Town Sports International: Gaining Strength

As a value investor who struggles to find growth stocks, I am always drawn to brands in their infancies. I spend a lot of time trying to understand their models, the industries, and whether they have a unique benefit that will make them a great brand. I am searching for the next McDonald's (MCD) or the next Staples (SPLS), but at a point in their development where I can buy them cheap.

This brings me to Town Sports International (CLUB). CLUB is a large fitness club operator that will have approximately 170 clubs and 486,000 members by the end of 2008. It operates in the Northeast under brand names of New York Sports Clubs, Boston Sports Clubs, Washington Sports Clubs and Philadelphia Sports Clubs.

The CLUB model is designed to be a low cost provider of services in metropolitan areas. The fitness centers are, in general, not fancy. They stress practicality and usage. They have higher traffic and fewer bells and whistles than higher end operators like Equinox or Crunch. Think of CLUB as the Wal-Mart (WMT) of fitness while Crunch and Equinox are the Coach (COH) and Tiffanies (TIF) of the industry. What makes their model successful is that their lower price mass market design is coupled with the ability to access multiple clubs. Creating a cluster of fitness facilities that provide members with an expectation of what they will receive, and building a brand loyalty that will be sustainable. Just as people think of Staples for office supplies or Borders (BGP) for books, and know there is a store on most corners or at least a block or two away, members know that no matter where they move in Boston or NYC, or where their jobs lead them in these major cities, they have a Town Sports club nearby that they can access. In high density areas with large populations of renters who move from year to year, this is a distinct advantage. In addition, corporations can team with CLUB for corporate rates, knowing their employees in multiple locations can find a club near them that is convenient in many cities.

I believe this model will allow them to grow the brand to much larger heights. The mom and pop fitness clubs are ripe for consolidation. Town Sports, as a major player, can negotiate better rents, laundry fees and equipment prices. In a high fixed cost business, these incremental expenses are a key cost center that must be minimized to grow operating cash flows. Look at the past 3 years: CLUB has grown cash from ops at a 9.46% compounded rate while sales have grown at a 6.77% compounded rate in the same time frame. This is due to a 130BP drop in expenses ex depreciation in that time frame. Cost saving should also accelerate as the company gets it new laundry facility in place over the next 18 months.

Looking ahead to 2008, CLUB should generate cash from operations after cap ex required to maintain the business of $2.38 per share. This metric, to me, is important as it is a measure of the established clubs' ability to generate cash returns for the shareholders. At $2.38 per share, the company generates a 31.40% return for shareholders. I believe CLUB should trade at $15.87, as a 15% cash return on an investment for a smallcap company is appropriate.

Disclosure: Author has a long position in CLUB

Comments

[User 161987]

I don't think so. I am a member at their "show" club in White Plains New York- Membership is tapped out, equipment is rapidly depreciating- the place is huge and it must cost them a fortune for utilities-personal trainers tell me business is way down due to economic conditions and the cost of membership is very high near $100 per month- I would never ever buy this stock

[pitchforkpaul]

Bally's has this same concept and is essentially bankrupt! It is really a pyramid scheme that runs out of momentum(and money) eventually!

[R+L]

Lets be honest here. What would be the easiest $100/month expense to give up. Not your cell phone, cable, or land line.

[upndown1313]

Health clubs are lousy investments. How many do you know actually stay in business for the long term Tony Kent I think you are clueless.

[forever20062]

I'm a member of nysc and this article had to of been written by an employee of nysc cause 1st off crunch gym is 70 a month while nysc average cost is 80 a month. Nysc stock has went down from 24.00 to 7.40 in 11 months and this shows there not doing well. The club also has a class action suit against them by employees, is being investigated by attorney general, and has a new lawsuit pending. The gym puts lots of useless cardio machines around that try to pretend there something fancy, attempting to decieve customers. The things that worked best is what worked fine in 1975. THe gym also raises the price of membership every year, thats the only reason there sales are going up. There charging the members more and opening more locations. So obviously there oging to make more money with more locations, although overall most members dislike the club. There is high turnover, the managers are all pricks and I believe there ads are deceptive. They constantly put ads of sales when actually when they have sales, at certain points there charging more with the sales. The thing is they will tell u its 20 to join when they have that fee u actually have to pay some other extra fees so it either comes to the same amt or more money.

[tony kent]

Thanks for all the comments.
First, I am not an employee but a private investor.
Second, I have been in the WP facility. It is not the best. The company refurbishment plan is starting to upgrade clubs. That is part of the approx. $19MM they are spending this year in cap ex. This upgrade should rectify the situation in clubs like WP that have been falling behind in upkeep.
Third, as for pricing, in NYC, Crunch charges $99.00 per month standard with different initial fees by type. The yearly is $149 the monthly fee is $49. NYSC charges an initial of $149.00 but has 2 levels of fees for months. The gold at $79.99 and the passport at $99.99. The gold offers a 20% plus discount per month to members. Equinox is much more expensive with fees between 145-165 with start up fees.

