Planet Fitness Inc (PLNT) 2019 Q1 法說會逐字稿

Good afternoon. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Planet Fitness First Quarter 2019 Earnings Call. (Operator Instructions) Brendon Frey from ICR, you may begin your conference.

Thank you for joining us today to discuss Planet Fitness' First Quarter 2019 Earnings Results. On today's call are Chris Rondeau, Chief Executive Officer; and Dorvin Lively, President and Chief Financial Officer.

A copy of today's press release is available on the Investor Relations section of Planet Fitness' website at planetfitness.com.

I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Planet Fitness' judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Planet Fitness' business. Accordingly, you should not place undue reliance on these forward-looking statements.

For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements included in our first quarter 2019 earnings release, which was furnished to the SEC today on Form 8-K, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition, the company may refer to certain adjusted non-GAAP metrics on this call. Explanation of these metrics can be found in the earnings release filed earlier today.

With that, I'll turn the call over to Chris Rondeau, Chief Executive Officer of Planet Fitness. Chris?

Thank you, Brendon, and thank you, everyone, for joining us today. 2019 is off to a very good start with strong first quarter results that included system-wide same-store sales growth of 10.2% and adjusted earnings per share of $0.35, an increase of 29.6% over the prior year period. Our same-store sales performance, which comes on top of an 11.1% gain we posted last Q1, was primarily volume driven, and approximately 75% of the increase came from net new member growth.

We kicked off Q1 with a bang as a presenting sponsor of Times Square's iconic New Year's Eve celebration watched by more than 1 billion viewers worldwide. The impact of this event is far-reaching and is a huge contributor to Planet Fitness remaining #1 in unaided and aided brand awareness in the fitness category.

Thanks to our tremendous marketing machine, which, in addition to New Year's Eve, runs nonstop throughout the year. The Planet Fitness brand continues to gain momentum and our system continues to expand. Our group of experienced franchisees are bullish on aggressive, thoughtful expansion in both new and existing markets, fulfilling our shared mission of bringing non-intimidating, affordable and successful fitness to all. In total, 65 stores, a Q1 company record for Planet Fitness, were opened during the first 3 months of the year, and we ended the first the quarter with more than 13.6 million members and 1,806 stores system-wide.

Turning on the topic of expansion, in March, we were excited to announce a collaboration with Kohl's to initially open up to 10 Planet Fitness stores adjacent to select Kohl's stores in 2019. Planet Fitness will utilize approximately 20,000 to 25,000 square feet next to each of the select Kohl's stores in various markets throughout the country, with the opportunity for additional locations in the future. This complementary partnership made strategic sense for both brands. As we continue to grow, it's a great opportunity for us to secure A sites and introduce shoppers to our welcoming, non-intimidating and affordable fitness concept, while simultaneously driving traffic to Kohl's stores. In fact, our research shows that our members tend to fulfill daily needs near their clubs and stay nearby for shopping. For example, 76% of our members combine their gym visit with other shopping. 89% of members shop at other retailers within their club shopping center and 59% do so at least once per week. And 26% of our members reported that they would never visit their club shopping center if Planet Fitness were not located in it. In today's retail landscape, we believe our differentiated approach to fitness continues to drive traffic to our shopping centers across the country, which is why partners like Kohl's and recent landlords in general are increasingly looking at PF to become tenants in their centers.

Turning to our franchisees. In March, we held franchisee meetings in Palm Springs. We conduct these in between our larger conference to ensure we're continuing to engage with our franchisees on various topics, including development, operations, marketing, technology and more. Personally, I believe spending time with our franchisees and providing them an opportunity to share best practices with one another is extremely valuable. I'm continuously inspired by their passion for the brand and our shared commitment to open more stores and improve millions of people's lives. The passion of our system and the strong leadership we have with our franchisees continues to be a significant competitive advantage for us.

