Delayed Studio Openings Will Constrain Operations Yet Recovery Will Materialize

Key Takeaways

• Growing health trends and brand investments are positives, but rising digital fitness and economic uncertainty threaten membership growth and recurring revenues.
  
• Franchise expansion faces delays and brand closures, while execution risks and competition may cap earnings growth and margin expansion.
  
• Slow sales growth, ongoing studio closures, franchise delays, slumping non-recurring revenue, and rising debt all threaten future expansion and financial flexibility.

Catalysts

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

• While the company benefits from strong secular momentum around rising health consciousness and increased focus on preventative wellness, the ongoing shift of consumers toward at-home and digital fitness experiences may limit membership growth and pressure average unit volumes, affecting top-line revenue potential across studios.
  
• Despite efforts to capitalize on experiential spending trends and boutique demand through a diversified portfolio, economic uncertainty and inflation could make consumers deprioritize premium fitness subscriptions, putting recurring revenues at risk and resulting in slower same-store sales growth.
  
• While the franchise model continues to support asset-light expansion and is complemented by new international studio openings, a significant portion of the license backlog-40% globally-is more than a year behind development schedules, and elevated closure rates in brands like StretchLab and BFT threaten net new openings and royalty fee growth, which may constrain future revenue and margin expansion.
  
• Although recent divestitures have sharpened brand focus and the outsourcing of underperforming retail operations to Fit Commerce promises improved cash flows and margin gains beginning in 2026, near-term transition costs, dependence on Fit Commerce meeting capital requirements, and execution risk in scaling up the highest-ROI brands may create volatility in earnings and delay recovery in net margins.
  
• While company investments in proprietary technology, best-in-class franchisee support, and robust marketing-such as the first ever national campaign for Club Pilates-position the business for long-term gains, intensifying competition from both other boutique studios and at-home digital offerings may heighten customer acquisition costs and lower pricing power, ultimately capping margin expansion and systemwide sales growth in the coming cycles.

Xponential Fitness Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Xponential Fitness compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Xponential Fitness's revenue will grow by 6.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -19.5% today to 19.5% in 3 years time.
• The bearish analysts expect earnings to reach $74.1 million (and earnings per share of $3.28) by about August 2028, up from $-61.7 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 bearish analyst cohort, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, up from -4.0x today. This future PE is lower than the current PE for the US Hospitality industry at 22.5x.
• 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 10.73%, as per the Simply Wall St company report.

Xponential Fitness Future Earnings Per Share Growth

Risks

• The company is experiencing a slowdown in same-store sales growth, with Q2 comping at just 1 percent versus 4 percent in Q1, and guidance being reset to low-single digits for the remainder of the year, which could weigh on recurring revenue growth and overall system-wide sales.
  
• Studio closures remain elevated, with 57 global closures in Q2 and an annualized closure rate of 6.9 percent, and management expects approximately 5 percent closure rate for the year; persistent closures directly impact system-wide sales and can erode royalty revenue streams.
  
• Management highlighted that about 40 percent of the franchise development backlog is more than 12 months behind schedule, and the company is actively terminating underperforming or delinquent franchisee licenses; this backlog overhang and churn threaten future net new openings and could limit long-term system growth and franchise fee income.
  
• A significant decline in equipment and merchandise revenues (down 26 and 8 percent year-over-year respectively) has emerged, partly due to lower global installations and sales volumes, signaling possible saturation or slowing demand for new studio buildouts, impacting upfront non-recurring revenue.
  
• Xponential's total long-term debt grew to $377.8 million, and its updated 2025 guidance signals lower revenue and EBITDA expectations coupled with heavy interest and dividend obligations, which compresses levered free cash flow conversion to just 28 percent and could constrain future earnings and balance sheet flexibility if growth remains limited.

Valuation

• The assumed bearish price target for Xponential Fitness is $9.0, which represents the lowest price target estimate amongst analysts. 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 more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $21.0, and the most bearish reporting a price target of just $9.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $379.3 million, earnings will come to $74.1 million, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 10.7%.
  
• Given the current share price of $7.09, the bearish analyst price target of $9.0 is 21.2% 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.