy rates for 15,000- to 25,000-square-foot spaces have decreased by approximately 16% compared to pre-Covid levels.
During the most recent quarter ending on June 30, Planet Fitness opened 26 new stores, down from 34 in the same period the previous year. DA Davidson noted that the company's stock has declined by about 36% this year, resulting in a market value of approximately $4.4 billion.
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