Planet Fitness, Inc. (PLNT) Q4 2021 Earnings Call Transcript

Planet Fitness, Inc.  (NYSE: PLNT) Q4 2021 earnings call dated Feb. 24, 2022

Corporate Participants:

Stacey Caravella — Vice President of Investor Relations

Chris Rondeau — Chief Executive Officer

Tom Fitzgerald — Chief Financial Officer

Dorvin Lively — President

Analysts:

Simeon Avram Siegel — BMO Capital Markets — Analyst

John Edward Heinbockel — Guggenheim Securities — Analyst

Alexander Thomas Perry — BofA Securities — Analyst

John William Ivankoe — JPMorgan Chase & Co — Analyst

Brian James Harbour — Morgan Stanley — Analyst

Sharon Zackfia — William Blair & Company L.L.C. — Analyst

Jonathan Robert Komp — Robert W. Baird & Co. — Analyst

Patrick Lee Johnson — Stifel, Nicolaus & Company — Analyst

Presentation:

Operator

Hello, and welcome to the Planet Fitness Fourth Quarter 2021 Earnings Call. My name is Alex, and I’ll be coordinating the call today. [Operator Instructions]

I will now hand over to your host, Stacey Caravella, Head of Investor Relations for Planet Fitness. Over to you, Stacey.

Stacey Caravella — Vice President of Investor Relations

Thank you, operator, and good morning, everyone. Speaking on today’s call will be Planet Fitness Chief Executive Officer, Chris Rondeau; and Chief Financial Officer, Tom Fitzgerald. We also have Dorvin Lively, President of Planet Fitness, here, who will be available for questions during the Q&A session following the prepared remarks. Today’s call is being webcast live and recorded for replay. Before I turn the call over to Chris, I’d like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during this call. Our release can be found on our website, investor.planetfitness.com, along with any reconciliation of non-GAAP financial measures mentioned on the call and their corresponding GAAP measures.

Now I’ll turn the call over to Chris.

Chris Rondeau — Chief Executive Officer

Thank you, Stacey, and thank you, everyone, for joining us for the Planet Fitness’ Q4 earnings call. First, I’m going to cover our fourth quarter membership results as well as January trends. Then I’ll discuss why I continue to be so bullish on our leadership position in the fitness industry as we emerge from the pandemic that has brought to the forefront the critical importance of health and wellness. I’m extremely proud of how our franchisees, headquarter staff and club staff continue to be agile through this ever-changing environment, which has enabled us to grow our interim net membership at nearly prepandemic pace in 2021. We added 1.7 million members, ending the year with 15.2 million. For the seventh consecutive year, we rang in 2022 as a presenting sponsor of Times Square’s New Year’s Eve celebration. It was great to see Time Square once again covered in purple and yellow and to be part of that iconic celebration as this year marks Planet Fitness’ 30th anniversary. However, the highly transmissible Omicron variant that began to surge in late December throughout — and throughout January led to a softness in our January join trend compared to prepandemic levels. A significant portion of Americans were directly or indirectly impacted by Omicron in January, which significantly disrupted their daily lives.

According to U.S. Census Bureau, it’s estimated that approximately 14 million Americans did not work at some point during December 29 to January 10 because they had COVID or were caring for someone with COVID while they had to look after a child while school or daycare was closed. That’s a staggering number. We saw this disruption reflected in our membership behaviors. During January, usage slipped below the approximately 90% indexed to 2019, which was the same rate we observed during most of 2021. Higher member usage historically corresponds with higher join activity. As quickly as the Omicron surge began, it started to wane as January progressed. Accordingly, member usage rebounded and, we hit our highest usage rate since the start of COVID at the end of January. But we believe that Omicron was primarily the biggest factor in causing the softness in January joins compared to prepandemic levels. We also believe that our agency consolidation had some minor impact as well. As we discussed at the end of 2021, we transitioned from 16 agencies handling our national and local marketing and advertising to one, Publicis Groupe.

Not unexpectedly with transformation of this size and scale, there have been some challenges. But we believe that consolidation was the right next step to evolve our marketing, drive efficiencies and gain greater visibility into system-wide spend on performance. We are expanding our local agency offers to include Publicis in a very small number of our top-performing local agencies. This is similar to our equipment business as we offer our franchisees three vendors from which to choose. We believe this is the right approach as we work through the transitional Publicis and that the long-term benefits from the consolidation of agencies outweighs the near-term disruption. So while we had positive net member growth in January, it was not back to prepandemic levels. We added 400,000-plus net new members in January, which is over 100,000 more than we added January of last year. Although the consumer dynamic differed from last year, in 2021, people were awaiting vaccines. This year, people were home either quarantining or caring for sick family members. Despite this, we ended January with 15.6 million members, surpassing our prepandemic first quarter 2020 membership peak and achieving an all-time membership high. We are not going to cover February membership growth, but we felt it was important to discuss January as most of the business seem to have experienced some type of impact from Omicron variant.

