Chris Rondeau, CEO of Planet Fitness

Adam Jeffery | CNBC

In a move that stunned investors and employees alike, Planet Fitness ousted company veteran Chris Rondeau as CEO, the training chain said in a news release Friday.

Shares closed nearly 16% lower following the announcement, hitting a 52-week low.

Planet Fitness said it is searching both internally and externally for its next boss. Craig Benson, former New Hampshire governor and company board member, will serve as interim CEO. He is a franchisee of Planet Fitness and Dunkin’ Donuts and has served on Planet’s board of directors for six years.

Rondeau’s departure appears sudden and it’s not clear what prompted the decision, especially after a stronger-than-expected second-quarter earnings report last month. According to a person familiar with the matter, some employees close to Rondeau learned of his departure around the time the news was publicly announced and were shocked. The person spoke on condition of anonymity because they are not authorized to speak publicly on the matter.

In a research note, William Blair analyst Sharon Zackfia called the news “abrupt” and said it did not appear to be “planned” as the company canceled two scheduled investor conference presentations this week.

“The decision was described as the board’s and not Rondeau’s,” Zackfia wrote.

Planet Fitness Chairman Stephen Spinelli Jr. said in a news release that the board “felt now was the right time for a leadership transition.”

“In today’s changing environment, Planet Fitness continues to expand our competitive advantage, leverage our size and scale, and further increase shareholder value,” he added.

Planet Fitness declined further comment. Rondeau could not be reached.

Rondeau is a longtime veteran of the company, working his way up from a front desk position at the gym’s first location in Dover, New Hampshire, nearly 30 years ago, when it was owned by founders Michael and Marc Grondahl. Rondeau has been CEO since 2013 and previously held the role of Chief Operating Officer. He will remain a member of the board and continue to serve in an advisory role “to ensure a smooth transition,” the company said.

“My 30-year career at Planet Fitness has been an incredible journey and it has been an honor to lead this company and serve our employees, franchisees and members, all of whom have played a key role in our tremendous growth and success,” Rondeau said in a statement. “I am grateful and look forward to supporting the management team in an advisory capacity and have confidence in the long-term potential of Planet Fitness.”

During his time as CEO, Rondeau led Planet Fitness’ initial public offering and tripled the club base from about 700 to about 2,400 locations. When he started in the role, the company had annual revenue of about $200 million and is expected to generate more than $1 billion this year, Zackfia said.

Reduced targets

Chris Rondeau, CEO of Planet Fitness, at the New York Stock Exchange, May 17, 2022.

Source: NYSE

While the company has recently posted strong sales and profit growth, investors have become wary of its plans for equipment and new franchises, both of which are key revenue drivers for the company.

In August, Rondeau announced that Planet Fitness was reducing its forecast for equipment placement in new franchisee stores to about 140 in 2023 from 160 previously. Planet generates about a quarter of its revenue from selling its branded fitness equipment to franchisees.

At the time, Rondeau attributed the cut forecast to “higher costs of building new stores and higher interest rates.”

During a call with analysts, Chief Financial Officer Thomas Fitzgerald indicated that the company’s plans to open 600 new stores by 2025 may no longer be possible. He said the goal was “still achievable in the short term” but could take longer than three years.

“While returns on our new stores are still strong, they are not returning to pre-Covid levels, largely due to higher construction costs, which have stubbornly increased by 25%,” Fitzgerald said at the time.

“To put it in perspective, the capital expenditure required to build six stores per year in 2019 will only be four or five, depending on the situation. …In addition, the rapid increase in interest rates over the past year has had a cumulative impact on our franchisees’ ability to invest in new store growth.”

Additionally, vacancy rates for 15,000- to 25,000-square-foot locations suitable for Planet Fitness’ gyms have decreased by approximately 16% compared to pre-COVID levels, making it more difficult for the company to secure new leases. Fitzgerald said.

In the most recent quarter ended June 30, Planet opened 26 new stores, compared to 34 in the same period last year.

“[Planet Fitness] “has laid out several reasons why franchise unit openings have slowed without giving investors confidence in the expected growth rate, which we believe is the key factor that has impacted stock performance,” DA Davidson wrote on Friday in a research note.

The company’s shares have fallen about 36% this year, giving it a market value of about $4.4 billion.

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