Challenges for Planet Fitness after Leadership Change

Analysts at Jefferies are reassessing their stance on Planet Fitness (PLNT) in light of recent leadership developments. Following the announcement of CEO Chris Rondeau's departure and the appointment of a new interim CEO, the company's shares plummeted by 16% on Friday.

Led by Randal Konik, the Jefferies analysts have downgraded their rating on Planet Fitness stock from Buy to Hold. They have also lowered their price target to $56 from $90. In a report released on Monday, the analysts maintained that the combination of various factors, including the leadership change, is likely to impact the company's growth potential.

Chris Rondeau played a pivotal role in Planet Fitness' expansion efforts, having established and maintained strong relationships with the company's franchisees throughout his tenure. With his departure, there is a possibility that these relationships may be affected, especially considering the ongoing inflationary pressures related to labor, wages, and construction costs, as well as rising interest rates.

Based on management statements, Jefferies noted that the cost of constructing a new gym is approximately 25% higher than pre-pandemic levels. Consequently, franchisees are no longer building ahead of schedule, or they are taking advantage of the grace periods stipulated in their contracts, as they face these construction challenges alongside increased debt service. As a result, the analysts have revised their estimates for new store openings in the coming years.

As of premarket trading, Planet Fitness shares were down 1.2% to $49.70. Year-to-date, the stock has already declined by 36%.