Before I close, last week, we announced the nationwide rollout of the Teen Summer Challenge initiative in response to our successful pilot program in New Hampshire last summer. The initiative, which allows teenagers from 15 to 18 to work out for free in all our clubs nationwide officially kicks off on May 15 and runs through September 1. It will introduce members of Gen Z and their parents to our brand, build loyalty and affinity. Teens today are under increasing pressure to succeed academically, socially, battling a growing list of the responsibilities both inside and outside the classroom and become well-rounded members of their community. At Planet Fitness, a healthy, active lifestyle should never be a challenge, which is why we're flipping that notion on its head for teens this summer and giving them a free place to work out in a comfortable Judgement Free Zone.

In preparation of the national rollout of this program, we surveyed teens and their parents about their feelings towards health and wellness. Today's teens are more health conscious than ever before, seeing exercise as a way to improve both their physical and emotional health. 91% of teens agree that they want to stay active and healthy over the summer. Among teens who already work out, 72% said it positively impacts their mental health and 47% said they believe it helped them focus on school work. And also 47% felt more confident and 37% felt less stress. And perhaps the most interesting, when we asked all teens how they prefer to spend their time this summer, 36% wish to exercise more or work out more, which is greater than the number of teens who want to spend more time playing video games, which was 27%; browse social media, which was 16%; and watch TV, which was 16%. Providing youth with free access to fitness not only addresses an important societal need to help teens get active and increase their overall health and wellness, we believe it will also create opportunity for the brand in the long run.

In summary, it is shaping up to be another year of strong growth for Planet Fitness. We are on pace to open approximately 225 new locations in 2019, and the path to 4,000 stores in the U.S. long-term is becoming clearer as both health and wellness and real estate trends continue to move in our favor. We are extremely excited about the many growth opportunities that lie ahead, and I know our franchisee groups share our passion and enthusiasm about the future.

With that, I'll now turn the call over to Dorvin.

Thanks, Chris, and good afternoon, everyone. I'll begin by reviewing the details of our first quarter results and then discuss our full year 2019 outlook.

For the first quarter of 2019, total revenue increased 22.7% to $148.8 million from $121.1 million in the prior year period. Total system-wide same-store sales increased 10.2%. From a segment perspective, franchisee same-store sales increased 10.3% and our corporate store same-store sales increased 8%. Approximately 75% of our Q1 comp increase was driven by net member growth with the balance being rate growth.

The rate growth was driven by a 70 basis point increase in our Black Card penetration to 60.6% compared with last year combined with the $2 increase in Black Card pricing for new joins that was put in place system-wide on October 1, 2017. During the quarter, the increased Black Card pricing drove approximately 240 basis points of the increase in the same-store sales. Our franchise segment revenue was $65.8 million, an increase of 20.4% from $54.6 million in the prior year period.

Let me break down the drivers for the quarter. Royalty revenue was $44.7 million, which consists of royalties on monthly membership dues and annual membership fees. This compares to royalty revenue of $34.4 million in the same quarter of last year, an increase of 30.1%. This year-over-year increase had 3 drivers. First, we had 233 more franchise stores compared to the first quarter of last year. Second, as I mentioned, our franchisee-owned same-store sales increased by 10.3%. And then third, a higher overall average royalty rate. For the first quarter, the average royalty rate was 5.9%, up from 5.4% in the same period last year, driven by more stores at our current royalty rates, including stores that amended their franchise agreements.

Next, our franchise and other fees were $5.4 million compared to $5.7 million in the prior year period. These are fees received from online new member sign-ups, fees paid to us for new franchise agreements and area development agreements, fees received from processing dues to our point of sale system, as well as the transfer fee of the existing agreements.

Also within franchise segment revenue is our placement revenue, which was $2.8 million in the first quarter compared with $2.1 million a year ago. These are fees we receive for assembly and placement of equipment sales to our franchisee-owned stores.

Our commission income, which are commissions from third-party preferred vendor arrangements and equipment commissions for international new store openings, was $1 million compared with $2 million a year ago. Finally, national advertising fund revenue was $11.8 million compared to $10.5 million the prior year.

Our corporate-owned store segment revenue increased 16.3% to $38 million from $32.7 million in the prior year period. The $5.3 million increase was driven by the 4 franchise stores in Colorado that we acquired in August, the 4 corporate stores we opened in late 2018 and corporate-owned same-store sales increase of 8% as well as increased annual fee revenue.

