Gym Group warns over rising costs, shares tumble

Gym Group shares tumbled on Thursday as it cautioned that rising revenues would be broadly offset by higher costs.

In its results for the year to the end of December 2022, the company reiterated that it expects energy costs to be around £10m higher in 2023 versus a year earlier.

The group said it expects the current difficult macroeconomic environment and its impact on consumer demand to continue throughout the year. As a result, it now anticipates "full-year revenue increases from yield improvements and new site openings to be broadly offset by cost increases".

The cautious outlook came as it posted a narrowing of its annual statutory loss after tax to £19.3m from £35.4m a year earlier, as revenues rose 63% to £172.9m. Group adjusted earnings before interest, tax, depreciation and amortisation rose to £71.3m from £31.4m.

Membership ended the year at 821,000, up 14.3% from the end of the previous year and during the year, it opened 28 new sites, marking the highest number in a single year.

Gym Group said it had had an "uneven start" to 2023 versus the board’s expectations, with membership at the end of February of 890,000, up 8.4% from the end of 2022.

Chair John Treharne said: "This time last year, we reflected on emerging from the pandemic and indicated that we hoped 2022 would see a return to a more normal trading environment. It is now clear that it will take a longer time to return to pre Covid-19 levels as a result of both the changes to customers' everyday lives and lifestyles and the macroeconomic headwinds that we are all facing.

"Therefore, it is right to manage the business tightly in 2023 and to focus on providing low cost, high quality, 24/7 gyms to our members. Against that backdrop I am proud of the progress TGG has made through the year successfully completing our biggest ever site opening programme, growing member numbers and yield, and delivering on a number of key projects."

At 0955 GMT, the shares were down 19% at 96.78p.

Russ Mould, investment director at AJ Bell, said: "The company may be pushing hard but it’s still proving difficult for The Gym Group to bear the weight of escalating costs.

"While its no-frills, low-cost offering may have some appeal, people might decide they can do without gym membership entirely and invest in a pair of running shoes or set of home weights instead.

"Whoever comes in to replace the departing CEO Richard Darwin will really have to flex their corporate muscles to help win the market over to the story once more."