Stock Story -
Premium fitness club Life Time (NYSE:LTH) reported Q2 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 18.9% year on year to $667.8 million. The company's full-year revenue guidance of $2.58 billion at the midpoint also came in 2.4% above analysts' estimates. It made a non-GAAP profit of $0.25 per share, improving from its profit of $0.08 per share in the same quarter last year.
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Life Time (LTH) Q2 CY2024 Highlights:
- Revenue: $667.8 million vs analyst estimates of $634.9 million (5.2% beat)
- EPS (non-GAAP): $0.25 vs analyst estimates of $0.16 ($0.09 beat)
- The company lifted its revenue guidance for the full year from $2.52 billion to $2.58 billion at the midpoint, a 2.4% increase
- Gross Margin (GAAP): 46.8%, up from 46.1% in the same quarter last year
- Free Cash Flow of $26.12 million is up from -$66.39 million in the previous quarter
- Same-Store Sales rose 12% year on year (15.5% in the same quarter last year)
- Market Capitalization: $4.13 billion
Leisure FacilitiesLeisure facilities companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted their spending from "things" to "experiences". Leisure facilities seek to benefit but must innovate to do so because of the industry's high competition and capital intensity.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Life Time grew its sales at a weak 6.2% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Life Time's annualized revenue growth of 22.7% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note that COVID hurt Life Time's business in 2020 and part of 2021, and it bounced back in a big way thereafter.
Life Time also reports same-store sales, which show how much revenue its established locations generate. Over the last two years, Life Time's same-store sales averaged 17.2% year-on-year growth. Because this number is lower than its revenue growth, we can see the opening of new locations is boosting the company's top-line performance.
This quarter, Life Time reported robust year-on-year revenue growth of 18.9%, and its $667.8 million of revenue exceeded Wall Street's estimates by 5.2%. Looking ahead, Wall Street expects sales to grow 9.5% over the next 12 months, a deceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
While Life Time posted positive free cash flow this quarter, the broader story hasn't been so clean. Over the last two years, Life Time's demanding reinvestments to stay relevant have drained its resources. Its free cash flow margin was among the worst in the consumer discretionary sector, averaging negative 11%.
Life Time's free cash flow clocked in at $26.12 million in Q2, equivalent to a 3.9% margin. This quarter's result was nice as its cash flow turned positive after being negative in the same quarter last year
Over the next year, analysts predict Life Time's cash conversion will improve to break even. Their consensus estimates imply its free cash flow margin of negative 6.2% for the last 12 months will increase by 6.6 percentage points.
Key Takeaways from Life Time's Q2 Results We were also excited its EPS outperformed Wall Street's estimates. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock traded up 10.2% to $22.93 immediately after reporting.