Turning to our equipment segment. Revenue increased by $11 million or 32.3% to $45 million from $34 million. The increase was driven by higher new store equipment placements and higher replacement equipment sales to existing franchise-owned stores versus a year ago. Our cost of revenue, which primarily relates to direct cost of equipment sales to new and existing franchise-owned stores, amounted to $34.5 million compared to $26.5 million a year ago, an increase of 30.1%, which was driven by the increase in equipment sales during the quarter.

Store operation expenses, which are associated with our corporate-owned stores, increased to $20.9 million compared to $18.4 million a year ago. The increase was driven by costs associated with the 8 stores opened and acquired since the first quarter of last year.

SG&A for the quarter was $18.2 million compared to $17.6 million a year ago. This increase was primarily related to incremental payroll to support our growing franchise operations and infrastructure as well as higher variable and equity compensation. This was partially offset by lower expenses associated with the timing of our franchisee conference, which was held in Q1 last year, but will take place in Q3 of this year. National advertising fund expense was $11.8 million, offsetting the aforementioned NAF revenue we generated in the quarter.

Our operating income increased 36.7% to $53.2 million for the quarter compared to operating income of $38.9 million in the prior year period, while operating margins increased approximately 370 basis points to 35.7% in the first quarter of this year.

Our GAAP effective tax rate for the first quarter was 14.3% compared to 22.7% in the prior year period. The effective tax rate for the 3 months ended March 31, 2019 differed from the U.S. federal statutory rate of 21% primarily due to the recognition of approximately $3.8 million of a deferred tax benefit from the remeasurement of deferred tax assets and liabilities and income attributable to noncontrolling interests that is not subject to U.S. federal and state taxes. As we've stated before, because of the income attributable to the noncontrolling interests and not taxed at the Planet Fitness corporate level, an appropriate adjusted income tax rate would be approximately 26.6%.

On a GAAP basis, for the first quarter of 2019, net income attributable to Planet Fitness Inc. was $27.4 million or $0.32 per diluted share compared to net income attributable to Planet Fitness Inc. of $19.9 million or $0.23 per diluted share in the prior year period. Net income was $31.6 million compared to $23.5 million a year ago. On an adjusted basis, net income was $32.7 million or $0.35 per diluted share, an increase of 24.9% compared with $26.2 million or $0.27 per diluted share in the prior year period. Adjusted net income has been adjusted to exclude nonrecurring expenses that reflect a normalized tax rate of 26.6% and 26.3% for the first quarter of 2019 and 2018 respectively. We have provided a reconciliation of adjusted net income to GAAP net income in today's earnings release.

Adjusted EBITDA, which is defined as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain non-cash and other items that are not considered in the evaluation of ongoing operating performance, increased 29.9% to $63.4 million from $48.8 million in the prior year period. A reconciliation of adjusted EBITDA to GAAP net income can also be found in the earnings release.

By segment, our franchise segment EBITDA increased 29.1% to $47.4 million, driven by royalties received from additional franchisee-owned stores not included in the same-store sales base and an increase in franchise-owned same-store sales of 10.3% as well as a higher overall average royalty rate. Our franchise segment adjusted EBITDA margins increased by approximately 420 basis points to 72.1%, with a portion of the improvement driven by the aforementioned reduction in expenses associated with the timing of our franchisee conference.

Corporate-owned store segment EBITDA increased 27.9% to $15.6 million, primarily driven by the 8% increase in corporate same-store sales, higher annual fees and the 4 franchise stores we acquired in August. Our corporate store segment adjusted EBITDA margins increased by approximately 240 basis points to 41.3%. Our equipment segment EBITDA increased 39.3% to $10.4 million, driven by higher new store equipment placements and higher replacement equipment sales to existing franchisee-owned stores versus a year ago. Our equipment segment adjusted EBITDA margins increased by approximately 120 basis points to 23.1%.

Now turning to the balance sheet. As of March 31, 2019, we had cash and cash equivalents of $336 million compared to $127.1 million on the same date last year, an increase of 164.2%. The company completed its accelerated share repurchase agreement on April 30, 2019, which resulted in an approximate incremental 525,000 shares to be repurchased and retired during the second quarter of this year. This was in addition to the 4.6 million shares retired during Q4 of last year that was previously disclosed. At the end of the first quarter, approximately $158 million remained of the $500 million share repurchase plan that the board approved last August.

