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Inside the holiday season fitness fight

Inside the holiday season fitness fight
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Brody Longo works out on his Peloton exercise bike on April 16, 2021 in Brick, New Jersey.

Michael Loccisano | Getty Images

The fitness industry appears headed for a strong holiday season, but not everyone will see a boost.

The category has been on a rollercoaster for more than two years, with the Covid pandemic shifting workout routines and minting new sector winners. Now inflationary pressures and a post-lockdown reset look poised to benefit traditional gyms and trade-down options — threatening connected at-home fitness equipment like the products made by Platoon and lululemon-owned Mirror.

Inflation remains a top concern for consumers, though October data showed slight easing. Holiday spending projections show that rising costs may result in more muted gift-giving this year.

Demand appears to be stronger for experiences rather than things. The fitness category has a history of surviving pricing pressures, and it usually enjoys a bump from New Year’s resolutions.

“In ’08 and ’09 fitness industry revenues and membership actually ticked up versus much of retail,” Jefferies analyst Corey Tarlowe told CNBC, referring to the financial crisis and recession of that era.

Tarlowe, who covers PlanetFitness and Lululemon, said fitness spending remains steady, even among lower-income, inflation-squeezed consumers. But he sees gyms winning out over more expensive, at-home equipment. People are trading down and shifting more toward value, he said, “and that bodes well for Planet Fitness.”

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Chris Rondeau, CEO of Planet Fitness.

Adam Jeffery | CNBC

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Luxury at-home products like Platoon, however, have struggled in recent months as consumers get out of the house and back to offices and gyms. The stationary bike maker reported first-quarter results earlier this month that came in well below Wall Street’s expectations, logging a quarterly loss in subscribers and, according to calculations from UBS, a parallel drop in engagement — 16% year over year.

Even as the company looks to drive new customers — selling its Bikes on Amazon and at Dick’s Sporting Goodslaunching a rental program and putting bikes in hotels across the country — analysts don’t think the value proposition is attracting more subscribers.

“It took a global pandemic to get from 1 million subscriber to 2 million. Can you actually grow that base?” Arpiné Kocharyan, a leisure, gaming and lodging analyst with UBS, said in an interview with CNBC. “We have seen churn rates double year over year.”

Peloton forecast second-quarter revenue of between $700 million and $725 million, around $150 million below the $874 million that Wall Street had been hoping for, according to Refinitiv consensus estimates at the time of the report.

Lululemon, which acquired at-home fitness company Mirror in 2020 for $500 million, could be facing similar at-home headwinds. Executives did not disclose Mirror sales in the latest quarterly update, but the acquisition remained an expense on the company’s financial statements.

“I just don’t think Mirror was strategically the best option for Lululemon,” Jefferies’ Tarlowe said. “It probably still is dilutive to earnings. They are investing in the business to help enhance the Mirror segment, but I question the value that will actually add overall to the business.”

Mirror subscriptions have been wrapped in Lululemon’s new $39-a-month membership program, which also includes access to exclusive Lululemon products and some in-person workouts. The subscription is part of the company’s five-year plan to double revenue to $12.5 billion by 2025, a plan that has drawn skepticism from some analysts.

“Connected fitness as a phenomenon is here to stay,” UBS’ Kocharyan said. “But are you going to see significant growth rates from where they are today, given that they saw this abnormally high growth rate in the middle of the pandemic? I would say there are more questions about them keeping those subscriptions and engagement high.”

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