9th Nov 2022 18:23
(Alliance News) - Gym Group PLC shares fell sharply on Wednesday as it warned of rising costs.
While challenges lie certainly ahead, its budget offering may perform well in the coming economic downturn, according to analysts.
The low-cost gym operator said it expects utility costs will rise by GBP8 million to GBP10 million in 2023 compared to 2022.
Shares in the company fell 17% to 103.30 pence each in London on Wednesday.
"Energy represents 5-10% of a gym's costs. The Gym Group is expected to be more resilient than independent operators due to its scale and resource advantages," noted Third Bridge analyst Lara Martinez.
Gym Group said that in the 10 months to October 31, revenue has jumped 78% year-on-year to GBP143.2 million from GBP80.5 million.
This puts Liberum's forecast of GBP194.1 million for the full year "broadly in range", equity research analyst Anna Barnfather said.
The firm said like-for-like revenue in the majority of pre-Covid mature estate, meaning sites open up to the end of 2018, was 93% in October this year, compared to the same month in 2019.
"However, performance in 16 workforce-dependent sites continues to be significantly impacted by changes in working practices," it warned.
In light of this, Barnfather said it looks "unlikely" that the chain will meet its guidance of a return to flat pre-Covid like-for-like sales by the fourth quarter of 2022.
"The Gym Group still struggles with locations dependent on traditional working patterns. Our specialists suggest this trend is here to stay, and estate reconfiguration is something to watch," noted Third Bridge's Martinez.
Membership numbers amounted to 838,000 at the end of October, up 17% from 718,000 at the end of 2021.
"A slowing economy and an unusually hot summer have combined to put a sizeable dent in UK budget gym membership figures. While overall demand remains healthy, the momentum we saw in early 2022 has not been sustained," noted Third Bridge's Lara Martinez.
"This puts a lot of pressure on budget gyms to persuade consumers to sign up for memberships in January and February 2023," she added.
Gym Group also noted that it is on track to roll out 28 new openings during 2022, with 23 so far opened, and plans 25 to 30 new openings in 2023, in a bid to take market share as "disruption continues... and competitors exit".
Liberum's Barnfather fancies the firm's chances, maintaining that budget gym membership will fare well in an economic downturn.
The firm will also be aided "by a significant structural market share shift as traditional and local authority gyms become less viable in this inflationary environment", she posited.
Liberum holds the stock at 'buy' with a target price of 320p.
By Elizabeth Winter; [email protected]
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