Pure Barre is one of Xponential Fitness’ brands. Law firms have filed class action lawsuits against Xponential for allegedly defrauding its shareholders.
Xponential Fitness defrauded its investors by making “materially false and misleading statements and omissions regarding Xponential’s business, financial results and prospects,” according to a lawsuit filed last month.
The corporate team at the Irvine, California-based company allegedly didn’t tell its investors that its franchisees “were largely failing” and eight of the 10 brands weren’t drawing a profit on a monthly basis, notes the class action suit, filed on behalf of Xponential shareholders.
Xponential’s revenue is mainly derived from franchisees. “Despite this grim reality, Xponential snookered new franchisees to sign up with the company with false and misleading promises of robust financial returns, misleading claims regarding past studio performance and deceptive assurances of corporate support,” the lawsuit alleges.
The lawsuit was filed in the U.S. District Court in the Central District of California. Law firm Robbins Geller Rudman & Dowd filed the suit February 9 on behalf of the City of Taylor General Employees Retirement System, and several firms nationwide filed similar suits. The lawsuit alleges Xponential made the false representations between July 26, 2021, and December 7, 2023.
Anthony Geisler formed Xponential Fitness in 2017, growing it to 10 concepts.
CEO Anthony Geisler reportedly boasted in March 2022 that Xponential has never closed a store, which the lawsuit alleges is false and reports the company has permanently closed at least 30 studios.
Geisler formed Xponential in 2017 after he bought Club Pilates, which had just 25 units at the time. The franchisor has since grown to 10 brands—including Pure Barre, CycleBar and StretchLab—largely through purchasing founder-led, studio fitness concepts.
Xponential announced in February that it sold Stride, a running-centric workout concept, to Shaun Grove, president of another portfolio brand, Rumble Boxing. Xponential bought Stride in 2019 when it had just one unit; the brand lists 19 units in 2024.
The company went public in July 2021 and has since seen gross profits of $269 million during the class period, the suit says.
Law firms involved in the class action suits didn’t respond to requests for comment. Xponential didn’t immediately provide comment; Franchise Times will update this story if comments are received.
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The suit details instances where Xponential reported financial results and Geisler and Chief Financial Officer John Meloun made statements about “purported profitability” and average unit volume growth that could reach $600,000.
Those statements, the suit says, were “materially false and misleading” for several reasons, among them that “many Xponential franchisees were substantially in debt, suffering high attrition rates and running non-viable studios that had no realistic path to profitability.”
Club Pilates is one of 10 brands under the Xponential Fitness umbrella.
A Florida franchisee named in the suit, Brent Zartler, reportedly noted that his CycleBar studio lost more than a half-million dollars and he was planning to file for bankruptcy. Yet, the suit alleges, Zartler’s studio was highlighted as a success “to lure in new franchisees.”
“What they don’t tell these franchisees is it’s just been a slow, steady death with that studio,” Zartler reportedly said. “I’ve been working in gyms for 20 years, and I’ve never worked in a business where there’s been such a high attrition rate.”
Analyst firm Fuzzy Panda Research released a report June 26, 2023, after reportedly sifting through 64 franchise disclosure documents from among all of Xponential’s brands. The firm’s research found that, allegedly, over half of the company’s studios “never make a positive financial return.”
Following the Fuzzy Panda report, the company’s stock fell 37 percent, to $15.72.
On December 11, 2023, Xponential announced the U.S. Securities & Exchange Commission contacted the franchisor December 5 to request “certain documents;” the company’s stock price fell by 14 percent the same day. Xponential didn’t elaborate, but said in its 8-K filing, “The company intends to cooperate fully with the SEC in this matter.”
After the company announced the SEC request, stock prices fell another 26 percent, to under $9. The suit claims the stock price had “largely not recovered” as of February 9. As of March 5, the company’s stock, which trades on the New York Stock Exchange under the ticker “XPOF,” was priced at $13.53 per share.
During the class period, “defendants engaged in a scheme to deceive the market and a course of conduct that artificially inflated the prices of Xponential common stock,” the suit reads. Plaintiffs are seeking compensatory damages, along with other relief, and have requested a jury trial.
Xponential ended 2023 with 3,062 units after opening 557 new studios. A company spokesperson wrote in an email that 87 studios closed in the fourth quarter, which makes up less than 3 percent of its portfolio. The suit alleges about 600 of its “sold licenses in North America had been terminated and over 30 had been terminated internationally” from inception through the end of 2022.
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