Now let me move on to our position as a leader in the fitness industry. There are three primary reasons that I’m excited about the near-term and long-term future of Planet Fitness. First, we are investing and growing as the industry is contracting. Second, Gen Zs were the fastest-growing demographic group in our 2021 membership, who, along with millennials, prioritize an active lifestyle more so than their previous generations. Third, a silver lining of the pandemic is that it opened people’s eyes to the importance of fitness in their overall health. On my first point, the fitness and health club industry trade group IHRSA recently reported that now 25% of all health and fitness facilities in the U.S. are permanently closed as a result of the pandemic at the end of 2021. I’m proud that not a single Planet Fitness location closed permanently due to COVID. In fact, over the past two years, we have added more than 250 new locations, with 132 in 2021 alone. Not only are we growing, but we are also making strategic investments into the future. To that end, we acquired Sunshine Fitness, one of our largest and best-performing franchisees, closing the transaction and our debt refinancing and upsizing on February 10.

In addition to our 112 corporate stores, we now have 114 clubs in the southeastern part of the U.S. With this acquisition, we are doubling down on the emergence of fitness boom, acquiring a top-tier operator in the system with a very strong store-level, four-wall margins and diversifying our corporate store geographic footprint in markets with a long run life for our future store development. We now own more than 200 corporate stores or approximately 10% of the total system, which is our target ownership level. And it allows us to retain our asset-light business model, an important part of our shareholder value proposition. Another potential long-term positive for our business is the encouraging trend around membership base when looking at it by age cohort. Millennials continue to be the largest demographic segment of our total membership base. In fact, more than 8% of all millennials in the U.S. are Planet Fitness members. Even more encouraging is the recent growth we have seen in Gen Z members. In 2021, this generation demonstrated growth of nearly three times that of the millennial category, bringing our share of the Gen Zs over the age of 15 in the U.S. to nearly 8%, which is notable as only half that of that generation are old enough to join our gyms.

And not only are we capturing more of the younger generations, but we’re also bringing back an increasing number of former members as they recommit to a healthier lifestyle. However, rejoin rate in 2021 was approximately 30% compared to 20% in prepandemic. In fact, IHRSA recently reported that among those who canceled their memberships in the big box gyms have say they are planning to return in the next six to 12 months. Affordability to welcoming less intimidating atmosphere are key criteria for what they are seeking in a gym, exactly what we offer and what differentiates us from the rest of the industry. Finally, the pandemic accelerated a trend of increased interest in health and wellness that was already underway. Our consumer messaging in 2022 will focus on the feel-good feeling you get after a good workout and the mental health benefits of exercise provides that extended view on just the physical benefits. The CDC reports that even one workout can reduce depression, anxiety and improve your sleep. This messaging was in our first-ever Super Bowl advertisement in our 30-year history, which highlighted that fitness is about more than just vanity in your waste line. It features Lindsay Lohan, along with other stars like William Shatner.

Despite the near-term negative impacts of Omicron, we believe there’s tremendous untapped opportunity for our brand long term to get people off the couch with approximately 140 million non-gym members living within 10 miles of an existing Planet Fitness. It’s too early to tell if the unseasonable join pattern that we experienced in 2021 will continue this year. We have learned to be nimble and agile as we operate in a volatile environment. It appears that we are slowly entering a new phase of the pandemic. All our stores are back open, COVID restrictions are lifting, mass mandates are ending, and most important to our business, our member usage is rebounding, and membership levels have reached an all-time high. We revolutionized the gym industry nearly 30 years ago with three key points of differentiation: our welcoming, friendly judgment-free environment catering to first-time gym-goers; our variety of high-quality brand name cardio and strength; and our affordable membership options. We remain committed to delivering these to our members. This commitment is fueled with our phenomenal growth over the past three decades, and it enabled us to grow even during a devastating pandemic. As we look to the future, we believe our purpose of enhancing people’s live in creating a healthier world sets us and our franchisees up for long-term success.

I’ll now turn the call over to Tom.

