Growing Health Awareness And Digitization Will Expand Boutique Fitness Opportunities

Key Takeaways

• Rising health and wellness trends, along with strong millennial and Gen Z demand, support Xponential’s premium brand positioning and sustained long-term growth.
  
• Expansion in digital offerings, international franchising, and operational support initiatives are set to drive higher margins, improved earnings stability, and broader market reach.
  
• Shifting consumer preferences, franchisee struggles, delayed openings, legal costs, and heavy debt threaten revenue growth, profitability, and the sustainability of Xponential Fitness’s expansion model.

Catalysts

Through its subsidiaries, operates as a boutique fitness brands franchisor in North America.

• The global increase in health consciousness and rising preventative wellness spending is fueling demand for boutique fitness brands, and Xponential’s diverse portfolio positions it to capture an expanding share of both North American and international markets. This sustained demand should drive continued growth in system-wide sales and royalty revenue, supporting higher revenue and improving earnings over the long term.
  
• The ongoing trend of urbanization and the growing population of higher-income millennials and Gen Z, who prefer premium, community-centric fitness experiences, is expected to increase the addressable market for Xponential’s brands such as Club Pilates, YogaSix, and Pure Barre. This demographic tailwind supports higher pricing power and membership growth, positively impacting average revenue per member and helping to stabilize and expand margins.
  
• The company is scaling a new field operations initiative across North America, deploying up to 40 field managers to work directly with franchisees on operational excellence and studio launches. This should accelerate ramp-up for new studios, reduce the incidence of struggling units, lower churn, and ultimately raise the percentage of high-performing locations, which would support higher same-store sales and reduce volatility in revenue and profitability.
  
• Xponential’s investment in digital capabilities and hybrid offerings enhances member engagement and provides higher-margin recurring revenue streams outside of physical studios. As connected fitness and digital wellness services grow in popularity, this strategic focus should drive margin expansion and support consistent earnings growth.
  
• Substantial whitespace for franchise expansion remains in both the domestic and international markets, as evidenced by ongoing master franchise agreements in regions like Japan, Australia, Spain, and Mexico, as well as persistent pent-up demand for leading brands such as Club Pilates. This supports a long growth runway for net new studio openings and royalty streams, which will be a catalyst for sustained revenue growth and improved operating leverage as fixed costs are absorbed across a larger studio base.

Xponential Fitness Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Xponential Fitness compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Xponential Fitness's revenue will grow by 7.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -21.1% today to 18.1% in 3 years time.
• The bullish analysts expect earnings to reach $71.3 million (and earnings per share of $3.19) by about August 2028, up from $-67.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 26.3x on those 2028 earnings, up from -5.0x today. This future PE is greater than the current PE for the US Hospitality industry at 22.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.62%, as per the Simply Wall St company report.

Xponential Fitness Future Earnings Per Share Growth

Risks

• The accelerating shift toward digital and at-home fitness solutions presents a significant risk to Xponential Fitness’s brick-and-mortar business model, which could lead to declining membership growth and long-term revenue headwinds if consumers continue to migrate online.
  
• Persistent elevated studio closure rates—now guided to 6% to 8% of the global system and driven by struggling brands like CycleBar and StretchLab—signal softness in franchisee economics and may pressure company-wide royalty revenues and same-store sales growth in future years.
  
• Over one-third of global licenses contractually obligated to open are over 12 months behind schedule, and ongoing terminations of lagging licenses indicate potential franchisee fatigue, market saturation, or lack of sufficient demand, which could curtail long-term studio expansion and dampen revenue visibility.
  
• Xponential’s reliance on rapid franchise expansion and scale brands raises the risk of market oversaturation and same-store sales cannibalization, making sustained unit growth and stable net margins increasingly difficult to achieve as the U.S. and international markets mature.
  
• High and rising legal, regulatory, and restructuring costs—including $25 million in accruals for franchise litigation and ongoing lease settlement liabilities—are inflating SG&A and burdening net earnings, while elevated long-term debt of $379.1 million exposes the company to interest expense risk, both of which threaten future profitability and free cash flow.

Valuation

• The assumed bullish price target for Xponential Fitness is $23.52, which represents two standard deviations above the consensus price target of $13.78. This valuation is based on what can be assumed as the expectations of Xponential Fitness's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.0, and the most bearish reporting a price target of just $9.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $393.0 million, earnings will come to $71.3 million, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 10.6%.
• Given the current share price of $9.63, the bullish analyst price target of $23.52 is 59.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.