Life Time Fitness, Inc. Company Analysis. Jenny Benedick November 15, 2010 PRT 503

Transcription

1 Life Time Fitness, Inc. Company Analysis Jenny Benedick November 15, 2010 PRT 503

2 Table of Contents Executive Summary 3 Company Profile.4 Company History..4 Mission Statement, Vision, Objectives Economic Issues.. 6 Revenue & Expenditure Summary..7 Yearly Revenue & Expenditure... 7 Quarterly Revenue & Expenditure Assets & Liability Summary... 9 Yearly Asset & Liability...9 Quarterly Asset & Liability Financial Analysis/Ratios.. 11 Current Ratio...11 Total Debt Ratio..11 Receivable Turnover & Days Sales in Receivables.. 12 Profit Margin Future Trends 13 Addendum

3 Executive Summary Life Time Fitness, Inc. ended 2009 with $837 million in revenue and 9% growth from the previous year. They have developed a successful economic model based on generating a large membership base within the first three years of opening a new site and retaining those members. Life Time Fitness, Inc. s growth strategy has always focused on 3 major factors - opening new centers, increasing membership and optimizing membership dues, and increasing in-center products and service revenue. They have worked to create an environment appealing to both individuals and families focused on health and wellness. Building the Life Time Fitness brand has allowed the company to expand into health education programs, a line of nutritional products, planning and promoting of athletic events, and the publication of the magazine Experience Life. Even with unemployment rates up and a slow economy Life Time Fitness, Inc. has continued to increase revenue, generate more memberships, and open more facilities. Life Time Fitness, Inc. s third quarter revenue for 2010 has already surpassed last year s third quarter numbers. With an 11.2% growth in revenue to reach $238.3 million the company has maintained steady growth even in difficult economic times. The goal in 2009 to pay down debt and generate positive free cash makes them more financially secure in this unstable economy. Life Time Fitness, Inc. success can be seen in their continued commitment to health and wellness, effective growth strategy, and dedicated team to deliver quality products and services. 3

4 Company Profile Company History: Life Time Fitness Inc. founder Bahram Akradi s vision was to establish more than a health club but a Healthy Way of Life company committed to individual and family recreation. Akradi s dream was brought to life in 1992 when Life Time Fitness, Inc. opened its first center in Brooklyn, Minnesota. This first center was approximately 30,000 square feet and the resort-like environment catered to individuals and families looking to improve their health and wellness. Akradi did away with the concept of longterm contracts and provided members flexibility by offering month-to-month agreements. Lifetime Fitness, Inc. is committed to the health and wellness of its members by providing a variety of sports, fitness, and recreational services. The center s model has grown in size to 110,000 square feet and prides itself in keeping their rates below the industry average. As of September 9, 2010, Lifetime Fitness Inc. has 89 facilities located in 19 states. The facilities provide multiple amenities and services, such as fitness studios; personal trainers; educational seminars; adult and youth programs; athletic events; basketball courts; squash and racquetball courts; pilates and yoga studios; dry saunas; towel and locker service; swimming pools; lap pools; whirlpools; child and infant activity rooms; climbing walls; and weight training and cardiovascular equipment. Key Dates: 1990: The company formed as FCA Ltd. 1992: The first center opened in Brooklyn Park, Minnesota 1998: The company changed its name to Life Time Fitness, Inc. 2000: Life Time Fitness, Inc. entered the Chicago market. Introduction of their own line of nutritional products and supplements. Published a magazine, Experience Life. 2001: Formalized an Athletic Events Division, which offers events each year including triathlons and running events. 2002: Life Time Fitness, Inc. entered the Southwest market. 2004: Life Time Fitness, Inc. went public (Ticker: LTM) 2009: $837 million in revenue (as of December 31) 17,400 employees (as of December 31) Number of Centers: Arizona (6) Maryland (2) Ohio (4) Colorado (2) Michigan (6) Tennessee (1) Florida (1) Minnesota (24) Texas (19) Georgia (4) Missouri (1) Utah (1) Illinois (9) Nebraska (1) Virginia (3) Indiana (1) New Jersey (2) Kansas (2) North Carolina (1) 4