As for trainers, I have visited approximately 25 clubs this year from all club chains. The trainers do not report anything but seasonal issues. And if you look at NYSC training fees they have risen to 11.9% of rev from 9.1% in 2003. Thats a compounded rate of 12.47% versus membership fees rising at 6.75% compounded.
The move to trainers has been and I believe will continue to offer good revenue growth.

As for the healthclub industry, it is seeing a steady growth rate above inflation for membership fees. This is due to demographic shifts and emphasis on healthy living. It is a core part of NYSC story that its a slow but stable industry growth profile for them to exploit.

This is why its ripe for consolidation. While it has modest growth its highly fragmented. No chain controls the overall market. There are mom and pop clubs that have been around for 5 to 20 years that continue to be stable cash flow generators. Places like Club Fit in westchester. This makes rolling them up a story like Staples not a more speculative model. If clubs are acquired at good prices they can be high cash flow accretive.

Finally, the stock is not at $24 but as of today at $7 and change. Which I beleive offers a good entry point.

[forever20062]

Class Action & Impact Litigation
"New York's Outten & Golden is famed in the market for its successful advice on class actions.

We are investigating a number of potential employment discrimination class actions and class-based wage and hour claims. Please contact Adam T. Klein for further information.

New York Sports Club Class Action
On February 24, 2005, O&G filed a New York Supreme Court class action lawsuit against Town Sports International, Inc., the owner of the New York Sports Club, Boston Sports Club, Philadelphia Sports Club, and Washington Sports Club health and fitness clubs alleging that New York Sports Club has failed to pay its New York-based personal trainers and assistant fitness managers for all of the time that they worked and failed to pay them overtime compensation to which they are entitled under the New York Labor Law.

The personal trainers claim that New York Sports Club failed to pay them for much of the time, including overtime, that they worked for the benefit of New York Sports Club but were not actually training customers. The assistant fitness managers claim that New York Sports Club wrongly classified them as "exempt" employees and unlawfully failed to pay them overtime compensation that they earned. The case seeks recovery of unpaid wages and overtime premium pay for all personal trainers and assistant training managers in New York State.

O&G is currently investigating claims that other Town Sports International, Inc. brands, including Boston Sports Club, Philadelphia Sports Club, and Washington Sports Club have engaged in similar practices and have denied their personal trainers, assistant fitness managers, and other health club employees proper wages and overtime compensation. O&G is also investigating claims that other health and fitness clubs, including Equinox, have failed to pay their personal trainers earned wages, including overtime compensation.

Please contact Justin M. Swartz for further information.

nysc hourly fee for training has risen from 5 packs of 219 for 1 hr sessions in 2005 to 5 packs now costing 369 in 2008, accounting for the increase in revenue from training. Price for the club has risen from monthly membership fees of 69.00 in 2001 to 80.00 in 2008

[ohreally?]

I am a member and former employee of NYSC branches of CLUB, and I hold stock in the company. While I believe there is upside potential to the stock price, and the company overall, I think Mr. Kent is wrong on several key issues.

CLUB is not a "brand in its infancy" by any stretch of the imagination. It was a privately held company for about 30 years before going public. If you think of the company as "Wal-Mart", this clashes with the company's own description of targeting the "upper value" market segment , individuals between 21-50 with incomes of 50-150k.

The company states that "comparable club revenue growth" was 5.2 % in 2007, about 1/3 less than the industry growth rate of 7.7% over the last 10 years.

And the consolidation of Mom and Pop gyms (single location and smaller chains) has already occured to a large extent. The ones that remain are typically very well run by owner/management in favorable real estate settings, such as the gym operator who owns a residential / commercial building and doesn't have to pay rent to himself. When CLUB opens a new location, they often take from their own existing member pool at another location, so the pie isn't really growing.

CLUB a few serious issues to address.
1. The company carries a lot of debt. Total debt at the end of 2007 was listed as 444.24 million. This is 104 million more than at the end of 2003 (339.83 million). Revenues have also grown, but net profit is nearly flat over 5 years.
2. Rising energy costs will really sock them. This is not unique to CLUB, but an increase of 3-5% in utility costs will hurt. The HVAC infrastructure is typically old and ineficient, and lighting and electricity costs are high.
3. Acquiring and retaining qualified staff at all levels is an issue. Chief officers have left within the last year, and turnover has always been high at mid-level management and club staff. CLUB may be found responsible for penalties relating to how they compensate their employees.
4. CLUB had its biggest growth as a private company in the mid 90's, and was flattening out as the stock bubble burst in 2000-2001. 9/11 had a devastating effect on the business, obviously. They had grown by being a little better than most other clubs, and by getting into a growing market that was underserved at the time.
Now, there is more, and better competition. They have to get better again.

