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Premium fitness club Life Time (NYSE:LTH) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 18.2% year on year to $558.8 million. The company expects next quarter's revenue to be around $590 million, coming in 3.4% above analysts' estimates. It made a non-GAAP profit of $0.19 per share, improving from its profit of $0.09 per share in the same quarter last year.
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Life Time (LTH) Q4 FY2023 Highlights:
- Revenue: $558.8 million vs analyst estimates of $555.1 million (small beat)
- EPS (non-GAAP): $0.19 vs analyst estimates of $0.14 (32.6% beat)
- Revenue Guidance for Q1 2024 is $590 million at the midpoint, above analyst estimates of $570.3 million
- Management's revenue guidance for the upcoming financial year 2024 is $2.48 billion at the midpoint, beating analyst estimates by 0.9% and implying 11.9% growth (vs 22% in FY2023) (adjusted EBITDA guidance for the period also beat)
- Free Cash Flow was -$36.05 million compared to -$74.07 million in the previous quarter
- Gross Margin (GAAP): 48.4%, up from 46.3% in the same quarter last year
- Same-Store Sales were up 11.7% year on year
- Market Capitalization: $2.44 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 can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. Life Time's annualized revenue growth rate of 3.9% over the last four years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Life Time's annualized revenue growth of 29.7% over the last two years is above its four-year trend, suggesting some bright spots.
We can dig even further into 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 25.2% 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's year-on-year revenue growth clocked in at 18.2%, and its $558.8 million of revenue was line with Wall Street's estimates. The company is guiding for revenue to rise 15.5% year on year to $590 million next quarter, slowing from the 30.2% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 11.2% 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.
Over the last two years, Life Time's demanding reinvestments to stay relevant with consumers have drained company resources. Its free cash flow margin has been among the worst in the consumer discretionary sector, averaging negative 15.4%.
Life Time burned through $36.05 million of cash in Q4, equivalent to a negative 6.5% margin, increasing its cash burn by 65.9% year on year. Over the next year, analysts predict Life Time's cash profitability will improve to break even. Their consensus estimates imply its LTM free cash flow margin of negative 10.4% will increase by 9.9 percentage points.
Key Takeaways from Life Time's Q4 ResultsWe were impressed by how significantly Life Time blew past analysts' EPS expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. Overall, we think this was a really good quarter that should please shareholders. The stock is up 1% after reporting and currently trades at $12.55 per share.