5 Mission Statement: To provide an educational, entertaining, friendly and inviting, functional and innovative experience of uncompromising quality that meets the health and fitness needs of the entire family. Vision: To be a premier employer by making every team member more valuable each year while building and expanding a macro Healthy Way of Life company and brand that is respected and coveted by customers, vendors and competitors. Objectives: Help members achieve healthier and more active lives. Deliver comprehensive and convenient programs and services. Maintain a lean and efficient cost structure. Enhance value proposition that encourages membership loyalty. Drive connectivity and involvement. Grow membership base and improve revenue methods. Increase membership utilization and satisfaction. Generate free cash flow. 5

6 Economic Issues Life Time Fitness, Inc. s vision to create a Healthy Way of Life company and a well respected brand in providing health and wellness for the whole family has helped the company continue to succeed in a down economy. According to the U.S. Bureau of Labor Statistics the unemployment rate has remained at 9.6% since May and is expected to stay below 10% through Even with unemployment rates doubling since 2007 and budgets becoming tight, Life Time Fitness, Inc. has continued to increase its revenue and open new centers. In difficult economic times Life Time Fitness, Inc. has worked hard at expanding it s programming to attract a broader clientele and bring in new memberships. Providing more activities for children and adolescents, and offering more wellness programs geared toward older groups has helped increase memberships and retain current members. Also, lowered enrollment fees were established to generate new memberships. Life Time Fitness, Inc. has increased memberships by 5.4% from 590,716 on September 30, 2009 to 622,698 on September 30, According to CFO Mike Robinson, While down approximately 9,000 memberships since [second quarter 2010], it is much better than the 17,500 membership loss from Q2 to Q Life Time Fitness, Inc. is taking expansion slow but still continues to open new centers. Considerable delays in opening new centers would only give competitors the chance to break into the same markets. In the year from September 30, 2009 to September 30, 2010 they have gone from 84 to 89 centers. In 2009, by slightly delaying the opening of new facilities they reduced unnecessary expenses and worked at lowering their debt to better prepare themselves for the uncertainty of the economy. 6

7 Revenue & Expenditure Summary Life Time Fitness has continued to increase their revenue at a steady pace over the last three years. The following graphs summarize yearly and quarterly revenue and expenditures. From December 31, 2008 to December 31, 2009 Life Time Fitness, Inc. increased their total revenue by $67.4 million. The previous year, December 31, 2007 to December 31, 2008 showed an increase in total revenue by $113.8 million. The main sources of total revenue included membership dues, in-center revenue (fees for personal training, registered dieticians, group fitness training, LifeCafe products, tennis programs, and renting space in certain centers), and enrollment fees. Even though 2009 showed an increase in revenue, lowered enrollment fees to generate new memberships in a slower economy, lower media sales, and delays in openings contributed to slower revenue growth in

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9 Assets & Liabilities Summary Life Time Fitness Inc. continues to have more current liabilities than they do current assets. The following graphs summarize the current yearly and quarterly assets and liabilities. The company s current liabilities consist of current maturities of long-term debt, accounts payable, construction accounts payable, accrued expenses, and deferred expenses. Accrued expenses where the biggest percentage of current liabilities at $4.8 million in 2009 and $4.6 million in Accrued expenses consist of payroll related expenses, real estate tax, center operating costs, insurance, interest, income tax, and others. Current assets consist of cash and cash equivalents, accounts receivable net, center operating supplies and inventories, prepaid expenses and other current assets, deferred membership origination costs, and deferred income taxes. The current ratio calculation shows Life Time Fitness, Inc. has improved the amount of current assets for every $1.00 owed from $0.39 in 2007 to $0.47 in Life Time Fitness, Inc. has experienced substantial growth in the last few years with their operations and opening of new centers. To secure a stable future they need to continue to manage their growth efficiently and effectively. 9

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11 Financial Analysis & Ratios Current Ratios: The current ratio is a liquidity ratio and measures a company s ability to pay short-term debt obligations. In 2009 Life Time Fitness, Inc. had $0.47 in current assets for every dollar in current liabilities. For every dollar it owes it has $0.47 in current assets. For the past three years their current liabilities have exceeded their current assets. Certain industries often operate with a current ratio percentage less than one and this does not necessary mean the company is having financial problems. Current Ratio = Current Assets/Current Liabilities *dollar amounts are in thousands 2009: $58,805/$126,201 = 0.47 times 2008: $63,811/$170,923 = 0.37 times 2007: $63,323/163,604 = 0.39 times Total Debt Ratios: The total debt ratio for Life Time Fitness, Inc. has improved in 2009 compared to the two previous years. In 2009, Life Time Fitness, Inc. had $0.55 in debt for every dollar in assets. The company has $0.45 in equity for every $0.55 in debt. The lower the ratio the stronger the financial situation of the company. Total Debt Ratio = Total Asset Total Equity/Total Assets *dollar amounts are in thousands 2009: $1,631,525-$737,431/$1,631,525 = 0.55 times 2008: $1,647,703-$652,901/$1,647,703 = 0.60 times 2007: $1,386,533-$572,557/$1,386,533 = 0.59 times 11