Tom Fitzgerald — Chief Financial Officer

Thanks, Chris, and good morning, everyone. As Chris referenced, we are making strategic investments for the future against a backdrop of industry contraction. We recently completed the acquisition of one of our best-performing franchisees as well as the successful refinancing and upsizing of our debt. We raised $900 million under our existing securitized debt facility and an oversubscribed deal that consists of a 5-year $425 million tranche and a 10-year $475 million tranche and resulted in a lower overall weighted average interest rate for our total debt. With the net proceeds, we repaid one tranche of outstanding debt, paid the transaction costs under the reserve accounts associated with the debt and use a portion for the acquisition cost. We also issued additional equity as part of the acquisition funding. The success of the refinancing and the closing of the acquisition signify the continued strengthening of our balance sheet and, most importantly, is a testament to how well our business has rebounded since this height of the pandemic. Now I will cover our Q4 financial results, and we’ll address our operational and financial outlook for 2022. All of my comments regarding our fourth quarter performance will be comparing fourth quarter 2021 to Q4 of 2020.

We opened 62 new stores during the quarter, bringing our full year total to 132, as Chris noted earlier. We had positive same-store sales growth in the fourth quarter, with system-wide same-store sales increasing 12.3%. Franchise same-store sales grew 12.4%, and our corporate same-store sales increased 10.1%. Approximately 75% of our Q4 comp increase was driven by net member growth with balance being rate growth. The rate growth was driven by a 210 basis point increase in our Black Card penetration to 62.6%. Q4 total revenue increased $49.9 million or 37.3% to $183.6 million from $133.8 million. The increase was driven by revenue growth across all three segments. The increase in franchise segment revenue was due in part to new stores and stores that were opened this year that were temporarily closed last year, same-store sales growth, equipment placement revenue and franchise and other fees. For the fourth quarter, the average royalty rate was 6.4%, up from 6.3%. The increase in revenue in the corporate-owned store segment was driven by new store openings, same-store sales growth and the cycling of temporary store closures in the prior year period. Equipment segment revenue increases were driven by higher equipment sales to new and existing franchisee-owned stores.

For the quarter, replacement equipment accounted for 45% of total equipment revenue. We completed 63 new store placements in the quarter versus 45% last year. Our total cost of revenue, which primarily relates to the direct cost of equipment sales to franchisee-owned stores, amounted to $47.4 million compared to $25.3 million. Store operations expenses, which relate to our corporate-owned stores segment, were $28.6 million compared to $25.6 million. The increase was primarily attributable to expenses associated with the new stores we opened since last October. SG&A for the quarter was $27.3 million compared to $17.4 million. The increase was driven by higher payroll expense due primarily to increased incentive and stock-based compensation as well as some increased travel expenses. National advertising fund expense was $17.6 million compared to $15 million. Adjusted EBITDA was $63.0 million compared to $51.1 million. And by segment, franchise adjusted EBITDA was $49.6 million. Corporate store adjusted EBITDA was $15 million. And equipment adjusted EBITDA was $14.3 million. Net income was $6.3 million. This reflects a $17.5 million reserve against our investment in iFit that we made in March of 2021.

We were required to assess the value of our investment as of December 31, 2021, and we will continue to assess it quarterly. Adjusted net income was $22.5 million, and adjusted net income per diluted share was $0.26. Now turning to the balance sheet. As of December 31, 2021, we had total cash, cash equivalents and restricted cash of $603.9 million compared to $515.8 million on December 31, 2020. This was comprised of cash and cash equivalents of $545.9 million compared to $439.5 million and $58 million and $76.3 million of restricted cash, respectively, in each period. After the impact of the debt financing in February 2022, total long-term securitized debt, excluding deferred financing costs, was $2.1 billion, consisting of our four tranches of debt and $75 million of variable funding notes. Now to our 2022 outlook. Our view for 2022 assumes there is no material resurgence of COVID that causes member disruptions, whether it be a shutdown or more stringent mandates that results in a significant change in membership behaviors.

I’ll start by discussing the Sunshine Fitness acquisition, and acquiring a franchisee impacts all three of our segments: first, within the franchise segment, royalties go down as we no longer receive the royalties and other fees such as franchise fees, web join fees and equipment placement fees from the acquired stores; second, in the equipment segment, we no longer receive equipment sales and margin as the stores are now part of our corporate store portfolio; finally, the corporate-owned store segment benefits from the increased overall profit of the newly acquired stores. One of the primary drivers for this acquisition is gaining the team that operated one of the best-performing franchise networks. So the SG&A expenses in the corporate stores segment will increase accordingly. We also expect both our capex and depreciation and amortization to approximately double in 2021, with the additional stores and new store development added to our portfolio. One other item to note is that we completed the Sunshine transaction in mid-February. So it will not have a full 12-month impact to our 2022 results. Now to our outlook for this year, which includes the impact from the acquisition and the refinancing. We expect new equipment placements of approximately 170.