Total long-term debt, excluding deferred financing cost, was $1.2 billion at March 31, 2019, consisting solely of our whole business securitization, which includes $572 million of 4-year notes due in September of 2022 with a fixed interest rate of 4.262% and $622 million of 7-year notes due in September of 2025 with an interest rate of 4.666%.

Now to our full year outlook. For the year ended December 2019, we still expect revenue to increase approximately 15% over 2018 levels, driven by same-store sales growth in the high-single digits and the sale and placement of equipment in approximately 225 new stores. With respect to profitability, we still expect adjusted EBITDA to grow approximately 20%, adjusted net income to grow approximately 18%, with diluted earnings per share increasing approximately 25%.

I'll now turn the call back to the operator for questions.

(Operator Instructions) Your first question comes from the line of Oliver Chen from Cowen and Company.

Congrats on a great quarter. You've had several digit comp momentum and you're guiding towards high-single digit comps and the compares ease throughout the year. Just I was curious about what helped inform your guidance given the momentum. And how are you thinking about how the older vintage stores are comping and thoughts around making sure you optimize churn as well?

Thanks, Oliver. This is Dorvin. We guided to high-single digits and we talked about the impact on same-store sales in the quarter with respect to both an increase in Black Card penetration as well as, then, the impact of the pricing on a year-over-year basis, which was -- the pricing impact was about 240 basis points. We've talked in the past, I think late last year and then at year-end, in terms of where we think pricing will kind of end up for the year. It's going to gradually continue to decline as we cycle over more quarters. I think, on a full year basis, we're probably going to be in the 150, 150-plus basis points range full year, so you'll see that start to wane more and more -- or at least based on what we know today, quarter-by-quarter.

I would say in terms of overall store performance, kind of the waterfall we've talked about in the past, no significant changes in the way that our business operates. If you look at -- we tend to call mature stores being stores that are, call it, 4 years or older. So they've been in comp for 3 years. And that kind of waterfall matrix is pretty similar, let's just say, in the last 6, 8 quarters or so. If you go back in history, I think you guys will probably remember that historically, 3, 4, 5 years ago, you would see the older stores more in kind of a flat to maybe 2%, 3% kind of comp range. I've stated publicly over the last year or so that the overall retention of members has slightly improved. I think the size and scale of our marketing budget has grown. Those stores tend to be more in the 2 to 4, 3 to 5 range these days. And then the brand-new stores in comp are year 2 in operation are kind of in that 40% range or so, and then their second year comp more in that kind of 15%, 15-plus percent range. So that's not much of a significant change from the past. So we still -- we feel comfortable in that high-single-digit range on a full year basis.

And Chris, on the -- on both the marketing front and the digital front, what are your thoughts on the mobile app and the improvements you've made there? Anything we could -- we should focus on or look forward to? And also as you continue to innovate in the discipline of marketing, what are some things you're considering just to continue to move the needle forward on initiatives and opportunities to drive continued awareness?

So on the marketing front, we did come up with the new Black Card digital marketing and Black Card digital in TV marketing, so we have some new creative around Black Card. And typically, we've always focused on almost solely White Cards. So we did test some Black Card marketing stuff, which has turned out pretty decent for us. Digital front is as normal. We have increased it this year and last year compared to years past, as we continue to drive that NAF, which will be about -- National Ad Fund this year will be about $225 million up from $150 million last year. As we add more members, as we keep talking about the marketing machine, that marketing budget continues to grow.