2008 and 2009 are probably critical years for the company. They could be an acquisition target themselves, but remain competitive because there is so much demand for the product.

Check out the companies 10-k filing of Feb 29, 2008 avaialble on their website - it contains most of the information that I referenced. Additional information is from the AOL Money & Finance section for CLUB.

A value stock? Just because a stock has fallen by 66% over the last year doesn't make it a good value now. If it does make a nice recovery, it will probably be because they got a little better and everyone else is average or below in this industry.

Time to go to the gym!

[forever20062]

nysc makes 13 million net a year and owes 445 million in debt so unless somehow they triple there net income there going bankrupt by 2010

[FrustratedTSI trainer]

I'm a current trainer for NYSC.

Tony Kent, with all due respect, you are completely wrong, and honestly, sir, I advise you to sell all your stock in CLUB right now. It's almost certainly a horrible investment.

In your response to OhReally, you mention that training fees have risen more quickly than membership fees. Unfortunately, that is a meaningless statistic.

Personal training revenue only represents around 10% of the company's overall revenue. So the fact that it is growing faster than the membership rates does not translate to significantly greater revenues.

Besides, NYSC (apparently) is not trying to grow personal training as a business. If it is, it's doing a lousy job of it. There is no advertising or marketing for training, trainers are poorly educated, and around 90% of members do not use trainers (this 10% PT penetration rate is not to be confused with the fact that coincidentally, training represents only 10% of overall revenue).

I truly believe that the company does NOT view personal training revenue as an important or viable income stream.

But honestly, Mr. Kent, that is small potatoes as a reason to invest elsewhere. There are bigger reasons.

Consider:

Employee moral is at an all-time low. No one is PROUD to work for NYSC; rather, we tend to be embarrassed. We feel unappreciated, and isolated and out of touch from the corporate office and the big bosses. (I've never even SEEN the vice president of fitness, Timothy Keightley, in person, let alone met him...and he's supposed to be my boss. I hear he's a nice guy, though, if somewhat goofy. I realize TSI is not a mom-and-pop operation, where everyone knows everyone, but for god's sakes, it's not IBM or American Express! You brag of an open door policy in your employee manual, but this doesn't seem to be the case. Be accessible!) This resentment is true from trainers to front desk staff to housekeepers, and usually, even local club management.

And members notice.

Fitness managers, poorly paid and underappreciated, are stepping down left and right. The company is so desperate for management that just last week, an assistant fitness manager was promoted to fitness manager after being an assistant for 4 months. Problem is, he doesn't even have the most basic certification the company requires of its trainers. Worse yet, he couldn't even perform the most basic tasks associated with fitness management as an assistant. Now he'll go manage his own club, and "train" a new assistant fitness manager under him. Then in 3-4 months, this poor knowledge-less assistant, having been taught by someone who himself is clueless, will be promoted to fitness manager of another club, and train a new assistant under him...and so on. Talk about the blind leading the blind! Unqualified fitness managers are the rule, not the exception. And they are unqualified both in knowledge of fitness, and management ability.

Fitness managers receive a tiny salary (generally around $30-40K). They do get 2 monthly bonuses, one based on PT sales that month (called sales), and one based on the dollar value of actual personal training sessions completed that month (referred to as revenue). But the bonus based on actual PT sales is capped at 120% of the monthly quota. For example, if the monthly quota is $100,000, and the club does $120,000 that month, they get a percentage of the 120K. But if they do $130,000, they only get a percentage based on the 120K. So there is no incentive for managers to do better than 120% in sales.

Probably because of the low pay and low level of quality, fitness managers run very sloppy businesses. The training revenue books are kept horribly, at least on the local club level, which of course, must by necessity translate to the global level. Many trainers enter, and therefore, get paid for, sessions they did not perform, then do the sessions days or weeks later, if at all.

Trainers are frequently late or miss appointments altogether without even alerting the client in advance. So-called floor trainers, whose job it is to provide basic customer service such as spotting, helping members with exercise technique, answering members' questions, and so on, are rarely to be found. Some of them simply clock in and leave the club altogether for hours, return, clock out, and go home.

This next thing is not so much an indictment of the fitness managers, but of the corporate office (with whom, I suppose, the buck stops with ALL my complaints, not just this): Trainers (and managers) are often paid incorrectly, and somehow, these mistakes always seem to be in the company's favor. When pressed, the payroll department claims that they simply don't have enough staff to meet the demands of a few thousand employee's payrolls every two weeks. Really? Well, be that as it may, as you know, Tony Kent, some trainers and managers are now suing the company for that very reason. And trust me, there are more such lawsuits to come.

Equipment is constantly broken, and often takes weeks or even months to get serviced. Members constantly complain to us, and all we can tell them is that "we are working on it". That response only goes so far. Honestly, it's embarrassing. The CEO doesn't have to face irate and angry members every day. We do.

