By Spencer Jakab

Maybe it really is the Judgement Free Zone.

Already sagging Planet Fitness shares took a huge hit in September 2023 when the company abruptly fired Chief Executive Chris Rondeau, plumbing depths last seen in the panic-filled days after its gyms shut down in early 2020. Since then it has taken steps to placate the franchisees that form the backbone of its chain and ditched the $10-a-month price that had been its hallmark since 1998.

On Monday the chain gave investors the latest sign that the changes have left its business not only looking healthy but, on one measure at least, in the best shape of its life. Investors who dove in during the messy aftermath of its boardroom coup have been richly rewarded with a gain of more than 125%, as the shares closed just shy of an all-time-high.

The company's preliminary release of some 2024 figures estimated that its systemwide same-club sales growth was a decent 5% last year. Though it wasn't broken out Monday, about half of this was estimated to be from member growth and half from higher dues when it reported third-quarter results. Raising its basic membership to $15 was seen as particularly risky by analysts given the brand's association with the $10 charge -- the equivalent of issues faced by Subway and the "$5 footlong" deal it promoted so aggressively.

But the higher price is for new customers only and is still attractive on an inflation-adjusted basis. It places the gym comfortably in the "high volume, low price" gym category with few frills and a price less than a third of full-service fitness facilities. Their target customers are people who might be spotted exercising this month before they give up on their New Year's resolutions, but not too frequently during the remainder of the year. Having more members than a facility can handle at any one time is part of Planet Fitness's business model.

So is making things initially attractive for franchisees and then ratcheting up the flow of cash to the parent. Planet Fitness requires franchisees to purchase equipment from it on a regular basis and at a profit to the parent in addition to gradually increasing royalties. But the chain eased the burden -- especially on prospective new franchisees -- and also changed the equipment mix to focus more on strength. That equipment is both more in-demand by customers these days and less expensive. It also eased the remodeling schedule for some existing franchisees.

Another danger to the chain's business -- this one not voluntary -- is the spread of click-to-cancel laws. Low-end gyms have long counted on drafting membership dues directly from customers' bank accounts and then making the process of quitting convoluted enough to make customers not bother, or at least pay for longer than they might have. Legal changes in many states have made it easier to cancel memberships and, according to the company, the boost to customer churn has been temporary in most states where the new policy was adopted. The company said in November that click-to-cancel was available in more than a third of its clubs.

If the 50% increase in its base price doesn't pinch it during the current quarter -- traditionally its most important one for sign-ups -- then the changes to its business will have been a success and investors have been right to breathe a sigh of relief. The company's model looked solid ahead of the pandemic, but it placed too much eventual pressure on franchisees. That seems to have been the reason behind Rondeau's departure.

Same-store sales growth of 5% is hardly fantastic for a company trading at around 50 times trailing 12-month earnings, especially given how much of it came from a once-in-a-quarter-century price increase. It is better than it looks, though, given the free cash flow that Planet Fitness generates through its asset-light model.

The company thinks it can grow from its 2,722 clubs to 5,000 in the U.S. alone. It already is far larger than any competitor and can spend more on marketing. A rich supply of vacant big-box stores following the woes of some large retailers should provide plenty of spots that can be converted into future gyms, and the popularity of the company's fitness app -- it says it is No. 1 in its category in the App store -- could provide other avenues for growth.

Like the best health regimens, Planet Fitness went for one that will take time to show results but is more sustainable.

Write to Spencer Jakab at Spencer.Jakab@wsj.com

(END) Dow Jones Newswires

January 14, 2025 05:30 ET (10:30 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.