The app, as I mentioned before, we will be rolling out the app this quarter, it looks like June. It will be a soft rollout at first, market by market, and then really, by Q3, will be a full rollout across the system nationwide. But it will be a slow rollout starting June. And really, you won't see -- it'll look different, but you won't see as much functionality -- a little bit function -- more functionality than the current app, but what it really does is we're taking it in-house from an off-the-shelf third-party customer that we used for it. We had really 0 flexibility on how to scale it as far as partnerships and content and so forth. So this will be -- kind of really give us the plumbing, Oliver, in the background that we can start doing partnerships and add content and be able to give more value, I guess, really, to the member in the club and out of the club, quite frankly. So I look forward to having that flexibility and as we talk to partners in the future. A couple key features that will be in the new app, which I think will be really neat is, right now, we have no way to really -- for a member to refer a friend to come in and try the club for a day. So that will be a neat feature in the app that our members can now just invite one of their friends to come work out, and we can instantly be shooting their friend the e-mail with a guest pass, as well as the opportunity for a White Card member to simply upgrade their membership on the app, which is a simple and easy task that should already be there, honestly, and it's not there, so that could be a good thing for us as well that a member could literally just upgrade their membership right on the app.

Your next question comes the line of John Heinbockel from Guggenheim Securities.

So guys, I'm wondering, do you think the business will become -- and member sign-ups become slightly less seasonal and skewed to the first quarter for a variety of reasons, right, either free teen summer or your own marketing plans? Do you think that happens and you actually get some stronger sign-ups in 2, 3 and 4 versus where we've been historically?

It's interesting you asked that question because what I -- I think as times have changed over, not even just a year or 2, just even the last probably 10 years, I think, it has more -- if fitness becomes more mainstream, I believe that you'll see and I think what we've been seeing is less of a New Year's Eve being the call to action to work out, and it's more of a -- as we see volumes of growth. And as I mentioned in the past, when we look at July in the last few years, it has really surprised us, the member growth. And I think as Millennials and Gen Zs, as we'll talk about, I'm sure, is you see less of that giant spike right after New Year's Eve. We've had great summers, second, third, fourth quarters, so. I think you'll see in the years ahead that it will be just when the demand is there, it's there. It's not about a 1-night call to action.

As far as the Teen Summer Challenge, yes, that will kick off this month on May 15, and as I'm sure most or if not all you on the call, we've had tremendous response. I mean I -- even this early on, I can't believe we have over 1,200 -- over 1,200 outlets have picked up the story already, and we haven't even gotten into our really big kickoff and launch on May 15, which will be around a lot more media. So I couldn't be more pleased with that initiative, and that, I think, will come down to really help us in the future in the years ahead even.

And then as a follow-up to that, what's your -- you first year here, but what's your thought on marketing impetus for the free teen summer? Like the first year, more kind of what you got in New Hampshire with kind of Governors calling you out? Is there more of a shift in the marketing spend maybe around the May, June time frame? How are you going to get the word out, more word of mouth or more spend?

I would say nationwide we're -- nationwide, we're more launching it how we did in New Hampshire with the Governors and TV Presidents, PR around that and then -- but we are going to test some additional tactics in New Hampshire as now we have a baseline in New Hampshire for last year. So additional tactics this year in New Hampshire, see how that works so then we can -- my plan longer-term is this should be an every summer ordeal, honestly, if all goes well. So -- but yes, I think it's a great opportunity. And as I've mentioned in the past, I mean, out of the 2,500 kids in New Hampshire that activated, 2,000 of those came from homes that the parents weren't members yet, and they've got to come in and sign the parents -- sign the kids up. So it's really great exposure, not even for teens but even their parents.

Your next question comes from the line of Jonathan Komp from Baird.

Reequipment revenue as a percent of the total equipment or just the amount overall?

Hey, Jon, you were on mute, I think, there for a second. Can you repeat that again.

Yes, sorry about that and hopefully you can hear me. The replacement or the reequipment revenue, did you give the amount that it was in the quarter just for the reequipment piece?

Yes, I did not, but it was 35% for the quarter. And we said back when we gave full year guidance for the year, we expected it to be just shy of 50% of -- for the year. We still believe that it's going to be kind of in that range on a full year basis.

Okay. So it should -- any other color around shaping of that? I mean that implies a pretty big pickup the next few quarters?

Well, I think that in terms of the -- it's basically a percent of the total revenue. And you look at the new equipment sales in this quarter as well as in the full year guidance implied that we reiterated on the call. Summer months also, I've talked about this in the past, that it tend to do more kind of in that time period of year because it's less busy in the clubs. So you'll see it -- I mean, we do some reequipment business every quarter, but on a percentage basis, you're typically going to see it in more of kind of the summer months.

