In a stunning turn of events that sent shockwaves through the business world, Planet Fitness has announced the departure of its long-serving CEO, Chris Rondeau. This unexpected development has left both investors and employees bewildered, as the fitness chain’s stock plummeted by 15%, hitting a 52-week low.
Planet Fitness disclosed in a press release that it is actively searching for its next chief executive officer, considering candidates from both internal and external sources. In the interim, Craig Benson, a former governor of New Hampshire and a member of the company’s board, will step in as the temporary CEO. Benson, a franchisee of both Planet Fitness and Dunkin’ Donuts, brings significant experience, having served on Planet Fitness’ board for six years.
The abruptness of Rondeau’s departure has raised numerous questions, particularly given the company’s recent robust performance, highlighted by a stronger-than-expected second-quarter earnings report just last month. Sources close to Rondeau revealed that even some of his closest associates learned about his departure only when it was publicly announced, leaving them in a state of shock.
In a research note, William Blair analyst Sharon Zackfia described the news as “abrupt” and pointed out that it didn’t “appear planned,” especially considering that the company had canceled two scheduled investor conference presentations earlier in the week. Zackfia noted, “The decision was characterized as the board’s and not Rondeau’s.”
Stephen Spinelli Jr., Chairman of Planet Fitness, stated in a press release, “In today’s evolving environment, Planet Fitness is continuing to enhance our competitive advantage, capitalize on our size and scale, and drive further shareholder value.” However, the company declined to provide further details on the reasons behind Rondeau’s departure, and attempts to reach Rondeau for comment were unsuccessful.
Rondeau’s departure marks the end of an era for Planet Fitness. He began his career with the company nearly 30 years ago, starting in a front desk position at the gym’s first location in Dover, New Hampshire, when it was owned by founders Michael and Marc Grondahl. Over the years, Rondeau climbed the corporate ladder, ultimately assuming the role of CEO in 2013, following a tenure as the company’s Chief Operating Officer. Although he is stepping down from the CEO role, Rondeau will remain a member of the board of directors and will continue to provide advisory support “to help ensure a smooth transition,” according to the company’s statement.
Reflecting on his remarkable journey with Planet Fitness, Rondeau stated, “My 30-year career at Planet Fitness has been an incredible ride, and it’s been an honor to lead this Company and serve our employees, franchisees, and members, all of whom have played a key role in our tremendous growth and success.” He added, “I am grateful for and look forward to supporting the management team in an advisory capacity and have confidence in the long-term potential of Planet Fitness.”
During Rondeau’s tenure as CEO, Planet Fitness achieved significant milestones. He successfully led the company through its initial public offering (IPO) and oversaw a remarkable expansion of its club base, growing from approximately 700 to around 2,400 locations. The company’s annual revenue, which stood at about $200 million when Rondeau assumed the role of CEO, is now projected to exceed $1 billion this year, as noted by Zackfia.
However, despite recent strong sales and profit growth, investors have expressed concerns regarding Planet Fitness’ strategies for equipment placement and new franchise development, both of which are crucial revenue drivers for the business.
In August, Rondeau announced a reduction in Planet Fitness’ 2023 outlook for equipment placements in new franchisee stores, revising the figure downward from the previous range of 160 to about 140. A significant portion of Planet Fitness’ revenue comes from selling its branded fitness equipment to franchisees. Rondeau attributed this adjustment to “higher new store construction costs and increased interest rates.”
During an analyst call, the company’s Chief Financial Officer, Thomas Fitzgerald, acknowledged the challenges, stating that the goal of opening 600 new stores by 2025 may now take longer to achieve due to factors such as “higher construction costs that have stubbornly remained up 25%” and the “rapid increase in interest rates over the past year,” which has impacted franchisees’ ability to invest in new store growth.
Additionally, securing new leases for suitable gym locations has become more challenging, with vacancy rates for 15,000- to 25,000-square-foot spaces, ideal for Planet Fitness gyms, down approximately 16% compared to pre-Covid levels, as explained by Fitzgerald.
In the most recent quarter ending on June 30, Planet Fitness opened 26 new stores, a decrease from the 34 opened during the same period the previous year.
The uncertainties surrounding the company’s growth prospects have led to a decline in its stock performance, with shares down approximately 33% this year, resulting in a market value of about $4.6 billion.
As Planet Fitness navigates this unexpected leadership transition and addresses investor concerns, the fitness industry and financial markets will be closely watching for developments that could shape the company’s future trajectory.