The clubs themselves (apart from the personal training aspect) are extremely poorly managed (from an operations standpoint). They are filthy and crowded. Again, members are constantly complaining to us, and we have no answers for them, so we simply shrug our shoulders.

Essentially, everything I've mentioned boils down to two things: horrible management, and and almost no attention to customer service and quality in general. All of the clubs' growth has led to a huge decrease in quality. The extra-structure (meaning the sheer number of clubs) far outpaces the growth of the infrastructure (for example, the number of people in the payroll department). The infrastructure can't support all the clubs, so everything is crumbling.

Yes, Mr. Kent, I'm familiar with all the "changes" TSI is making - demanding business plans from trainers, forcing membership consultants to follow a standardized system, and so on.

But these "changes" are cosmetic, sir. They are designed to fool investors into believing that the company is running a tight ship. It is not. These are band aids, like trying to save the Titanic by bailing the water with a teaspoon. What's necessary is change from the inside out.

That being said, CLUB people, if you are listening, here are some ideas for improvement.

1) Take the personal training business more seriously. And I mean this on a number of levels:

PT IS a viable source of revenue, as other gyms such as David Barton have shown. Hire better fitness managers. Screen them better. Pay them better. Don't cap their bonuses.

Also, look at the QUALITY of the personal training being provided. Currently, all personal training "quotas" are based on dollars, and trainers are never evaluated on the training itself. The quality of the personal training service is low. Very low. If you increase the quality, you can actually charge more - at least for the best trainers - pay the trainers better, and make more money all around.

Demand more of trainers. Educate them better and make them accountable for fitness knowledge and training excellence. At the same time, show them more respect (it CAN be done).

Also, I know member retention is an issue - but check the stats: members who train with trainers quit NYSC is much smaller numbers than those who don't. Getting more people to use trainers (remember: 90% of the membership don't) is probably THE number one way to increase member retention.

2) You have professional sales people selling club memberships, yet you expect personal trainers (barely qualified in fitness, let alone selling) to sell personal training. Why not have a separate, fulltime professional salesperson to sell PT?

(I guess both of these ideas boil down to one simple point. Invest money in PT as a business - both in quality and quantity - and it will respond favorably. If you continue to treat it as merely gravy, it will never be more than that. Keep in mind that PT is the highest form of customer service. It matters.)

3) Hire more and better housekeepers, and manage them better.

4) Pay general managers better so they will care.

5) Pay front desk attendants better, and train them better.

6) (and this is most important): You, big-time TSI bosses (yes, YOU!), need to show both members and employees that you care...from the chairman to the CEO and on down. Your apathy is most evident from the current stock price of 6 bucks and change...and your apathy trickles all the way down the food chain to directors, district managers, cluster managers, general managers, fitness managers, master trainers, pro trainers, floor trainers, membership consultants, front desk attendants, and housekeepers (did I leave anyone out?). If you don't care, no one does. Things won't get better until both members and employees sense that you give a damn.

In other words, never.

Good luck, Mr. Kent. You'll need it.

[forever20062]

the poele that run nysc dont care about anybod there as long as they get there money there a bunch of thieves they have a new sale every week most of the sales ur either paying the same or more moeny cause they add in a different fee to balance it out and then they think there doing u a favor by saying we'll freeze ur membership while ur not attending for 15, how is that a favor when i dont take boxing class i dont pay my instructor 15 dollars every month that i dont take lessons from him, the best is there 50 dollar cancelation fee, with that they iwll tell u u have to pay 50 to cancel and not mentiont hat in the contract if u cancel a month before ud otn have to pay anything, cuase they wanna suck more moeny out of u, also there monthly memberships that u cant actually cancel within the 1styear although ur paying monthly and more than the yearly membership

[blah]

As long as we're throwing all these numbers around...

EBITDA margins for CLUB
2002 = 22.0%
2003 = 23.1%
2004 = 21.1%
2005 = 21.0%
2006 = 22.5%
2007 = 22.5%

Over this time period, EBITDA (cash flow) has grown from $70M to $106M.

Current valuation of the stock is 4.5x EBITDA.

Very consistent fundamentals and cheap stock. Period.

[ohreally?]

regarding "blah": don't forget that EBITDA is earnings BEFORE interest, taxes, depreciation and amortization. High debt at high interest = virtually flat net income. I repeat: a stock that declines by 70% or more in a year is not suddenly a "value" stock. The value of the company will be determined largely by how they do vs. the competition. The overall number of people using healthclubs is growing slowly, with a huge untapped market. CLUB remains vulnerable to takeover.

[blah]

ohreally, thanks for the definition of EBITDA, i can finally sleep knowing what it is now.