Okay. Great. And then just related to the unit -- the development outlook for new units, I know you had the strong first quarter. Any color generally what you're hearing from franchisees and the appetite and just maybe more color on what's driving the strength there. And then maybe if you had any color on how the second quarter might play out.

Yes. I think that -- when we sit back and kind of compare our business today -- or our franchisees' businesses that we -- our real estate development construction teams work with, you go back 4 or 5 years ago, usually there was a franchisee and maybe one other person that was playing the roles of COOs in real estate, construction, development, et cetera, et cetera. And now as we have bigger groups, particularly the private equity groups, and then some of other still franchisee-owned groups are quite large as well, they've really invested in all areas, frankly, of their functional teams, be a CFO to COO to CMOs in ops and real estate. I think that when you get to a -- to have a pretty big operation like that, you don't want to cram all your stores into 1 year -- I'm sorry, into 1 quarter, because the execution and getting those stores up and operating and running, the execution of that's critical. And then at the same time, you can't open a store and then start working on the next one in terms of real estate development, et cetera, et cetera. So I think what we're seeing now with a lot of our groups is that, with the teams they have employed, the sophistication of the teams they have employed and then working with our teams that we've enlarged over the last couple of years or so to assist franchisees, you see more quality sites being cemented, quite frankly. And sites that both the franchisees and we have had our eyeballs on a couple times. So we feel good about that.

In terms of the cadence kind of question, we talked about that it would be front-half loaded. We still believe, based on our insight today, we believe that's the case. We obviously have more insight into the next 3, 4 months or so. Typically it's about a 5-, 6-month lead time when you start negotiating a lease, get it signed. And it's typically 3 months or so to get it opened once you kind of get it turned over from the landlord depending on the quality and the turnover of the box. So as we've done in the past, we release Q2 in late July or the first part of August, we'll have a lot more insight into the balance of the year then because of just the activity that normally takes place for Q3 and Q4 activity. But we reiterated our guidance, which is very similar to where we were last year, but consistent with the direction we said that we'd be more front-half loaded than back-half loaded this year.

Okay, great. And just last one, if I could sneak it in. I know you don't guide quarterly, but when you look at the first quarter comps and member sign-ups, any color on how it performed versus your plan? And then does that change your confidence at all in the full year targets that you reiterated?

Yes. Thanks, Jon. Just a couple comments I'd make. I'd say that we were pretty consistent with our plan, both top line and bottom line in terms of how -- back to my previous comment of equipment sales. The placement and timing of equipment can drive the revenue changes, if you will, from quarter-to-quarter. So we came in pretty much on-plan on the top line and bottom line and as well as comps. And so that gives us -- gave us the confidence then to reiterate our full year guidance that we put out back in February.

Your next question comes the line of Dave King from ROTH Capital Partners.

This is Andrew stepping on for Dave. We were just curious, how different is the churn between your White Card and Black Card members? And is there a reason why one would be higher than the other?

It's basically the same, Andrew, between White Card and our Black Card, and it's always been, going back in 8 years of history. So no significant difference between the 2.

Great. That's helpful. And then just a follow-up. To what extent have any of your current members churned off at any point in time? And do you have what that percentage might be?

Yes. So what -- we've talked about how we think about our business model and who we're going after. So we're introducing the masses to fitness. And as you probably know the statistics, about -- only about 20% of the population in the U.S. belong to a gym per IHRSA, the industry organization. And we really go after the 80%. Whereas, frankly, a lot of our competition just go after the -- and try to trade back and forth between the competitors. And in fact, close to 40% of our members that join have never been a member of a gym before in their life. So as we continue to open stores and have more penetration within markets, we're getting closer and closer to some of those people that are in that 80%, and either, quite frankly, have never been a member of a gym or maybe haven't worked out since they were in college. And so we look at it just throwing a lot of people into that funnel and to introduce them to our brand and fitness and the non-intimidating environment that is really what our brand's all about. And a lot of people don't understand that the intimidation factor is just a huge element for particularly people that never been a number before, and they want to give it a try. And working out is hard, it's hard work, so some people are not going to stick with it. And so what we do is we look what happens after a member has joined Planet and been with us for 12 months. So then what happens after that. And we believe that we've got them to join the club, we've had some consistency of them being a member for a while now and try to turn them into a for-lifer. The cancellation rate after 12 months is -- varies a little bit by seasonality, et cetera, but it's kind of in that 1.5% to 2.5% per month range. And it's been pretty consistent over the last couple of years or so.

