Xponential Fitness Feels Effects of Investigation, CEO Change

The boutique fitness and wellness franchisor has lowered its 2024 guidance for studio openings and revenue, but new CEO Mark King is optimistic, citing his previous tenure at Adidas

A reset is underway for boutique fitness and wellness franchisor Xponential Fitness as it settles in under new CEO Mark King and wrangles with residual effects stemming from a leadership change and regulatory inquiries .

For the second quarter of 2024, Xponential’s total revenue decreased by $0.8 million (1%) to $76.5 million, down from $77.3 million in the prior-year period, which the franchisor says is primarily attributed to its strategic shift away from company-owned transition studios. The franchisor also posted a $13.7 million net loss or a loss of $0.29 per basic share.

Xponential is now adjusting its full-year 2024 guidance for gross new studios in the range of 500-520 (compared to a previous guidance of 540-560) and revenue of $310.0 million to $320.0 million versus a previous guidance of $340.0 million to $350.0 million.

“We saw some of the same retail softness that other consumer companies experienced during the second quarter,” chief financial officer John Meloun said. “When taken together with the effects of our leadership transition and previously announced regulatory investigations, it makes sense to temper elements of our prior outlook.”

XPOF shares fell around one percentage point on Thursday.

In May, the boutique fitness franchisor received a notice of an investigation by the United States Attorney’s Office (USAO) for the Central District of California. The notice followed an SEC investigation that Xponential announced late last year – around the same time Bloomberg reported some Pure Barre and Club Pilates franchisees were navigating significant financial losses.

Moving forward, King told investors that Xponential will focus on its existing portfolio of fitness and wellness brands rather than pursuing additional acquisitions or divestitures – but he did note that this could change over time. Xponential divested from Row House and Stride , boutique fitness brands operating in the rowing and HIIT spaces, respectively, earlier this year.

“This will ensure that 100% of our management teams’ focus is on support and growth of our existing brands and franchisees,” King said on Xponential’s Q2 call with investors Thursday afternoon.

Not a True ‘Turnaround,’ CEO Says

The former Taco Bell CEO and Adidas president was appointed in June , succeeding interim CEO Brenda Morris, who took over following Xponential founder and former CEO Anthony Geisler’s departure in May .

King referenced the regulatory issues, stating that they’ve had an “understandable impact on the business,” but reiterated that they won’t materially impact Xponential’s multi-year goals.

Meloun didn’t shy away from the topic.

“While we had hoped this wouldn’t be the case, we are confronted with the reality where the business is facing some short-term disruption,” he said, adding that despite the distractions, total member growth and visits remain strong.

Xponential is also shifting its focus away from AKT, a dance-based cardio fitness brand with eight studios that Meloun stated is winding down but won’t have a material impact on Xponential’s financials. He added that the partnership with Kinrgy, Julianne Hough’s dance and fitness platform, has been axed. Last December, the two had struck a deal to rebrand up to three AKT studios to Kinrgy .

Despite the less-than-rosy short-term outlook, King was clear that he doesn’t view Xponential in need of a “turnaround” but will heavily focus on franchisee development as one of its strategies.

“When I went to the Adidas business, it was very broken,” he said. “So it really was a turnaround, which – this is nothing like a turnaround…I came here because there was so much good about this business. The brands are great. The momentum is very positive and if you really look at the numbers of Q2 most of the big indicators are very positive.”

Full Steam Ahead on Expansion

Having managed multi-brands over his career, King sees international scalability for Xponential brands and said he’s looking forward to finding opportunities abroad.

He mentioned Body Fit Training (BFT) as one brand perfectly suited to grow internationally. The Australian-born BFT, a group strength training and conditioning brand, is currently set to expand in Scandinavia . Within ten years, 40-50 BFT studios are planned for Norway, Denmark and Sweden.

Meloun added that Xponential has over 1,800 licenses sold and contractually obligated to open in North America, and over 1,000 master franchise obligations internationally.

“This backlog of already-sold licenses at our current rate represents over five years of future studio openings globally,” he said.

Xponential sold 87 franchise licenses in the quarter (which Meloun said trended lower due to approval delays in Xponential’s annual Franchise Disclosure renewal cycle and elevated concerns in the franchise sales process) and opened 108 new studios – 89 in North America and 19 internationally.

The franchisor ended Q2 with 3,102 global open studios. There were 85 studio closures.

“We previously shifted our strategy regarding studio closures and are no longer taking on any company-owned studios,” Meloun noted. “Rather, we are concentrating resources on helping franchisees identify and resolve issues as early as possible to improve operations and success within our system.”

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