Town Sports International Holdings, Inc. (“TSI” or the “Company”) (NASDAQ: CLUB), a leading owner and operator of health clubs located primarily in major cities from Washington, DC north through New England, operating under the brand names “New York Sports Clubs,” “Boston Sports Clubs,” “Washington Sports Clubs” and “Philadelphia Sports Clubs,” announced its results for the second quarter ended June 30, 2011.
Second Quarter Overview:
- Revenue increased 0.7% in Q2 2011 compared to Q2 2010.
Comparable club revenue increased 1.5% in Q2 2011 compared to Q2 2010.
- Ancillary club revenue increased 11.4% in Q2 2011 compared to Q2 2010.
- Total member count increased 7,000 to 517,000 in Q2 2011 compared to a 1,000 increase to 496,000 in Q2 2010.
- Membership attrition averaged 3.2% per month in Q2 2011 compared to 3.3% per month in Q2 2010.
- Q2 2011 results reflected loss on extinguishment of debt, net of taxes of $2.8 million, or ($0.12) per share and incremental interest expense reflecting the 30 day call period on our 11% Senior Discount Notes of $855,000, net of taxes, or ($0.04) per share. Together the refinancing related effects total approximately ($0.16) per share. Also in Q2 2011, we recorded $549,000, or ($0.02) per share, of discrete income tax charges.
- Loss per share was $(0.02) in Q2 2011 compared to loss per share of ($0.04) in Q2 2010. Removing the ($0.16) per share of charges related to the Q2 2011 debt refinancing and the ($0.02) per share of discrete income tax charges, net earnings per share total $0.16.
- Adjusted EBITDA was $24.3 million in Q2 2011, an increase of $5.0 million, or 26.3% when compared to Adjusted EBITDA of $19.3 million in Q2 2010.
Robert Giardina, Chief Executive Officer of TSI, commented: “The second quarter operating results were our best since Q4 2008, and were ahead of our plan. Our comparable club sales turned positive sooner than we had expected, and we also experienced strong membership and personal training growth and produced improved expense leverage. We are raising our outlook for the balance of the year, and are looking forward to continuing to implement new programs that drive membership and club usage. We are also excited to be opening two clubs in the second half of this year, our first new clubs since the first quarter of 2009. However, our principal goals remain to continue to improve earnings and to increase free cash flow from our existing club base.”
Quarter Ended and Year to Date June 30, 2011 Financial Results:
|Revenue (in thousands):|
|Quarter Ended June 30,|
|Revenue||% Revenue||Revenue||% Revenue||% Variance|
|Personal training revenue||16,708||14.1||%||15,582||13.2||%||7.2||%|
|Other ancillary club revenue||7,534||6.4||%||6,171||5.3||%||22.1||%|
|Ancillary club revenue||24,242||20.5||%||21,753||18.5||%||11.4||%|
|Fees and other revenue||1,100||0.9||%||1,264||1.1||%||(13.0||)%|
Total revenue for Q2 2011 increased $0.8 million, or 0.7%, compared to Q2 2010. Revenue at clubs operated for over 12 months (“comparable club revenue”) increased 1.5% in Q2 2011 compared to Q2 2010 .Operating expenses:
|Quarter Ended June 30,|
|Expense % of Revenue||
Expense % Variance
|Payroll and related||38.1||%||41.4||%||(7.2)||%|
|General and administrative||5.2||%||5.4||%||(3.1)||%|
|Depreciation and amortization||11.1||%||11.4||%||(1.7)||%|
|Impairment of fixed assets||-||%||2.4||%||(100.0)||%|
- Revenue for Q3 2011 is expected to be between $116.0 million and $117.0 million versus $113.1 million for Q3 2010.
- In Q3 2011, as a percentage of revenue, we expect payroll and related expenses to approximate 38% and club operating expenses to approximate 38.4%. Club operating expenses as a percent of revenue in Q3 2011 are expected to increase from Q2 2011 levels in part due to seasonal increases in utilities and marketing costs. General and administrative expenses are expected to be approximately $7.4 million and depreciation and amortization expenses are expected to be similar to Q2 2011 amounts in total dollars.
- EBITDA is expected to improve $3.3 million, or 18.5%, to $21.0 million in Q3 2011 compared to Q3 2010.
- We estimate that net income for Q3 2011 will be between $1.2 million and $1.7 million, and earnings per share will be in the range of $0.05 per share to $0.07 per share, assuming a 26% effective tax rate and 23.3 million weighted average fully diluted shares outstanding.
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