12 Receivable Turnover & Days Sales in Receivables: In 2009, Life Time Fitness, Inc. on average takes 2 days to collect credit sales. The average has decreased since 2007 when it took approximately 6 days. Receivable Turnover = Sales/Accounts Receivable Days Sales in Receivables = 365 Days/Receivable Turnover *dollar amounts are in thousands 2009: $837,001/$4,686 = times 365 days/ = 2.04 days 2008: $769,621/$7,479 = times 365 days/ = 3.55 days 2007: $655,786/$11,477 = times 365 days/57.14 = 6.39 days Profit Margin: Life Time Fitness, Inc. s profit for every dollar was $.086 in Lifetime Fitness, Inc. has increased its net sales from 2007 until 2009 but they have seen a little over 2% decrease in their profit of margin. *dollar amounts are in thousands Profit Margin = Net Income/Sales 2009: $72,384/$837,001 = = 8.6% 2008: $71,821/$769,621 = = 9.3% 2007: $68,019/655,786 = = 10.4% 12

13 Future Trends Life Time Fitness, Inc. s ability to increase revenue over the last three years even in a recession shows they have a solid business foundation. In creating a Healthy Way of Life company and expanding the Life Time Fitness brand the company has been able to adapt to the slower economy and find ways to generate more memberships, retain existing members, and grow the brand. Life Time Fitness, Inc. s ability to continuously evolve with current fitness trends and their commitment to building customer relations makes their future promising. Founder, CEO, and President Bahram Akradi s creativity in diversifying the organization has helped in weathering the downturn in the economy over the last 3 years. Also, the company s goal in 2009 to pay down debt and generate free cash flow is beginning to be seen in their positive numbers for In 2009 Life Time Fitness, Inc. was able to generate almost $40 million of free cash flow and reduced infrastructure costs by $10 million. By cutting out unnecessary expenses the organization was able to see increased efficiency without affecting member satisfaction. Lifetime Fitness, Inc. has set themselves up to continue to grow as a successful company into 2011 and beyond. Programming has expanded to offer more classes targeted to older groups and the focus is not only on exercise but also the overall wellness of individuals and families. In August 2010, Life Time Fitness expanded in opening a new yoga studio, LifePower Yoga Uptown, in Minneapolis. The Life Time Fitness Athletic Events division continues to manage events across the United States in running, cycling and triathlons. Most recently, the Minnesota Timberwolves announced in September that Life Time Fitness, Inc. has secured the first-ever naming rights partnership of the Timberwolves practice facility in team history as the Life Time Fitness Training Center. According to the International Health, Racquet & Sportsclub Association (IHRSA), U.S. health club industry performance remained consistent in 2009, despite slow economic conditions and rising unemployment. Total industry revenues increased by two percent to $19.5 billion in 2009.Health club attendance increased to an all-time high average of 102 days in 2009, also a slight increase from Even in a slower economy with high unemployment rates people are concerned with improving their health and reducing stress by going to health clubs. Life Time Fitness, Inc. can grow and prosper if they continue offering diverse programs, quality products and services, continued member satisfaction, and managing their growth to avoid vulnerability in an unstable economy. 13

14 Addendum Balance Sheet 14

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16 Cash Flow 16

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18 Income Statement 18

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20 References A Health Way of Life Company. Retrieved from Life Time Fitness, Inc., New York, NY. Web site: Bureau of Labor Statistics. Retrieved from United States Department of Labor, Washington, D.C.. Web site: Life Time Fitness Inc. (LTM). Retrieved from Yahoo Finance. Web site: Sawyer, T. H., Hypes, M. G., & Hypes, J. A. (2004). Financing the Sport Enterprise (pp39-57). Champaign, IL: Sagamore Publishing. U.S. Health Club Industry Records Solid Performance in Retrieved from PR Newswire, New York, NY. Web site: 20