As one of the leading franchisors and operators of fitness centers in the United States, Planet Fitness (NYSE: PLNT) had quite the run of success up until the coronavirus pandemic forced the stock to drop 25% year to date. The company's sales in Q2 2020 (ended June 30) were down 77.9% from the prior-year period as a result of temporary store closures due to the coronavirus.
Planet Fitness' franchise business model is attractive to investors as long as the unit economics of individual locations generate favorable cash-on-cash returns. While its gyms begin to reopen across the country, I believe the company can get back to producing those pre-coronavirus returns and still provide a solid runway for growth.
Not only does the company benefit from economies of scale as it relates to marketing spend, equipment purchases, and real estate acquisition, Planet Fitness also makes money by selling its intellectual property to franchisees. This business model exemplifies that of a capital-light compounder, where franchisees put up capital for the business to grow.