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Town Sports' 1Q Earnings Plunge

Asset impairment and severance charges caused the company's earnings to fall nearly 87%.

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On April 29, 2009,

Town Sports International Holdings


reported that its Q1 FY09 earnings plunged 86.7%, hurt by asset impairment and severance charges. Net income declined to $639,000 or $0.03 per share from $4.81 million or $0.18 per share in Q1 FY08. The latest quarter earnings include $1.10 million towards fixed asset impairment charges, $496,000 for severance charges, and $400,000 for early lease termination costs. Excluding these items, the company earned $0.09 per share, which beat the consensus estimate of $0.05 per share.

Total revenue increased slightly to $126.71 million from $126.32 million, driven by new clubs opened or acquired subsequent to March 31, 2007. At the same time, revenue at clubs operated for more than 12 months shrunk 2.1% on a comparable club basis compared Q1 FY08.

Segment-wise, club operations inched up to $125.47 million from $124.91 million a year ago. Within the segment, membership revenue climbed 1.3% to $103.87 million, helped by an increase in membership dues. Membership dues increased 1.5% to $100.71 million, while initiation fees dropped 7.0% to $3.16 million. However, ancillary club revenue slipped 3.3% to $21.60 million, due to a 7.1% slump in personal training revenue, partially offset by 6.7% increase in other ancillary club revenue. Finally, fees and other revenue was $1.24 million, down 12.2% from $1.41 million in Q1 FY08.

During Q1 FY09, Town Sports repurchased 2.10 million shares for $5.40 million. In addition, CLUB opened four clubs and closed three others during the quarter.

Looking forward to Q2 FY09, the company expects revenue to be in the range of $123.00 million to $125.00 million. Furthermore, CLUB anticipates earnings to range between $1.25 million and $1.75 million, while on a per share basis, it expects earnings in the range of $0.06 to $0.08. For FY09, the company forecast $50.00 million to $53.00 million in capital expenditures, while it plans to close two additional clubs in 2009.