There are pelnty of companies out there that product little to no accounting earnings due to their capital structures and/or high levels of depreciation. Therefore, EBITDA, or some other measure of cash flow, is the best way to analyze the fundamentals. If you don't believe this, just ask the banks who lend them money or their bondholders what measure they look at when lending them money.

"CLUB remains vulnerable to takeover" you say. Not likely given the shareholder concentration. But why point this out as a negative? This would be a positive catalyst.

[forever20062]

tsi is getting sued in a class action suit, i woudlnt invest in somebody like that unless there net was at least 1/10 of there revenue which it isn't

[POW]

You have to work for this sinking ship to fully comprehend the insanity on board. I feel for Blue in the Face and Frustrated TSI Trainer - prisoners of a failed system. Hopefully Blue and the remaining talent escape before their spirit is destroyed - there is life outside the walls of the "institution"... - make a run for it while you can - I did and so can you!

[ohreally?]

Dear Blah: you may wish to refer to the 2007 10k report published on the CLUB website, especially pages F 15-17, where you will see that about $123,000,000 of the company debt carries 11% interest. I have a better rate for credit card purchases. To point out the obvious, the company needs to make $1.11 for every dollar spent to BREAK EVEN...

As for a takeover, it would be a BUYER's market, not the seller's.

[forever20062]

THERE GONNA GO BANKRUPT JUST LIKE BALLYS PROBABLY SOMETIME IN 2009 AND STILL REMAIN OPEN AFTER BUT BE BANKRUPT

[Blantonw1]

Many of these comments represent the height of stupidity and/or bitterness.

To the disgruntled employees -- QUIT if it is so bad. There are plenty of happy employees.

To the shorts -- STOP LYING.

Let's stick to the facts as BLAH and Tony Kent have shown.

Cash flow generation is robust.
The company is growing 8-10% per year, top and bottom line.
Cash flow is being invested in new gyms and to refurbish older gyms, which will continue to drive CASH flow higher.
The stock is insanely CHEAP relative to cash flows.
In terms of price point and convenience of gym location, the company faces NO competition. CRUNCH and EQUINOX charge much higher rates and have fewer and poorly located gyms.
The company only raises prices 1-3% per year. There is considerable pricing power in the model.
Risk of bankruptcy is laughable. DEBT/EBITDA only totals 3x. DEBT doesn't mature until 2014, when this company will be generating much more cash flow than today. Company has locked in 5% interest on variable rate debt.

This stock is a HUGE buy.

[forever20062]

looks like ur suffering of stupidity if u havent noticed nysc stock hit an all time low last week u genius what does adding more locations have to do with a succesfful company anybody can keep increasing there debt by borrowing more money form the bank for things they cant afford. crunch gym member is 79 -84 a month, nysc is 79-92, nysc, nysc its 89 for all crunch gym locations, its 90 for all nysc locations charges 430 for 5 personal training lessons, crunch gym charges 400 for 5 lessons for a level 2 trainer, at nysc they charge 30 more for 5 lessons for a level 1 or 2 trainer, nysc initation fee is 50 plus 20 processing fee, so its actually 70 with the processing fee, crunch gym is 30 for the whole initation fee iwth no processing fee here is an article to back it up

www.nypost.com/seven/0...

[free atlast!!!]

Club or nysc is going down really fast. They never deal with the issues at hand and they dont care about employee happiness and loyality or customer satisfaction what so ever. They make up rules and yell when we don't follow their lead but if a member complains they go back and are quick to throw you under a bus. What does the title district manager mean anyway?All those guys do is talk on their cell phones and tell you to try better never really offer a suggestion on how. And the way the comapny pins clubs against each other with each one being a diffrent price is insanity. It's a good thing that they are getting rid of all the higher managers maybe people who know about the industry will take over. The worst thing about this corporation is all the shady stuff that goes on behind closed doors. Who could sell who out faster or who is sleeping with who to get promoted. Members realize it too and thats why TSI is unsuccesful. And when you have a real issue where is Ray Bolivar,or Human resources and who are those people truly defending?I gave tsi 5 years of my life and to me that was the worst decision ever they made me do immorale things,didnt pay me a dime in overtime or let me take any vacations because they didnt want me to make money or simply they are just cheap. Lets be honest for a second Tony, they could careless about an employee unless that employee is helping them out but the second they have what they need and that said employee is no longer helping them out they are quick to terminate that agreement. This company is disqusting to work for and i hope they loose every law suit pending agaisnt them because what goes around comes around.

[Former TSISeniorFaculty]

As a former member of the team responsible for education the staff I can say that the only play on CLUB is to short it.

I left because of the moral issue and because the fact that the management does not care about providing a high quality of fitness service. In my position as an educator I was encouraged to allow people to pass our basic course even if they did not show competency--there was that much focus on selling sessions and limited focus on the quality assurance issues surrounding a high quality service product. Inexperienced and unprepared trainers are delivering exercise programs to clients without having a good knowledge of how exercise affects all of the body and, in some cases, without having the proper certification or CPR credentials so the company is set up to experience more litigation around unsafe training practices.

