Xponential’s Slump Deepens Amid Buyout Interest

The embattled boutique fitness franchisor saw sales slide further in the third quarter, but still sees long-term growth potential in Club Pilates

Xponential Fitness reported another quarter of declining sales, just a week after Fund 1 Investments, one of its largest shareholders, floated a plan to take the embattled boutique fitness franchisor private.

Third-quarter revenue fell 21% to $62.3 million from $78.8 million a year earlier, and North America same-store sales dropped 7.5%, after a 6.8% decline in the second quarter.

The company reiterated its full-year revenue forecast of $250 million to $260 million but cut its outlook for net new studio openings to 124 to 130, from about 150.

Xponential’s portfolio also includes Pure Barre, StretchLab, YogaSix and BFT, but Club Pilates is the star, with more than 1,500 studios worldwide.

Franchise revenue fell 16% from a year earlier to $43.4 million, which Xponential attributed to a decrease in franchise territory revenue, driven by lower revenue recognized from franchise agreement terminations. Equipment revenue dropped 42%, tied to fewer studio openings and merchandise revenue fell 92%, which Xponential said was driven by its transition from an in-house wholesale model to an outsourced retail model.

“We are making progress in strengthening Xponential’s business with the initiatives we have implemented across marketing, technology and brand management,” Xponential Fitness CEO Mike Nuzzo said. “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.”

Xponential ended the third quarter with 3,185 open studios worldwide across its brands.

“We have streamlined our new studio development process and expect to increase new studio openings and equipment installs in Q4,” Nuzzo said on a call with analysts Thursday afternoon. Nuzzo was joined on the call by Jennifer Ryu, Xponential’s new chief financial officer, as interim CFO Robert Julian prepares to exit.

Nuzzo pointed to Club Pilates as Xponential’s biggest growth opportunity, both domestically and abroad. He said the company has an established network of franchisees eager to expand, and its long-term goal is to grow the brand to more than 2,000 locations within the next five years.

Overseas, he said, Xponential continues to build a pipeline of master franchise and sub-franchise partners with development plans for the Pilates brand.

“From a development standpoint and from a profitability standpoint, we’re still talking about an incredibly healthy model with a lot of room to grow,” he said of Club Pilates.

Xponential has been weighing a sale since April, with Jefferies as its adviser. Nuzzo said the board remains actively engaged in its review, which could lead to a sale or merger, but that the company won’t comment further until the process concludes.

Last month, Xponential’s board announced a limited-duration stockholder rights plan that can be triggered if any investor or group acquires 19.9% or more of its Class A shares.