Xponential Fitness (XPOF) – A (Complicated) Franchisor Growth Story
Taking a look at the boutique fitness franchisor
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Introduction
This stock is not one for those looking for a clean story. Rather, this stock has hair on it. But as an old mentor once quipped: “you don’t get good news and good prices”. This certainly appears to be the situation with XPOF: while a short seller report in 2023 has marred the growth story of XPOF, the stock trades at an enormous discount to other franchisor concepts, including a 53% EV/EBITDA valuation discount to its closest comparable: Planet Fitness. As we detail in this writeup, there is reason to believe that the allegations of that short report have been overblown, and the business in the 15 months since the report was published has continued to demonstrate robust financial performance.
We were initially skeptical about a company that franchises fitness concepts. This is a space where fad risk is a non-negligible concern. After all, F45 Training Holdings (FXLV) was similarly a boutique fitness franchisor that saw 99% of its equity value wiped out in the span of two years. However, there are reasons to believe that XPOF, with its multi-brand approach, strong financial performance, and undemanding valuation, is in an entirely different boat. Let’s take a look at this business.
Business Overview
Xponential Fitness (NYSE: XPOF) is the world’s largest franchisor of boutique fitness brands, operating across verticals including Pilates, indoor cycling, stretching, barre and others. It has almost 2x the number of U.S. studios as the next largest boutique fitness franchisor, Orangetheory Fitness. In fact, XPOF has over 2,700 North America studios, and almost 500 international studios, spanning 27 countries.
Below are the company’s nine brands:
Club Pilates: the largest Pilates brand in the U.S.
CycleBar: the largest indoor cycling brand in the U.S.
StretchLab concept offering one-on-one stretching services
AKT: dance-based cardio workout studio
YogaSix: the largest franchised yoga brand in the U.S.
Pure Barre: the largest barre brand in the U.S.
Rumble: a boxing workout concept
BFT: functional and strength based training
Lindora: medically guided wellness and metabolic health solutions
XPOF’s brands have a customer makeup that is majority female; the company disclosed that 11% of consumers were male in 2023, which is up from 5% in 2019. The average XPOF consumer has a bachelor’s degree and a $160,000 annual household income, suggesting the XPOF brands have a degree of insulation from economic downturns due to a more affluent consumer base. This is reflected in XPOF healthily growing its member base despite a number of negative macroeconomic developments in recent years.
Source: XPOF Investor Day
How does XPOF make money?
So how does XPOF make money? The company is a franchisor, and the bulk of its revenue is from royalties: a roughly 7% clip of the sales of XPOF’s franchisees. These are basically 100% margin revenue streams, and they’re also the fastest growing revenue component for XPOF. In addition, there are a range of other fees such as technology and marketing fund fees, as well as equipment and retail vendor rebates.
Source: XPOF Investor Day
What has drawn us to the stock?
XPOF was the target of a scathing short seller report in June 2023. The stock price fell by almost 40% in a single day after the report was released and fell further in the subsequent months. XPOF declined by an incredible 74% from its April 2023 stock price peak to the May 2024 trough. While we don’t think XPOF is the highest quality business in the world, it trades at a significant discount to other franchisors, and we are encouraged by the fact that the company has continued to demonstrate healthy financial performance since the release of the short seller report. It was this disconnect between the claims of the report and the actual financial performance of the company that piqued our interest in XPOF when we researched the business in December 2024.