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Boutique fitness studio franchisor Xponential Fitness (NYSE:XPOF) missed analysts' expectations in Q2 CY2024, with revenue down 1.1% year on year to $76.52 million. The company's full-year revenue guidance of $315 million at the midpoint also came in 9.1% below analysts' estimates. It made a non-GAAP loss of $0.03 per share, down from its profit of $0.07 per share in the same quarter last year.
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Xponential Fitness (XPOF) Q2 CY2024 Highlights:
- Revenue: $76.52 million vs analyst estimates of $83.64 million (8.5% miss)
- EPS (non-GAAP): -$0.03 vs analyst estimates of $0.23 (-$0.26 miss)
- The company dropped its revenue guidance for the full year from $345 million to $315 million at the midpoint, a 8.7% decrease
- Gross Margin (GAAP): 75.6%, down from 76.8% in the same quarter last year
- Free Cash Flow of $872,000, down 52.6% from the previous quarter
- Market Capitalization: $542.3 million
Owner of CycleBar, Rumble, and Club Pilates, Xponential Fitness (NYSE:XPOF) is a boutique fitness brand offering diverse and specialized exercise experiences.
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 GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Luckily, Xponential Fitness's sales grew at an incredible 30.8% compounded annual growth rate over the last four years. This is encouraging because it shows Xponential Fitness's offerings resonate with customers, a helpful starting point.
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. Xponential Fitness's annualized revenue growth of 27.8% over the last two years is below its four-year trend, but we still think the results were good and suggest demand was strong. Note that COVID hurt Xponential Fitness's business in 2020 and part of 2021, and it bounced back in a big way thereafter.
We can dig further into the company's revenue dynamics by analyzing its three most important segments: Franchise, Equipment, and Merchandise, which are 56.2%, 0%, and 0% of revenue. Over the last two years, Xponential Fitness's revenues in all three segments increased. Its Franchise revenue (royalty fees) averaged year-on-year growth of 29.8% while its Equipment (workout equipment sold to franchisees) and Merchandise (apparel sold to franchisees) revenues averaged 22.3% and 8.6%.
This quarter, Xponential Fitness missed Wall Street's estimates and reported a rather uninspiring 1.1% year-on-year revenue decline, generating $76.52 million of revenue. Looking ahead, Wall Street expects sales to grow 11.9% over the next 12 months, an acceleration from this quarter.
Cash Is KingIf 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.
Xponential Fitness has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.5%, subpar for a consumer discretionary business.
Xponential Fitness's free cash flow clocked in at $872,000 in Q2, equivalent to a 1.1% margin. The company's cash profitability regressed as it was 20.8 percentage points lower than in the same quarter last year, but we wouldn't put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.
Over the next year, analysts predict Xponential Fitness's cash conversion will improve. Their consensus estimates imply its free cash flow margin of 1.4% for the last 12 months will increase to 24.4%, giving it more money to invest.
Key Takeaways from Xponential Fitness's Q2 Results We struggled to find many positives in these results. It significantly lowered its full-year revenue guidance, and its revenue and EPS fell short of Wall Street's estimates. Overall, this was a bad quarter for Xponential Fitness. The stock traded down 15.3% to $14.40 immediately after reporting.
