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Wednesday, May 29, 2024

Xponential Ups 2023 Outlook, Eyes $300M

Officials at Irvine-based Xponential Fitness Inc. (NYSE: XPOF) are optimistic after a strong first quarter on the revenue front drove the boutique fitness franchiser to raise its 2023 full-year outlook.

The company reported on May 4 that its new full-year revenue guidance now ranges between $290 million to $300 million, up from $285 million to $295 million.

Other elevated outlook metrics for 2023 include franchisee sales in North America—which officials increased to $1.37 billion to $1.38 billion, up from $1.34 billion to $1.35 billion—and adjusted earnings before interest, taxes, depreciation and amortization, which is is now expected to reach between $102 million to $106 million, up from $101 million to $105 million.

The guidance revisions come after Xponential’s quarterly revenue beat analysts consensus estimate of $65 million. Revenue for the franchiser, which is Orange County’s 21st most valuable public company, topped $70 million in the first quarter, up 40% from the year prior.

Brands under the company’s umbrella include Club Pilates, CycleBar, StretchLab, Rumble, BFT, Pure Barre, YogaSix, Row House, Stride, and AKT.

Increased Price Targets

Officials’ post-quarter optimism mirrors the company’s updated analyst ratings.

Three analyst firms raised their price targets for Xponential—Citigroup from $32 to $39, Guggenheim from $31 to $34 and Morgan Stanley from $30 to $32.

Analysts from Guggenheim and Citigroup maintained their “buy” ratings for the company, while Morgan Stanley maintained its “overweight” rating.

Shares were trading around $29 last week, giving it a market cap of $1.5 billion.

EPS Miss

Though analysts anticipate Xponential’s stock to rise, the company’s shares have trended downward since its first-quarter results.

After briefly climbing 16% and surpassing its 52-week high of $33 apiece in after-hours trading, shares in the company declined about 20%.

It’s unclear if the company’s missed EPS is to blame.

“We’ve talked to the bankers, all the analysts and a bunch of shareholders and nobody understands why the stock is pulling back,” CEO Anthony Geisler told the Business Journal. Xponential posted a quarterly loss of 2 cents a share in the first quarter, falling short of the Zacks Consensus EPS Estimate of 11 cents.

The “surprise” earnings miss follows EPS that surpassed estimates last quarter, where Xponential delivered earnings of 11 cents a share despite Zacks’ predictions of 3 cents.

Over the last four quarters, Xponential surpassed consensus EPS estimates just once, according to Zacks. The stock, however, did not drop following those misses.

“We’ve missed on EPS before and the stock’s gone up,” Geisler said. EPS is not as reflective of Xponential’s health as sales for North American studios that have been open for over a year, he noted. Sales for those studios grew 20%, down from 47% in first quarter of last year.

“If the stock’s pullback really is over EPS—over pennies—it’s a massive overreaction,” Geisler said.

IPO Standout

While Xponential’s stock has been down since its first-quarter results, the franchiser is still one of few new public companies in the U.S.—let alone OC—that have seen shares rise since their 2021 IPO.

The 1,035 U.S. companies that went public in 2021 saw their stocks fall an average of 19% from their IPO price, according to data from investment analytics firm Stock Analysis.

By contrast, Xponential’s shares have more than doubled since its IPO, which was priced at $12 a share.

The company was one of nearly a dozen OC firms to go public via traditional IPO in 2021. Since then, it’s been the only one in the OC cohort to have more than doubled the price of its shares.

Cruise Boost

Of the over 2,750 studios Xponential operates, a handful of its newest locations are perpetually at sea on Princess Cruises’ 15-ship fleet.

The partnership with the cruise line has proven favorable for Xponential’s membership count.

Celebratory social media posts from franchisees—touting their first customers that discovered Xponential’s brands through Princess—demonstrate “proof of concept that people can go on a cruise ship, get associated with [our brand] and then go home … and get closed by the franchisees,” Geisler told analysts.

Padded in part by the Princess boost, Xponential’s total North American members jumped 31% to 665,000 by the end of the first quarter.

The company’s total international memberships are also expected to grow. Xponential recently secured master franchise agreements that require over 1,000 studio openings across the globe.

Some of those studios will open in Japan, where the company recently announced a deal that enables up to 40 StretchLab studios over the next 10 years.

The company also recently signed agreements with Club Pilates in Ireland and Switzerland, bringing it a step closer to its goal of becoming a brand so ubiquitous that consumers “[don’t have] to wonder who we are, what we stand for and what our value prop is.”

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