The search for a stock pick which can draw a generous share of this business can start with Life Time Fitness, Inc. (NYSE:LTM). This Chanhassen, Minn.-based company had helped the US lay claim to having more health clubs than any other single country. As of this June, it operates 106 multi-use centers for fitness, family recreation, sports and athletic activities in 23 states encompassing 29 markets, including a Canadian province. Its total membership as of last year is nearing the 800,000 level.
A regional king
Regional dominance, on the other hand, is what propels the fortune of New York-based Town Sports International Holdings, Inc. (NASDAQ:CLUB). This company owns and operates 160 health and fitness facilities, making it the largest among operators in the U.S. Northeast and Mid-Atlantic. Three Town Sports clubs are also operating in Switzerland.
Membership as of the 2013 second quarter totaled 512,000 for Town Sports, unchanged from the first quarter this year. Nevertheless, the company’s second-quarter 2013 net income rose 14.4% year over year to $6.2 million from $5.4 million. Diluted EPS in the same comparative period increased to $0.25 from $0.23. Total revenue slid 1.7% to $120.1 million from $122.2 million, but the 2013 results gained favorable impact from insurance recovery related to Hurricane Sandy property damage claims.
Stronger financials
Life Time Fitness, Inc. (NYSE:LTM) likewise showed gains in its 2013 second quarter with its net income up at $33.2 million, or $0.80 per diluted share, from $30.3 million, or $0.73 per diluted share, a year earlier. A 6.9% revenue growth to $308.1 million was posted during this year’s second quarter, compared to the $288.3 million posted in the same 2012 quarter.
Moving forward, one of the major challenges for both Life Time Fitness, Inc. (NYSE:LTM) and Town Sports International Holdings, Inc. (NASDAQ:CLUB) is differentiating their service offerings from the health and fitness chains or studios which have been proliferating in malls and shopping centers in recent years. This trend was brought about mainly by the decline of retail tenants and the potential of gyms and spas as a magnet for mall visitor traffic across consumer segments, i.e. from the young fitness buffs to health-conscious baby boomers.
Home-based potential
A window of opportunity for growth, on the other hand, can be tapped if the two companies can draw additional club members from the quarter of a million or so Americans who prefer to exercise in the comforts of their homes. The significance of these fitness disciples as a factor in the business of health and fitness can be drawn from the market performance of Nautilus, Inc. (NYSE:NLS) which designs, develops, sources and markets cardio and strength fitness products to direct consumers.
In this year’s first quarter, Nautilus, Inc. (NYSE:NLS) realized a 15.5% growth in total sales, propelled by direct sales which increased by 26.4% to $42.6 million. Innovation in the fitness equipment that it sells is one of the strengths of Nautilus, Inc. (NYSE:NLS). Last year, the company introduced four new products, contributing to a $13-million increase in revenue for 2012.
Core strengths
For Life Time Fitness, Inc. (NYSE:LTM), one of the primers is the vast diversity of its clubs’ service offerings and its strong differentiation from other market players. Its offerings aren’t confined to club memberships and training sessions for individuals and groups, but also weight-loss programs and personal-care services, such as massage, hair, skin, and nail care. The company also operates more than 130 sports events and publishes an Experience Life magazine. It also partners with companies seeking to cut overall employee health costs.
Town Sports International Holdings, Inc. (NASDAQ:CLUB) offers the same partnership through its newly formed Fitcorp Private Fitness Division organized to manage private fitness centers for company clients. The company is also strengthening awareness of its brand via a clustering strategy focusing on easily accessible suburban locations in large metro areas. It is also adopting flexible club formats to allow for such specialized facilities like swimming pools and basketball courts, a tack which reduces capital and operating expense. This year, the company plans to add six clubs and 12 next year.
Life Time’s regimen looks supreme
Such projected expansion plans manifest the robust fundamentals going for the health-and-fitness industry, thus meriting investor consideration on taking an equity position in it. Zeroing in on the current valuations on these two industry players, Life Time Fitness, Inc. (NYSE:LTM) appears to have an edge over Town Sports International Holdings, Inc. (NASDAQ:CLUB) from an investing standpoint. Both currently trade with a one-year forward P/E ratio of 16. Nevertheless, Life Time Fitness, Inc. (NYSE:LTM) looks superior with its 10.91% trailing 12-month return equity and 14.75% projected five-year growth rate, levels that are tops in its industry.
The article Workout Picks to Build Your Stock Portfolio’s Muscle originally appeared on Fool.com and is written by Arturo Cuevas.
Arturo Cuevas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Arturo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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