Xponential Fitness Inc. has a new king of its 3,000-plus studio empire.
Former Taco Bell and Adidas executive Mark King, 64, was appointed the new chief executive of Irvine-based Xponential (NYSE: XPOF) on June 17, effective immediately.
On the day of the announcement, shares of the fitness studio franchiser jumped 34% to $15.13. At press time, the stock was trading around $16.41 and a $785 million market cap.
The arrival of King is helping to lift a cloud that’s been hovering over the company since a year ago when an analyst report from a short trader questioned Xponential’s model.
The short analyst’s report “didn’t scare King,” Raymond James Managing Director Joseph Altobello wrote in a note to investors. Altobello said King “brings extensive senior leadership experience, history of scaling business and working with franchisees.”
The “business is not broken, fundamentals remain healthy,” Altobello wrote.
When Xponential on May 10 removed founder Anthony Geisler as CEO and appointed board member Brenda Morris as interim CEO, the shares dropped 32% in one day to $8.50.
“The board is confident that Mark’s extensive track record growing global brands and strengthening franchise systems will enable Xponential to expand its global leadership position in health and wellness,” Xponential Chairman Mark Grabowski said in a June 17 statement.
King “is a brand builder and innovator and his approach to fostering customer centric cultures and supporting franchisee success is a perfect fit for the company,” Grabowski added. “I look forward to working with him to deliver long-term value for our stakeholders.”
Growing Confidence
Last June, Xponential shares suffered a 38% one-day drop in its share price when an anonymous short trader called Fuzzy Panda Research issued a report claiming the company was misrepresenting the health of its franchisees and had omitted past business practices of Geisler.
Xponential on May 7 said it received notice of an investigation by the United States Attorney’s Office (USAO) for the Central District of California. The details of the probe were undisclosed. The fitness franchise operator previously in December disclosed an investigation by the Securities and Exchange Commission (SEC).
After the departure of Geisler and the announced investigation, Raymond James on May 12 placed its rating, target price and estimates under review. A month later, the firm reinstated its “strong buy” rating with a $30 target price.
The firm added that Xponential is a subject and witness in the federal investigations, not a target. Altobello wrote that the company was pushing for a clean bill of health, although SEC and DOJ investigations typically end without one.
Xponential also told Raymond James that it had 100 applicants for the CEO role and interviewed eight. Another positive sign was the public appearance of both Morris along with Chief Financial Officer John Meloun and little in the way of management defections after Geisler left, Altobello said.
“In the month since, several data points have arisen that give us confidence that the company should be able to navigate through this,” Altobello wrote.
Geisler began Xponential in 2017, building it to 3,156 studios at about nine fitness brands, such as Rumble, AKT and Club Pilates. Earlier this year, it finished the acquisition of Irvine-based Lindora and 31 of its weight management clinics, bringing its portfolio to 10.
The company also completed two divestitures this year for two of its brands—Row House and Stride.
Geisler took the company public in 2021, pricing each share at $12 and raising $120 million; last year, the stock soared as high as $33 each and a market cap that topped $1 billion.
About a week after Xponential removed Geisler, he announced his resignation as CEO; the reason hasn’t been publicly disclosed.
“Since I founded Xponential Fitness in 2017, we built the company into the largest global franchiser of boutique fitness brands. I am incredibly proud of all that we accomplished and excited to go build what’s next for me,” Geisler told the Business Journal last month.
“Although I am stepping down as CEO, I will do everything in my power to help Xponential Fitness continue on its path of success and clear its name, as the new leadership team manages the company’s pending subpoenas with the U.S. Attorney’s Office and the Securities and Exchange Commission.”
Geisler currently owns about 2% of the outstanding shares worth an estimated $10 million, according to the latest proxy statement. Grabowski owns 22% worth more than $100 million.
The Taco Résumé
King first joined Taco Bell in 2019. It was his first gig in the restaurant industry after almost 40 years in retail. He was previously the president of Adidas North America and worked his way from territory sales representative to CEO at golf apparel maker TaylorMade.
Based out of Taco Bell’s nearly 182,000-square-foot Irvine Spectrum headquarters along Glen Bell Way, King led the company to positive same-store sales growth in each quarter while simultaneously opening more than 1,400 new franchise locations to about 8,300 by the end of 2023. He also supported the ramp up of Taco Bell’s international segment, which surpassed 1,000 stores in 2022.
During his tenure, Taco Bell increased systemwide sales from $10.9 billion in 2018 to almost $15 billion.
He also introduced two different drive-thru only concepts, strengthened the fast-food chain’s marketing arm, and brought back one of the most popular menu items, the Mexican Pizza. King handpicked his successor Sean Tresvant when he stepped down at the end of 2023.
King told the Business Journal last year that his four-year stint at the company taught him that people can be just as passionate about tacos as any other brand.
Now the exec, named a Businessperson of the Year in January by the Business Journal, is promoting fitness.
Xponential on May 2 reported first-quarter revenue rose 12% to $79.5 million and adjusted profit climbed 30% to $29.8 million from the same period a year ago. It also reaffirmed its full-year 2024 guidance of opening between 540 to 560 new studio locations and achieving around $1.7 billion in systemwide sales.
“We have a strong portfolio of brands that are category leaders and as one of the leading franchisers in the health and wellness space, we are ideally positioned to continue to profitably grow our global footprint,” King said in a statement.
