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Xponential Fitness reported third-quarter revenue down 21% year over year and cut its forecast for new studio openings, while keeping its full-year revenue outlook. The results come as the franchisor’s board continues a review that could lead to a sale or merger, after major shareholder Fund 1 Investments proposed taking the company private.
Xponential Fitness’ third-quarter revenue fell 21% to $62.3 million from $78.8 million a year earlier, while the company lowered its forecast for net new studio openings. The update comes as the boutique fitness franchisor’s board continues a strategic review that could result in a sale or merger, following a proposal from major shareholder Fund 1 Investments to take the company private.
North American same-store sales declined 7.5% in the third quarter, worsening from a 6.8% drop in the second quarter, according to the company’s results as reported by Athletech News. Xponential kept its full-year revenue forecast at $250 million to $260 million, but lowered its expected number of net new studio openings to 124–130, from about 150.
Franchise revenue fell 16% to $43.4 million year over year. Xponential attributed the decline to lower franchise territory revenue, including less revenue recognized from franchise agreement terminations. Equipment revenue dropped 42%, which the company linked to fewer studio openings. Merchandise revenue fell 92%; Xponential said that reflected its move from an in-house wholesale model to an outsourced retail model.
The company ended the quarter with 3,185 open studios worldwide across its brands, which include Club Pilates, Pure Barre, StretchLab, YogaSix and BFT. CEO Mike Nuzzo said Xponential expects more studio openings and equipment installations in the fourth quarter after streamlining its development process. The company’s newly appointed CFO, Jennifer Ryu, joined Nuzzo on the analyst call as interim CFO Robert Julian prepares to leave.
Falling Sales Meet a Sale Review
The results put pressure on Xponential’s near-term growth expectations: same-store sales continued to decline, and the revised opening forecast points to fewer new locations than the company had previously anticipated. That matters to a franchise business whose revenue includes fees and other income tied to studio development and operations.
At the same time, the strategic review could change the company’s ownership or corporate structure. The results do not establish that a transaction will happen, and the company has not announced a buyer or agreement. Investors, franchisees and employees are therefore facing two unresolved developments: a business trying to improve performance and a board considering its options.
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Fund 1’s Proposal and Board Review
Xponential has been weighing a sale since April, with Jefferies serving as its adviser, according to Athletech News. Fund 1 Investments, described in the report as one of Xponential’s largest shareholders, floated a proposal to take the company private shortly before the third-quarter results. Nuzzo said the board remained actively engaged in its review and that the process could lead to a sale or merger.
The board also announced a limited-duration stockholder rights plan the previous month. Under the plan, a trigger may apply if an investor or group acquires 19.9% or more of Xponential’s Class A shares. The source report does not provide further terms of the plan or say that any investor has reached that threshold.
Xponential is emphasizing Club Pilates as a potential source of longer-term growth. The brand has more than 1,500 studios worldwide, and Nuzzo said the company’s goal is to expand it to more than 2,000 locations within five years. He pointed to domestic and international franchise development, but that target is a company goal, not a confirmed outcome.
“Our priorities are clear across the organization: improve franchisee and studio-level economics, support healthy and disciplined unit expansion both domestically and internationally, strengthen Xponential’s financial performance, and elevate our member experience across our portfolio.”
— Mike Nuzzo, Xponential Fitness CEO
Transaction and Turnaround Still Unsettled
No sale or merger has been announced, and the source report does not identify a preferred bidder, transaction terms or a timetable for the board’s review to conclude. Nuzzo said the company would not comment further until the process is complete.
It is also unclear whether the expected fourth-quarter increase in openings and equipment installations will be enough to reverse the full-year slowdown, or how quickly the company can improve franchisee and studio-level economics. The report gives the company’s targets and explanations for revenue declines, but not later results against those expectations.
Fourth-Quarter Openings and Review
The next operating indicators are the number of fourth-quarter studio openings and equipment installations, along with the company’s next reported revenue and same-store sales figures. Xponential has said it expects openings and installations to increase in Q4, while maintaining its full-year revenue forecast and its revised opening range.
Separately, the board’s strategic review remains active. The company has not provided a completion date, so whether the process leads to a sale, merger or another outcome remains to be seen. Until Xponential reports a decision or additional details, the buyout proposal remains a proposal rather than a completed transaction.
Key Questions
How did Xponential perform in the third quarter?
Revenue was $62.3 million, down 21% from $78.8 million a year earlier. North American same-store sales fell 7.5%, compared with a 6.8% decline in the second quarter.
Did Xponential lower its full-year revenue forecast?
No. The company reiterated its full-year revenue forecast of $250 million to $260 million. It did reduce its expected net new studio openings to 124–130 from about 150.
Is Xponential being taken private?
No transaction has been announced. Fund 1 Investments floated a proposal to take the company private, and Xponential’s board is reviewing strategic options that could include a sale or merger.
What is Xponential’s growth target for Club Pilates?
CEO Mike Nuzzo said the company’s long-term goal is to grow Club Pilates to more than 2,000 locations within five years. That is a company target, not a confirmed forecast of completed openings.
Source: athletechnews.com