Your next question comes the line of Rafe Jadrosich from Bank of America.

Can you talk a little bit more about the new initiative with Kohl's? What's stood out about Kohl's that made you choose that retailer versus maybe some others? And then do you see other opportunities longer term to pursue other partnerships with other retailers?

Yes. We've done quite a few deals with Kohl's in the past as well as other retailers, even Burlington Coat, we've done some, they were downsizing. I think they should have been more proactive with their rightsizing initiative. So they, looking at their portfolio, have had us next to some of theirs and kind of reached out. So that's kind of how the conversation started. So definitely, I think, we'll open doors up more in the future as more retailers decide to rightsize their boxes. The other thing, too, I think, with Kohl's which is interesting is they're also -- they're much bigger -- I think, turn into a much bigger partnership than just strictly real estate, which is going to be great for us. They want to work together from a marketing initiative. And in fact, we're working on a deal now where their rewards customers and their members get discount -- their employees get discounts at our stores and our members -- glad to do a deal where our members get a shopping week for a discount at their store. So it's a great partnership and I think it will turn into more things in the future as well.

Great. And then just in terms of pricing, how do you think about essentially increasing Black Card pricing more longer term? The Black Card penetration keeps going up even though you increased the pricing 2 years ago. Do you see additional pricing power there? And then how have the competitors that have historically had similar pricing to you, how have they responded to your Black Card increases?

Yes, I'd say that it seems that they have followed us, which is interesting, as far as the pricing. But we originally did the increase from that $19.99 price point to $21.99 back October of '17, was it? And it was -- that was strictly based on reciprocity, which happened to be the most used perk of the Black Card. And we had started it over a decade ago, we had 100 stores. And here we are -- we started -- we changed -- made the change. I think we had probably 1,300, 1,400. So if you look at today where, even today, we're about 30% -- added 30% more bases left who even tested it. So I think based on reciprocity alone, I think it's something we should revisit every year, couple years, 3 years, whatever, how much and when is the different topic of testing and what the elasticity is just based on that perk alone. But it does beg the question, reciprocity alone could drive some pricing around that. Outside of that reciprocity piece, we're constantly looking of ways of driving more value for the members, whether it's inside those Black Card spot areas. Is there a better massage bed that we could put in there or red light or something like that, that it would drive more usage and more demand. Or like we mentioned -- talked about the app earlier, is it more functionality with the app where we did some consumer studies where a lot of what the members are looking for is to be able to collect their data from the cardio, for example. So by the time they hit the front door on their way out, they have their mileage, their pace, their speed and their calories burned on their app and how it compares to last week or last year. So could that be a Black Card perk that they get their data that they can be able to look at that and critique their workouts going forward. So I believe we'll constantly look at other ways to drive value to the members to make it a Black Card perk, which again could drive more acquisition or price or both. So that's definitely something that we're very focused on.

Our next question comes from the line of Peter Keith from Piper Jaffray.

It's actually Bobby Friedner on for Peter. I just want to follow up on the teen summer program. It seems very compelling and a great way to introduce Gen Zs to the brand. Do you have a target for the number of teens you're hoping to have sign up this year? And related, looking at last year, what percent of teens or parents of teens you signed up for the program ended up becoming full members afterward?

Yes, we weren't -- in New Hampshire, we had about 2,500 teens, and that was on about 18 stores. So they can extrapolate some of that volume we could do nationwide. I guess the only difference there is the density of New Hampshire is much less. So I'm hoping for a much better turn out than that. You could extrapolate those number on the 1,800 stores we have open today. On the parents themselves, we had some joined -- even right after the ending of it, we had about 80 or so parents join off of that program. But this year, now that we've learned a lot more from it, we're getting a lot more, I guess, focused on being sure to get their e-mail addresses and addresses to be able to market opportunities for both the teenager as well as the parent. So I think we'll be much more creative this year on how we move forward with the capture of those going forward.

