Stock Story -
Premium fitness club Life Time (NYSE:LTH) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 18.5% year on year to $693.2 million. The company’s outlook for the full year was also close to analysts’ estimates with revenue guided to $2.6 billion at the midpoint. Its non-GAAP profit of $0.26 per share was 5.4% above analysts’ consensus estimates.
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Life Time (LTH) Q3 CY2024 Highlights:
- Revenue: $693.2 million vs analyst estimates of $693.2 million (in line)
- Adjusted EPS: $0.26 vs analyst estimates of $0.25 (5.4% beat)
- EBITDA: $180.3 million vs analyst estimates of $180.2 million (small beat)
- The company slightly lifted its revenue guidance for the full year to $2.6 billion at the midpoint from $2.58 billion
- EBITDA guidance for the full year is $660 million at the midpoint, above analyst estimates of $653 million
- Gross Margin (GAAP): 46.5%, up from 45.4% in the same quarter last year
- Operating Margin: 13.5%, up from 8% in the same quarter last year
- EBITDA Margin: 26%, up from 24.4% in the same quarter last year
- Free Cash Flow was $151.1 million, up from -$74.07 million in the same quarter last year
- Same-Store Sales rose 12.1% year on year, in line with the same quarter last year
- Market Capitalization: $5.19 billion
Leisure Facilities
Leisure 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 Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Life Time’s 6.4% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis.We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Life Time’s annualized revenue growth of 21.3% 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.
We can better understand the company’s revenue dynamics by analyzing its same-store sales, which show how much revenue its established locations generate. Over the last two years, Life Time’s same-store sales averaged 15.6% 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’s year-on-year revenue growth was 18.5%, and its $693.2 million of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 9.9% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates the market thinks its products and services will see some demand headwinds.
Cash Is King
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and 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 averaged negative 4.9%, meaning it lit $4.86 of cash on fire for every $100 in revenue.
Life Time’s free cash flow clocked in at $151.1 million in Q3, equivalent to a 21.8% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts predict Life Time’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 3% for the last 12 months will decrease to 1%.