Planet Fitness shares sink after board ousts CEO in shocking move
- Planet Fitness' board ousted CEO Chris Rondeau.
- The company's stock fell after the news, hitting a 52-week low.
- The move stunned Planet Fitness employees, a source told CNBC.
In a move that stunned investors and employees alike, Planet Fitness ousted company veteran Chris Rondeau from his post as CEO, the workout chain said Friday in a press release.
Shares closed nearly 16% lower in the wake of the announcement, hitting a 52 week low.
Planet Fitness said it is searching for its next chief both internally and externally. Craig Benson, a former governor of New Hampshire and a member of the company's board, will serve as the interim CEO. He's a franchisee of both Planet Fitness and Dunkin' Donuts and has been on Planet's board for six years.
Rondeau's departure appears sudden, and it's not clear what triggered the decision, especially after a stronger-than-expected second-quarter earnings report last month. Some staff close to Rondeau learned about his departure around the time the news was announced publicly, leaving them shocked, according to a person familiar with the matter. The person spoke on the condition of anonymity because they're not authorized to speak on the matter publicly.
In a research note, William Blair analyst Sharon Zackfia called the news "abrupt" and said it didn't "appear planned" because the company canceled two scheduled investor conference presentations this week.
"The decision was characterized as the board's and not Rondeau's," Zackfia wrote.
Planet Fitness Chairman Stephen Spinelli Jr. said in a press release that the board "felt that now was the right time to transition leadership."
"In today's evolving environment, Planet Fitness is continuing to enhance our competitive advantage, capitalize on our size and scale, and drive further shareholder value," he added.
Planet Fitness declined further comment. Rondeau couldn't be reached.
Rondeau is a longtime veteran of the company, working his way up from a front desk position nearly 30 years ago at the gym's first location in Dover, New Hampshire, when it was owned by founders Michael and Marc Grondahl. Rondeau has served as CEO since 2013 and previously held the role of chief operating officer. He will continue as a member as of the board of directors and will stay on in an advisory role "to help ensure a smooth transition," the company said.
"My 30-year career at Planet Fitness has been an incredible ride, and it's been an honor to lead this Company and serve our employees, franchisees and members, all of whom have played a key role in our tremendous growth and success," Rondeau said in a statement. "I am grateful for and look forward to supporting the management team in an advisory capacity, and have confidence in the long-term potential of Planet Fitness."
During his time as CEO, Rondeau led Planet Fitness' IPO and tripled its club base from about 700 to about 2,400 locations. When he started in the position, the company was doing about $200 million in annual revenue and is now projected to do more than $1 billion this year, Zackfia said.
Scaled-back goals
While the company recently posted strong sales and profit growth, investors have grown wary over its plans for equipment and new franchises, which are both key revenue drivers for the business.
In August, Rondeau announced that Planet Fitness was reducing its 2023 outlook for placements of equipment in new franchisee stores to about 140, down from a previous range of 160. Planet makes about a quarter of its revenue from selling its branded fitness equipment to franchisees.
At the time, Rondeau chalked up the trimmed forecast to "higher new store construction costs and increased interest rates."
During a call with analysts, finance chief Thomas Fitzgerald noted the company's plans to open 600 new stores by 2025 may no longer be possible. He said the goal was still "achievable in the relative near term" but it may take longer than three years.
"While our new store returns are still strong, they are not back to their pre-Covid levels due primarily to higher construction costs that have stubbornly remained up 25%," Fitzgerald said at the time.
"To put it in perspective, the amount of CapEx required to build six stores per year in 2019 will now only build four or five depending on the situation. ... Additionally, the rapid increase in interest rates over the past year has had a cumulative impact on our franchisees' ability to invest in new store growth."
Further, vacancy rates for 15,000- to 25,000-square-foot locations that are suitable for Planet Fitness' gyms are down about 16% compared with pre-Covid levels, making it harder for the company to secure new leases, Fitzgerald said.
During its most recent quarter ended June 30, Planet opened 26 new stores compared with 34 in the year ago period.
"[Planet Fitness] has presented multiple reasons why franchise unit openings have slowed, without giving investors confidence about what the growth rate is likely to be, which we think is the key factor that has impacted stock performance," DA Davidson wrote in a research note Friday.
The company's stock is down about 36% this year, giving it a market value of about $4.4 billion.