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Summary

  • Life Time missed earnings on higher than expected membership attrition (churn).
  • This is in line with what we expected and it looks to be a sign of things to come as competition continues to rise.
  • This reaffirms our thesis that Life Time is still an enticing short candidate.

Last Thursday, Life Time Fitness (NYSE:LTM) posted earnings that missed consensus earnings by 6%. Shares have tumbled nearly 15% over the last week. We profiled Life Time back in October, noting that it wasn't the investment of a lifetime. Shares are down around 13.5% since our article, but still a long way from where they could be headed. We noted that competition is on the rise, including various mobile app alternatives. We summed up our thesis with:

"Life Time's chief competitors are all privately held, so there isn't a good comp, yet our main pillar for shorting Life Time is that the company lacks an "economic moat." The company is in a very competitive environment and attrition rates are going higher. That is not a good sign for any business. Furthermore, its members can opt out at anytime. We feel that this will increase as economic headwinds reassert themselves and consumers cut expenses."

With the earnings release, the company noted that it faced a level of unexpected erosion in its membership numbers. As a result, the company lowered its full year 2014 revenue numbers to $1.29 billion - $1.31 billion, down from $1.3 billion - $1.32 billion. And earnings are expected to come in between $3 and $3.10 a share, down from previous guidance of $3.05 - $3.15.

Source: Update: Lifetime Earnings - All Pain, No Gain