Because of what Chief Financial Officer John Meloun described as “some short-term disruptions from our change in leadership and continued regulatory uncertainty,” Xponential Fitness lowered its 2024 guidance for studio openings and revenue.
In its second quarter earnings call August 1, the multi-brand franchisor adjusted its full-year 2024 guidance for gross new studios, shifting down to a range of 500 to 520 openings, versus previous guidance of 540 to 560. Total 2024 revenue is expected to come in between $310 million and $320 million, down from $340 million to $350 million.
Xponential’s total revenue for the second quarter fell by $0.8 million or 1 percent, to $76.5 million, down from $77.3 million in the prior-year period. The change, said Meloun, was due primarily to a $6.5 million decrease in other service revenue, mainly attributable to the company’s strategic shift away from company-owned transition studios. Xponential previously would buy failing studios, aim to make performance improvements, then resell them to franchisees.
“We previously shifted our strategy regarding studio closures and are no longer taking on any company-owned studios,” Meloun said. “Rather, we are concentrating resources on helping franchisees identify and resolve issues as early as possible to improve operations and success within our system.”
There were 85 studio closures in the second quarter, the majority of them CycleBar units and mainly owned by franchisees who predated Xponential’s acquisition of the brand in 2017, Meloun noted.
“We saw some of the same retail softness that other consumer companies experienced during the second quarter,” Meloun said. “When taken together with the effects of our leadership transition and previously announced regulatory investigations, it makes sense to temper elements of our prior outlook.”
Xponential removed founder and former CEO Anthony Geisler from his position May 10, and he resigned May 13. The company in June announced the appointment of former Taco Bell CEO Mark King as Xponential’s new chief executive.
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King joined Xponential amid an expanded federal investigation into the company that now includes the United States Attorney’s Office for the Central District of California. Xponential received notice May 7 of a probe and grand jury subpoena by the U.S. Attorney’s Office in connection with the FBI’s criminal investigation. In December it disclosed an investigation by the U.S. Securities and Exchange Commission, and the company is facing multiple class action lawsuits alleging it defrauded its investors by making “materially false and misleading statements and omissions regarding Xponential’s business, financial results and prospects.”
King told investors that while the regulatory issues had an “understandable impact on the business,” they wouldn’t materially affect multi-year goals. The boutique fitness franchisor’s core brands have “significant growth and profit potential,” he said, and after two recent divestitures it will focus “on growing our existing portfolio of brands rather than pursuing additional acquisitions. This will ensure that 100 percent of our management team’s focus is on supporting the growth of our existing brands and franchisees.”
Under Geisler, Xponential’s portfolio swelled at one point to 11 concepts. In February it offloaded Stride Fitness to Shaun Grove, who wants to revamp the brand, and in May sold Row House to Extraordinary Brands. Meloun on Thursday said the company is “winding down” AKT, it’s dance-based cardio concept with eight units, and won’t pursue a previously announced rebranding partnership with Kinrgy, Julianne Hough’s dance and fitness platform.
Based in Irvine, California, Xponential’s portfolio of fitness franchises includes Club Pilates, CycleBar, StretchLab, BFT, AKT, Pure Barre, Yogasix, Rumble and Lindora. It ended Q2 with 3,102 global open studios.
Second quarter North America systemwide sales of $421.5 million were up 24 percent year over year, with growth driven primarily by the 7 percent same-store sales increase within the company’s existing base of open studios, coupled with growth from new studio openings. Roughly 95 percent of the systemwide sales growth came from volume or new members, noted Meloun.