To top off in 2005 the company hired an executive from outside the country who has single-handedly destroyed the company morale. the executive made a number of changes to operating structure without having a full appreciation for how it would affect overall service to the members. For example experienced group exercise instructors who taught classes to large groups were removed and replaced with low-cost inexperienced trainers so subsequently the group exercise program--a driver of memberships has suffered. Did it reduce costs? Sure, but at the expense of greatly reducing the quality of product and service being delivered to the members.

Since I left in 2006 a number of senior managers/fitness experts have left as well. What you have now is a company that is marketed as delivering fitness but in actuality is nothing more than a retail model that happens to do fitness. Most of the experienced, educated trainers have left, while some good ones are still there, many remaining trainers do not have college education (not required but working with a trainer who has a formal degree is always much safer than working with one who passed a weekend certification course) and I question whether many of the remaining trainers have their high school diplomas...so there is a major safety issue about working with TSI private trainers


this does not even include the company's ridiculous hr policies which are basically: "whatever we feel like doing to you, we will regardless of the legality" the way that the company treated a number of close friends over the years (I worked there from 98 thru 06) means that I would not bother to urinate on Maureen McGovern--the vp of hr--even if she were on fire (the previous vp of he was let go while on vacation, that should explain something). Thankfully the former coo--Randy Stephen (how he was hired after failing at Bikes USA and Circuit City is still a mystery) was canned in Jan, but I feel the same way about him

the sad part is that the company has the infrastructure and model to be a success and a great place to work, but decisions are made in Manhatten without any real regard for how they will be implemented in each of the regions.

Given the debt load of CLUB, along with the abysmal employee and customer relations, the only play on CLUB is to short it and watch the collapse. If you are an investor without any exercise experience and are only looking at the numbers, then please, by all means, buy, because it's only about the numbers. But if you appreciate the fact that fitness service is a completely intangible product that deals with elevating human emotions and knowing how to motivate the frail psyche to change it's self-value and self-worth then you will know that CLUB is a joke and is run by a bunch of number crunchers who have no real appreciation for how to use exercise to change someone's life. until the executive decision-making team understands that, then CLUB is destined to fail and fail miserably (ask any member if they are 100% satisfied and you will discover they are only there b/c it's affordable and convenient)

[CheapInvestor]

I have no idea how the corporation treats their employee but I agree with a lot of the things being said about the service and quality of the clubs. But when it comes down to it, affordability and convenience is why I have been a member for 5yrs and will continue to be. There really aren't that many choices in Manhattan. Crunch and Equinox are much NICER but have SIGNIFICANTLY fewer locations and are much more EXPENSIVE. I don't know where you're pulling your prices out of, but visit them in person and you'll know that there is good reason why anyone between the ages of 21 to 35 will opt for NYSC instead. The only Equinox members I know are 40+ year olds at the managerial level who could afford to pay to the amenities and service. Besides, I would think a majority of people see fitness clubs as a commodity - affordability and convenience will win AS LONG AS they have all the necessary equipment and meet a certain standard of cleanliness. How often do you actually need service at the gym - except for perhaps when they run out of towels once in a blue moon.

In terms of the financials - THEY ARE NOT GOING BANKRUPT. Debt to EBITDA is only 3.0x and EBITDA to Interest is 3.9x. EBIT margins are 12.2% and have been improving consistently since 2004.

Run a DCF assuming 0% revenue growth, flat EBIT margins of 10% (2.2% below current), doubling maintenance CapEx to $50MM per annum (no growth CapEx since we're assume 0% sales growth), 15% discount rate (which is high to penalize for leverage), and 6x terminal value (you can't buy a 10%+ EBIT margin business for less than 6.0x) and you'll get a price target of at least $12. This is close to a worst case scenario and it yields better than 80% potential return on the current price of $6.50.

To use a valuation other than DCF, CLUB's PEG ratio is only 0.45 (according to Yahoo Finance). By most standards, anything lower than 1.0 is considered cheap. This makes CLUB not only a value play, but a GARP play as well.

I say a definite long term BUY.

Short term trading is also viable given that CLUB is currently at the bottom of a channel trend that have held fairly well since Nov 2007. The stock could bounce to $7.50 (15% return from $6.50) in the short term.

Good Luck.

[POW]

Wow, TSI stocks jumps to $9!

Oh yeah, they bought their own stock back - lol.

