You can get quite a workout in the fitness business without ever getting on a treadmill.

Planet Fitness  (PLNT)  worked up a sweat in March when the health-club company revoked a woman’s membership at a Fairbanks, Alaska, location after she photographed a trans member “shaving in the women’s bathroom," according to news reports.

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The controversy went viral and the fit hit the fan, with membership cancellations and at least 54 bomb threats made to Planet Fitness locations across the country, many of which led to evacuations, the Washington Post reported last month.

“Media mentions relating to the incident peaked in the middle of March, which we believe contributes some of the softness we saw in joins for the balance of the month as well as some increase in cancels,” Interim Chief Executive Craig Benson told analysts during the company's May 9 first-quarter-earnings call.

“This policy has been in place for more than a decade and is not dissimilar from other industry peers, including longtime brands such as the YMCA," he added.

Chief Financial Officer Tom Fitzgerald said that “once social media sort of blew up over our policy issue, we definitely saw a change in the results in the back half of March."

Planet Fitness CEO cites 'several headwinds'

The company reported first-quarter earnings of 39 cents a diluted share, up from 27 cents a year earlier and coming in 15% above the Wall Street consensus estimate. Revenue increased 11.6% to $248 million but fell short of expectations.

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Benson said the company "faced several headwinds which impacted our results, including a shift in consumer focus in the New Year to savings and concern over the increase in covid infections and other illnesses, as well as a national advertising campaign that we believe may not have resonated as broadly as we had anticipated."

Planet Fitness trimmed its forecasts and now expects adjusted net income per share to increase 7% to 9%, down from its previous projection of 10% to 11%.

Annual adjusted earnings are now projected to rise 6% to 8% instead of the earlier expectation of 9% to 10%. Revenue growth is now seen ranging 4% to 6% compared with the previous outlook of 6% to 7%.

Planet Fitness will be increasing the price for its cheapest membership by $5 after pilot-testing the change in different markets.

The increase will take effect this summer and affect only new members who join after the change. Those who are currently Classic Card members will still be charged $10 monthly for the duration of their membership.

Benson also indicated that its Black Card membership, currently $24.99 a month, may soon be subject to a price increase too.

Planet Fitness analysts adjust price targets

Analysts who cover Planet Fitness adjusted their price targets and ratings following the earnings report.

Macquarie analyst Paul Golding raised the firm's price target on Planet Fitness to $76 from $70 and affirmed an outperform rating on the shares.

The company's first-quarter results were mixed, with revenue missing estimates and earnings beating expectations, the analyst tells investors in a research note.

The firm says the "long-awaited" Classic price increase, to $15 from $10 a month, drove the shares higher post-earnings.

The move could deliver an internal rate of return improvement for franchisees that splits the difference between pre- and post-COVID levels, Golding said. He says pricing should drive higher earnings for Planet Fitness.

Raymond James raised the firm's price target on Planet Fitness to $80 from $75 and reiterated a strong buy rating on the shares after the Hampton, N.H., company reported "healthy" first-quarter results that generally exceeded expectations despite the headwinds.

Planet Fitness also reduced its 2024 guidance, but "perhaps the biggest news" was the announced increase in Classic Card pricing.

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While the membership-fee increase will have only a modest impact on 2024 results, the investment firm estimates the ultimate impact to adjusted earnings could exceed 50 cents a share, while it boosts franchisee returns.

Baird raised the firm's price target on Planet Fitness to $88 from $80 and kept an outperform rating on the shares.

The firm said its first-quarter results were better than feared, though the company lowered 2024 comparisons/earnings per share incorporating somewhat greater uncertainty into the near-term outlook.

RBC Capital analyst Christopher Carril lowered the firm's price target on Planet Fitness to $77 from $80 and kept an outperform rating on the shares.

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The company's first-quarter results were in line with expectations, though the management cited myriad headwinds in the quarter, including elevated cancellations following the bathroom-policy controversy in March, Carril said.

Stifel analyst Chris O'Cull downgraded Planet Fitness to hold from buy with a price target of $70, down from $80.

Although the company is making progress in improving new unit returns, O'Cull said, he'd like to see faster changes the company needs to support greater franchisee development.

Further, the analyst continues to be frustrated by the quarterly sales and earnings volatility "of what should be a stable, franchised, membership-model business."

The commentary about rising cancellation rates in late March is concerning, especially given the recent performance of the marketing efforts to increase joins, O'Cull said.

Colleen Keating, a hospitality industry veteran, is scheduled to take over as CEO of Planet Fitness in June. Benson will continue to serve on the board.

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