Your next question comes the line of Brandon Sonnemaker from JPMorgan.

This is Brandon on for John Ivankoe. I believe a gym with less than 8,000 square feet was tested recently. Could you discuss that experience versus the typical 20,000 square-foot gym. And are different-sized boxes changing the way the company thinks about their Fort Knox and Uniontown potential target in the U.S.?

Yes, we did just opened one. It was in Texas, for example. It was actually very successful for us. Although, we believe and even the franchisee believes, it should be probably more in that 10,000, 12,000 square-foot range for the real right customer experience. It's a nice customer experience but you get to a point where, is the Black Card spot area really as nice as it could be, is the lockers really as large as they should be, and is the equipment selection have enough variety as it should be. So I really think that 10,000 to 12,000 is probably a better number. And that's more of a small market, which is -- that one there was in a market that typically we hadn't been in, in the future. And we're still really validating how small is small, how small we can go as far as the density of population is concerned. But in those markets, like that one for example, it is -- that is really a club in a market that really isn't the 4,000 number. So although we're still investigating and figuring out what the potential there is, there would be upside.

And then if I could just circle back on the pricing question. I think you've talked about in the past, potentially when you reach 2,000 stores, you'd consider an additional price increase. Is that, call it, mid-2020 timeline still the right timeline you're thinking about? And what that -- what could that price increase look like?

Yes. I mean I think it's all up for testing. I don't think -- I still think the lower we can keep both memberships, the more volume we can do and the more penetration. We don't want to get over our skis and be in the high 20s, for example. And so a $10 membership really is -- really is what drives a lot of demand and get people off the couch. Back to Dorvin's point, almost 40% have never gone to a gym in their life, and that's why we really pound the $10 as much as we do to get people really curious to walk through that door. And even though we have 60% acquisition of Black Card, which is great, thinking if they want to pay $10 and they walked out paying $21.99, I think if we have too much of a spread between that $10 and, call it, $29, I don't think you'd have that kind of conversion. I think you have to be careful you don't get too much of a spread there. But I think it's -- to look for $1 or $2 I don't think is out of the question. So nothing really concrete today, but it's something we'll constantly look at.

Your last question comes from the line of Brennan Matthews from Berenberg.

I just wanted to ask about Mexico. I think you've had a location there for just over a year now. I mean how has that performed relative to your expectation? And any update on maybe opening some more stores there or maybe any other countries you've got an interest in or are thinking about?

Sure. Yes. So we had the 1 store open in a city right outside of Monterrey, where that's in, like, call it, a middle income area. And what we're testing now, we're looking to do try open another 2 or 3 there later this year in different demographic areas to see if it works everywhere like it does here in the States. We have clubs in Manhattan and we have clubs in Oakland, California and here in New Hampshire. So it's very -- it works in very diverse markets compared to the others. So once we get those open, we'll get -- allow us to size Mexico. We figure out if it can work everywhere or not to determine the full market potential of Mexico before we have a real strong game plan on a quicker rollout. But we'll have 2 or 3 open later this year and then size it from there. But that club performed great. Opened on day 1 with 5,000 members, which we've said in the past, in the States we open with about 1,200 to 1,500, so that club just went crazy from day 1, not unlike Panama has done just as well. So the Hispanic markets have done very well for us. So -- but for now, we're really focused on Mexico, get that off the ground and running before we really focus on any other big countries.

There are no further questions at this time. Mr. Chris Rondeau, I turn the call back over to you.

Thank you. Thanks, everybody, for joining us today, me and Dorvin. We had a great first quarter. A great opening, another record quarter for us on top of our record openings last year at 230, so I'm looking forward to our 225 openings this year and strong same-store sales, and the Teen Summer Challenge is really exciting. So we look forward reporting later on that this summer. Thank you. Have a good evening.

This concludes today's conference call. You may now disconnect.