[HAHA club]

Whoo!! $9.00 buy buy buy at your own risk,, First off I like to say if you have never worked for TSI, your In for a ride of your life and money that if you get paid!!!
It's kinda strange that you lose your CEO, COO, CFO all with in a few months. Now there are Changes or terminations to VP's. HMM makes you wonder how stable this comapny is,,
Now i see they bring an outsiders in from Starbucks and other corp. Tell me how a STARBUCKS person is going to run a GYM (STARBUCKS).
Most of there decision making are NY based. The Clubs that are out of the city are not doing well (some are if they are New). Not looking at who they market too and competition is hurting every one, especially the people who has to work them. There are Cheaper Gyms out there that offer the same if not better,, in NYC I know a few that are cheaper and offer more.
They need to take care of their employees first thats what makes the clubs. There is a HUGE turnover rate this makes it very unstable. The use of Fear is always present in all Clubs coming from VP's to DM's right down the line to the members. Nothing is positive in this company not one thing, unless you Invest Now!!

There Corporate profile reads

OUR GOAL is to be the MOST Recognized health club network in each of the four major metropolitan regions we serve. We believe that our strategy of clustering clubs provides significant benefits to our members and allows us to achieve strategic operating advantages. In each of our markets, We have developed clusters by initially opening or Acquiring clubs located in the more central urban markets of the region and then branching out from these urban centers to suburbs and neighboring communities.

NOT alot about caring about there members its all about THEM.
Tell me how INITIALLY opening ( Chance of Closing) or ACQUIRING Clubs ( Chance of closing also) going to help the members
With out the Members there is NO CLUB .
Out Price your MEMBERS there is NO CLUB
When you Dont Care about the Memebers there is No CLUB
The Upper Mangement Needs to CARE abou the Memebers with out them there is NO CLUB

[free atlast!!!]

isnt it funny how they just closed 3 clubs located outside the city. and they will be closing one more in mid august?? get out while you still can dont buy stock,membership or anything else from TSI cause that and two pennies still gets you no where

[HAHA club]

4 in total for the year 3 of them are in NJ,, ones they Accuired ( now Closing) funny how they Care for there members

[forever20062]

better watch out nysc is going to buy more of its stock every month till 2009 to make it like soembody actualyl believes in this company when its relaly just the company buying itself to drive up the price

[bostonian]

This is a horrible company! Bottom Line. Their stock is doing bad because the company is not hitting thier numbers. Just because the stock is low, does not make it a good time to buy lots of stock. Good luck to those who think its a good time to buy in. Cheap is not always good, as with most cheap products...you get what you pay for. This is not a new company. They have been around for a while, they have just gone public as of recent. They did not open at $6 a share. You have been warned!!!

[forever20062]

tsi just lost a small claims lawsuit sucks for them

[free atlast!!!]

does anybody know hwat clubs they are closing in New Jersey

[forever20062]

An investment banker may pursue a suit he filed almost a decade after he claims a photograph of him playing touch football was first displayed in a New York Sports Club for advertising purposes without his permission.

In Geary v. Town Sports International Holding, 104345/08, Manhattan Supreme Court Justice Marylin G. Diamond held that a new statute of limitations attached to an electronic version of the photograph of Robert F. Geary posted on the Web site of the club's parent company.

"Under the circumstances, the court is persuaded that the use of the plaintiff's photograph" on the Web site of Town Sports International, or TSI, "constituted a republication which triggered a new statute of limitations," Diamond wrote in denying a motion to dismiss.

Geary, a Manhattan financier, was playing in a park with friends years ago when he was videotaped. Images from the tape were made into photos and hung in several New York Sports Clubs beginning in 1999, according to the decision. Geary claims he was never a member of the clubs.

Several images of Geary exist, said his attorney, Dennis A. Bengels, of Garden City, N.Y. Geary first realized his picture was being used by TSI when he saw an image of himself playing touch football on a billboard advertising the sports clubs, Bengels said.

At some point, the image was uploaded to the TSI Web site, and Geary alleged the photo was accessible even after March 2007. He brought suit in March 2008.

Although Bengels acknowledged that Geary was photographed in a public area, he stressed that his client never gave consent for his image to be used as advertising. He called the photos "an embarrassment" to his client, saying they made Geary look "like he spends his time eating the dust."

The images were also posted in sports club facilities in Maryland, Washington, D.C., and Boston, Bengels said.

The suit seeks an injunction, $500,000 in compensatory damages and $2 million in punitive damages under New York Civil Rights Law §§50 and 51.

On its Web site, the publicly traded company bills itself as the largest health club chain in the Northeast, operating more than 135 facilities in New York, Boston, Philadelphia and Washington, D.C. More than 350,000 members work out at the clubs, according to the site.

Represented by Erik W. Kahn of Bryan Cave, TSI moved to dismiss the complaint as time-barred.

In New York, a one-year statute of limitations begins on the date the material is "first published or used" even if the material, "in the same form, be subsequently distributed and used," Diamond wrote, citing Firth v. State of New York, 98 NY2d 365.

The so-called "single publication" rule prevents claims that would seek to extend the statute of limitations each time the material is redistributed.

