Offering access to cheaper workouts is paying dividends for Town Sports International (CLUB) .
Shares of Town Sports International -- operator of well-known health clubs New York Sports Club and Boston Sport Club -- exploded 65% on Tuesday following a surprise profit for the fourth quarter. Earnings before interest, taxes and depreciation surged 52.3% to $10 million in the fourth quarter, adjusted for one-time items. Fueling the profits was a 9,000 increase in the number of members to 541,000, which according to the company was the highest in its history. The company also credited its tight control over costs.
For the year, Town Sports International added 64,000 new members.
"This improvement [in results] was largely the result of strong cost controls and our intense focus on unit level economics," said Patrick Walsh, executive chairman of Town Sports International, in a statement.
One decision in particular may have helped Town Sports end the year on a high note.
On May 31, the majority of Town Sport's locations switched to a new pricing model where month-to-month memberships (no annual commitment) start at $19.95, plus an initiation fee. That initiation fee varies by location, and could range as high as $250 for those in Manhattan.
Previously, a membership to a Town Sports gym would cost north of $50 a month depending on the location and plan.
Despite its success in capturing new customers last year, Town Sports still seriously lagged behind discount gym Planet Fitness in this important metric. According to Planet Fitness' recently filed annual report, it added a whopping 1.2 million new members in 2015. Total member count at year-end stood at 7.3 million.
Fueling Planet Fitness' robust membership growth were a mind-blowing number of new gym openings. Planet Fitness opened a whopping 209 new gyms in 2015, above its guidance for an additional 195 to 200. It ended the year with more than 1,000 gyms nationwide. This year, it anticipates opening 210 to 220 gyms, 15 of which are planned for Canada.
On the other hand, Town Sports closed six clubs during the year, ending with 152 locations.
Planet Fitness charges $10 a month for a basic membership, while the $19.99-a-month Planet Fitness "black card" offers perks such as free tanning and the option to bring a guest free of charge.
Planet Fitness CEO Chris Rondeau said to TheStreet, "We disrupted the market, and left the market no choice but to lower their prices -- at Town Sports they dropped the prices, but I don't think it has been as easy as they thought."
Maybe not easy, but at least people are noticing Town Sports' new pricing policy.
The stock closed Tuesday at $1.90, up 73 cents. Its market cap is 28.9 million, which means it is a small-cap stock. Small caps tend to be volatile.