The Gym Group: Going From Strength To Strength

With over 200 sites secured and over 2,000,000 sqft of property already acquired, The Gym Group is the only gym operator listed on the London Stock Exchange and a market sector leader. Gym Group’s CEO, Will Orr, anticipates continued demand and customer willingness to pay, despite cost-of-living pressures, highlighting the value customers place on health and fitness.

The Gym Group are planning to open c.50 new sites over 3 years with an average 30% ROIC. The company says that it will maintain a "quality over quantity" approach. In 2024, the company appointed international real estate advisor Savills to advise on its site selection. The appointment is focused on driving and expediting its expansion.

The Gym Group returned to profitability through strategic revenue growth, increasing Group Adjusted EBITDA by 24% to £47.7m. They achieved a 25% ROIC for mature gym sites, generated £37.5m in free cash flow, and reduced Non-Property Net Debt by £5.1m. Their Next Chapter growth plan improved member engagement and retention, while opening 12 new sites and enhancing existing ones, alongside significant investments in technology and employee engagement.

Gym Group Nears One Million Members

The Gym Group reported double-digit revenue and profit growth for 2024, driven by membership increases and price hikes. They expect 2025 earnings at the top end of analysts' forecasts (£49.0m-£50.8m). By February 2025, membership reached 951,000, with more members visiting four or more times per month. The company plans to open 14-16 new sites in 2025. CEO Will Orr stated, “Our market-leading proposition is more resonant than ever, in a growing sector.”

Organic Growth

The management team has identified levers that it can use to increase profitability in the short to medium term. This includes optimisation of pricing (+£1 ARPMM = £8.3m revenue/year), increasing member retention (+1 week tenure = £5.9m revenue/year), and increasing member acquisition (+1% membership volume = £3.3m revenue/year).

Business Expansion & Market Growth

By maximising like-for-like growth from its existing estate and a self-financed organic site rollout, the company is well positioned to benefit from a growing health and fitness market. PWC estimates room for 600-850 additional low-cost gyms in the UK and forecast that low-cost gym penetration can double if this market potential is achieved.

Due to its operational gearing, The Gym Group struggles to cut expenses if membership drops, impacting profits. Fewer members lead to higher fixed costs per member, posing challenges during economic downturns or pandemics. However, despite cost-of-living pressures, the 2023 annual report showed increased revenue and membership, highlighting the resilience of the low-cost gym model.

The Gym Group faces strong competition from PureGym and JD Gyms. These three brands dominate the budget gym market, capturing a significant share of consumer interest and membership. The Gym Group will have to compete across three key metrics: Expansion into high-density and underserved areas, its ability to deliver value for existing and new members and how it embraces technology and new fitness trends relative to its peers.

Poor site selection can impact The Gym Group’s success. Locations that don’t match the target demographic, have accessibility issues, or are in saturated markets can lead to low membership and higher costs. Ignoring local market dynamics and competition can result in underperforming sites. The company mitigates this risk through extensive research and its appointment of Savills.