"The purpose of the rule is to avoid an endless tolling of the one-year statute of limitations, thus sparing the courts from the litigation of stale claims involving events from years earlier," Diamond wrote, citing Nussenzweig v. diCorcia, 9 NY 3d. However, she focused on the exception to the rule in her analysis -- republication.

Defined in Firth as a "separate aggregate publication from the original ... which is not merely a 'delayed circulation'" of the original material, the policy behind the exception targets material aimed at new audiences.

"Thus, where the material at issue is republished in a new format intended to reach a new audience, the statute of limitations will run anew from the date of the republication," the judge wrote.

Noting that Geary "effectively concedes" that his suit would be time-barred under the single publication rule with respect to the images posted in gyms, Diamond held that a different standard would apply regarding the online photos.

"Clearly, the defendant's website presents an entirely different format for the use of the photograph than its installation on the sports club premises," Diamond said.

Next, the judge turned to the difference between the audiences the ads sought to target.

The photo hung at the sports clubs was "intended primarily for the entertainment of the limited number of people who are already members and therefore on the premises."

Conversely, the judge wrote, the Web site is "presumably directed at a far wider audience primarily comprised of those who are not members and whom the defendant is seeking to attract as new members."

Under the circumstances, the court concluded that posting the photograph online extended the statute of limitations.

[forever20062]

An investment banker may pursue a suit he filed almost a decade after he claims a photograph of him playing touch football was first displayed in a New York Sports Club for advertising purposes without his permission.

In Geary v. Town Sports International Holding, 104345/08, Manhattan Supreme Court Justice Marylin G. Diamond held that a new statute of limitations attached to an electronic version of the photograph of Robert F. Geary posted on the Web site of the club's parent company.

"Under the circumstances, the court is persuaded that the use of the plaintiff's photograph" on the Web site of Town Sports International, or TSI, "constituted a republication which triggered a new statute of limitations," Diamond wrote in denying a motion to dismiss.

Geary, a Manhattan financier, was playing in a park with friends years ago when he was videotaped. Images from the tape were made into photos and hung in several New York Sports Clubs beginning in 1999, according to the decision. Geary claims he was never a member of the clubs.

Several images of Geary exist, said his attorney, Dennis A. Bengels, of Garden City, N.Y. Geary first realized his picture was being used by TSI when he saw an image of himself playing touch football on a billboard advertising the sports clubs, Bengels said.

At some point, the image was uploaded to the TSI Web site, and Geary alleged the photo was accessible even after March 2007. He brought suit in March 2008.

Although Bengels acknowledged that Geary was photographed in a public area, he stressed that his client never gave consent for his image to be used as advertising. He called the photos "an embarrassment" to his client, saying they made Geary look "like he spends his time eating the dust."

The images were also posted in sports club facilities in Maryland, Washington, D.C., and Boston, Bengels said.

The suit seeks an injunction, $500,000 in compensatory damages and $2 million in punitive damages under New York Civil Rights Law §§50 and 51.

On its Web site, the publicly traded company bills itself as the largest health club chain in the Northeast, operating more than 135 facilities in New York, Boston, Philadelphia and Washington, D.C. More than 350,000 members work out at the clubs, according to the site.

Represented by Erik W. Kahn of Bryan Cave, TSI moved to dismiss the complaint as time-barred.

In New York, a one-year statute of limitations begins on the date the material is "first published or used" even if the material, "in the same form, be subsequently distributed and used," Diamond wrote, citing Firth v. State of New York, 98 NY2d 365.

The so-called "single publication" rule prevents claims that would seek to extend the statute of limitations each time the material is redistributed.

"The purpose of the rule is to avoid an endless tolling of the one-year statute of limitations, thus sparing the courts from the litigation of stale claims involving events from years earlier," Diamond wrote, citing Nussenzweig v. diCorcia, 9 NY 3d. However, she focused on the exception to the rule in her analysis -- republication.

Defined in Firth as a "separate aggregate publication from the original ... which is not merely a 'delayed circulation'" of the original material, the policy behind the exception targets material aimed at new audiences.

"Thus, where the material at issue is republished in a new format intended to reach a new audience, the statute of limitations will run anew from the date of the republication," the judge wrote.

Noting that Geary "effectively concedes" that his suit would be time-barred under the single publication rule with respect to the images posted in gyms, Diamond held that a different standard would apply regarding the online photos.

"Clearly, the defendant's website presents an entirely different format for the use of the photograph than its installation on the sports club premises," Diamond said.

Next, the judge turned to the difference between the audiences the ads sought to target.

The photo hung at the sports clubs was "intended primarily for the entertainment of the limited number of people who are already members and therefore on the premises."

Conversely, the judge wrote, the Web site is "presumably directed at a far wider audience primarily comprised of those who are not members and whom the defendant is seeking to attract as new members."

Under the circumstances, the court concluded that posting the photograph online extended the statute of limitations.