Aggressive expansion drives growth at The Gym Group

Low-cost fitness club operator The Gym Group issued its pre-close trading update for the year ended 31 December on Tuesday, reporting that total year-end membership numbers rose 19.3% to 724,000, with average members ahead 31.2% at 693,000.

The London-listed firm said total revenue grew 35.6% to £123.9m for the year, with year-end net debt widening to £46.0m from £37.5m, following the easyGym acquisition and an investment in 17 new site openings.

On the operational front, The Gym Group’s site numbers expanded 23% to 158 at year-end, with 17 organic openings and 13 sites acquired from easyGym.

The board said that, with growth from organic openings and two acquisitions in consecutive years, the company’s estate had more than doubled over the last three years.

It estimated its share of the low-cost gym market had increased to 24.2% from 22.4% year-on-year.

The new openings programme had been more weighted towards the end of the year than originally planned, The Gym Group explained, and that had resulted in fewer trading weeks than expected in the second half.

It said the growth profile of its 2018 sites, once opened, had been “encouraging”, and its 2017 sites were exceeding expectations, demonstrating that it was continuing to find good sites for new gyms.

Following the decision earlier in the year to convert the remaining sites acquired from Lifestyle Fitness to The Gym brand, all 18 acquired sites had now been converted.

That would enable those gyms to benefit in 2019 from the firm’s brand marketing, systems and model, although it resulted in more weeks of site closures than initially expected in 2018.

Following a successful trial, LIVE IT - the firm’s premium pricing product - was rolled out nationally by the end of May.

The uptake was described as “encouraging”, with 11.7% of members subscribing to LIVE IT memberships by the end of 2018, contributing to an average revenue per member per month increase of 3.3% to £14.89.

It said the pipeline of new sites continued to be “strong”, and the firm expect to open 15 to 20 new gyms in 2019.

Looking at the easyGym acquisition, following the announcement of the purchase of 13 sites in June, it had now completed the conversion of 10 sites to The Gym branding, with “good feedback” reported from members.

Of the three remaining sites, one was set to be converted in the first half of 2019, with two sites continuing to trade under the easyGym brand pending lease extension discussions.

The board said the trial of a new operating model - ‘New Gym Team’ (NGT) - for personal trainers, continued to be rolled out as planned during the second half, with 24 sites operating under the new model at year-end.

It believed the new model would give the company a “competitive advantage” in the recruitment of the best PTs, enabling the delivery of an “even better” member experience in the gyms.

The initial results from the trial gyms had been encouraging, with member satisfaction levels higher than the company average.

“We plan to roll out NGT to the rest of the gym estate in 2019, starting in April after the busy beginning of the year,” the board said in its statement.

“As part of the evolution of the NGT model following the trial, we are reducing the rent PTs pay to The Gym Group each month.

“We believe this will enable The Gym Group to offer the most compelling and sustainable PT model for both our PTs and our members.”

The Gym Group said that change would result in an incremental annual cost to The Gym Group of £1m in 2019 and thereafter.

As a result of the firm’s performance in 2018, and taking into account the later second-half weighted 2018 openings programme and one-off impact associated with the Lifestyle conversions, The Gym Group said it expected full-year group adjusted EBITDA for 2018 to be approximately £37m.

The company said it would announce its preliminary results on 19 March.

“The Gym Group continues to deliver strong, profitable growth whilst also establishing the platform for a bigger business in the future,” said chief executive officer Richard Darwin.

“The pace of expansion was significant in 2018 - we opened 17 new gyms, converted the acquired Lifestyle sites, acquired easyGym and over the last 30 months have doubled the number of gyms in our estate.

“We have recently reached the milestone of 750,000 members, demonstrating the ongoing appeal of our business model.”

Looking forward, Darwin said the company had a “good pipeline” of new sites, and expected to open a further 15 to 20 gyms in 2019.

“We are well placed to continue to generate high levels of growth whilst maintaining strong returns on capital.

“We are confident that in 2019 we will continue to develop and build the business to deliver another year of profitable growth for shareholders.”