Earnings Report /
Saudi Arabia

Fitness Time: Weak results due to lower sales

  • Revenues declined 24.3% yoy in Q1 21 to SAR149mn and came lower than our estimates of SAR176mn

  • Gross margins contracted by 789bps yoy to 18.4% and was significantly lower than our estimates of 21.2%

  • In absolute terms, net operating expenses decreased 26.8% yoy to SAR22.8mn and was lower than our estimates of SAR26mn

SNB Capital
20 April 2021
Published bySNB Capital

Fitness Time reported a weak set of Q1 21 results, with a net loss of SAR7.0mn vs a net profit of SAR6.2mn in Q1 20. This compares to the NCBC estimates of net profit of SAR2.2mn. The variance primarily came from lower than expected sales, which we believe is attributed to the imposed 30-day gym closure during Q1 21. Revenues declined by 24.9% yoy (-34.9% qoq) to SAR149mn and came lower than our estimates of SAR176mn. Gross margins contracted to 18.4% vs 26.3% in Q1 20.

Revenues declined 24.3% yoy in Q1 21 to SAR149mn, lower than our estimate of SAR176mn

Although the yoy decline in revenues was expected due to precautionary gym closure for 30-days in Q1 20 (no revenues was recognised during that period), we believe the negative variance is due to higher discount offered. Total membership, personal training revenues and rental income decreased by SAR49.1mn representing 24.9% of Q1 20 sales. Fitness Time’s total number of gyms stood at 137 at the end of Q1 21 (2.2% yoy) vs 134 in Q1 20.

Gross margins contracted by 789bps yoy to 18.4% and was significantly lower than our estimate of 21.2%

Although the company rationalised its cost of sales by 16.8% yoy by reducing its employee cost, cleaning & maintenance expense and utilities expense by 22% yoy, 28% yoy and 31% yoy, respectively, it was not enough to compensate for lower revenues.  Gross profit stood at SAR27.4mn (-47.4% yoy) and was lower than our estimates of SAR37.3mn.

In absolute terms, net operating expenses decreased 26.8% yoy to SAR22.8mn and was lower than our estimate of SAR26mn

G&A expense declined by 5.3% yoy to SAR19.8mn (in-line with our estimates) due to lower employee cost. Advertising & marketing expense declined by 56.8% yoy to SAR3.7mn and was lower than our estimates of SAR7.1mn. Opex-to-sales stood at 15.3% vs 15.7% in Q1 20 and our estimates of 14.8%.

Non-operating expenses stood at SAR11.6mn (-21.1% yoy)

Versus our estimates of SAR9.1mn, mainly due to lower financing cost. The company also recorded a zakat reversal of SAR1.3mn.

We are Overweight on Fitness Time with a PT of SAR85.8

We believe the long-term outlook remains positive supported by the launch of Xpress format which adds a new dimension to the growth story. However, short-term headwinds remain.