Planet Fitness' (PLNT) growth and market share in the high volume, low price fitness space could take a hit in the coming years amid a projected rise in competition from new entrants and smaller, well-established companies, Deutsche Bank said Monday.
Although the fitness center operator continues to be the industry leader in terms of "sheer" size and scale, it is facing challenges from new companies, as well as smaller, well-established names in the high volume, low price -- or HVLP -- market, Deutsche Bank analyst Chris Woronka said in a note to clients.
"We expect this trend to accelerate which, if correct, has key implications for HVLP market share over the next several years," Woronka wrote, adding that Planet Fitness' same-store sales and net unit growth could take a hit from the projected development.
The company benefits from a massive footprint and a "generally stable" franchisee operator base, but growth could become much harder if gym-goers start prioritizing better workout experiences over low prices, according to the note.
HVLP fitness competitors are trying to lure members away with differentiated perks such as larger clubs, modern ambiance, connected fitness tracking and dynamic pricing models. This indicates budget-conscious gym-goers may be increasingly willing to pay a bit more for a premium experience, Deutsche Bank said.
While some investors are worried that Planet Fitness could see reduced net membership growth if thrifty consumers decide to cancel their memberships, "the real risk" is that an increasing number of consumers are seeking a more premium fitness experience, Woronka said.
"While difficult to prove at this time, we think the early evidence is in how newer entrants to the HVLP space are building their facilities, in terms of size, offerings, and flexibility," the analyst said. "If we are correct, a long-anticipated recovery of the value-seeking customer may not be much of a benefit at all to (Planet Fitness)."
The company's shares were down 4.8% in Monday late-afternoon trade, bringing its year-to-date losses to nearly 57%.
Last month, Planet Fitness cut its full-year adjusted earnings outlook to reflect higher interest expense. Separately, connected fitness company Peloton (PTON) forecast fiscal 2027 revenue below Wall Street's estimates following last year's subscription price hike.
Earlier this month, Morgan Stanley downgraded its rating on the Peloton stock, citing potential "structural" challenges that will likely impact its gross additions. "We believe this is a reflection of structural headwinds as consumers are shifting towards strength training and gyms," the brokerage said in a note to clients at the time.
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