As a reminder, these placements are only in franchise-owned locations. Historically, this number would have included placements in new Sunshine Fitness stores but will not going forward. We expect that half of our equipment segment revenue will come from [Indecipherable]. We expect system-wide same-store sales to be in the low double-digit percentage range and for our full year revenue to grow in the mid-50% range over 2021. We expect that our full year adjusted EBITDA will grow in the high 50% range and for our net interest expense to be approximately $89 million and adjusted net income to increase in the low 90% range over 2021, and we expect adjusted earnings per share to grow in the mid-80% range using shares outstanding of 91.1 million, which is inclusive of the issuance of equity as part of the Sunshine transaction.

And with that, I’ll turn it over to the operator for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question for today comes from Simeon Siegel of BMO.

Simeon Avram Siegel — BMO Capital Markets — Analyst

Thanks everyone. Good morning. Chris, how are the conversations with your franchisees, how they’ve gone since the acquisition announcement? Any color you can offer there? Maybe, Tom, anything further you could talk about the iFit credit loss and any impact to how you’re viewing digital offering? And then just lastly and any just thoughts on wage — how should we think about wage inflation as we’re going forward?

Chris Rondeau — Chief Executive Officer

Sure, Simeon. Yes, the franchisees we’re actually really encouraging — encouraged by it. I think it showed with their own — either own product private equity or maybe a future deal they might do that the fact that the franchiser was excited about the brand and much to double down on this boom. They were — thought it was really — showed a good light to the business. I think also being our first franchisee ever in the system, they were #1, believe it or not. So it was kind of a full circle. They are very much encouraged it’s still founder-led that business even though it was private equity held but founder-led. So they were very encouraging and congratulating that franchisee themselves, and that franchisee, Shane McGuiness, now works for corporate along with their management team to run our corporate stores. So it was all good. I think it just shows that us corporately are very excited with the business going forward.

Tom Fitzgerald — Chief Financial Officer

Yes, Simeon, it’s Tom. Thanks for the questions. And I think in terms of the iFit credit loss, the short story is, there was some press in January that you may have seen where their first and largest sponsor was suing them, and they made some statements about the fact that they had hired — that the firm had — that iFit had hired someone to help them with their financing. It was Lazard as well as a bankruptcy attorney. So that prompted us to talk to them, review their financials, review their outlook and ultimately engage outside parties to help us with the valuation and how to think about the probabilities of outcomes, and all of that math ended up with the write-down that we — or the valuation sort of adjustment for that.

In terms of inflation, we’ve talked about this before, but we are lucky that our in-store model is very much — has a low labor content. Typically, there’s 12, 15 folks on the payroll. And while wages have gone up, if you think about it as a percentage of sales and what inflationary pressures may bring compared to the same-store sales growth, which we are now — you can see how it’s accelerated from now that we’re sort of back more — in a more typical high single-digit, low double-digit range of same-store sales growth, the majority of that being member growth, we believe that will help store four-wall margins expand despite the labor pressure. So it’s not great, but it ultimately hurts us less than it hurts others with a higher labor content. And ultimately, it doesn’t prevent margins from expanding as our same-store sales get back on their historical patterns.

Simeon Avram Siegel — BMO Capital Markets — Analyst

Great. Thanks a lot guys.

Operator

Our next question comes from John Heinbockel of Guggenheim.

John Edward Heinbockel — Guggenheim Securities — Analyst

Great. So guys, I want to start with marketing on two thoughts. Maybe, Chris, talk about how you think the local marketing disruption transition hurt you in January, right, in terms of maybe what the franchisees were not doing or not spending on local, if that was it. And then part of that, long term, right, you do the Super Bowl, you’re getting bigger your thoughts on national versus local, right, the composition of that and how that changes, I guess, towards more national over the next couple of years.

Chris Rondeau — Chief Executive Officer

Yes, sure, sure. Thanks, John. Yes, the local advertising by the franchisees, I think with the migration over to Publicis, which still, I think the limiting from the 16 we currently had — formerly had to the one was the right move, although I think quite the undertaking with our size and scope of our marketing machine, as I always talk about, I think it was more of an undertaking than anyone anticipated, which is why we’re going to bring in two more to help ease that transition. And I think the important thing really is the — for the first time ever in January was — the first time really we had clear insight on exactly not only what we spend on but actually the mix, how many GRPs were bought, what’s channels on TV, what channels on cable TV, what radio stations, you’ve done a list. So I think the data collection is super important, which is what will require all three or so of the smaller size of agencies we bring in to make sure we continue to capture that. So that’s the good news. I think it was just trying to coordinate everything, get all our ads placed. Sometimes, latent buying causes higher prices or lack of inventory to buy. So I think some of that probably played a part. How much is hard because with Omicron in the first couple of weeks of January, how much is really portrayed to each? I think our workouts always kind of proceed first before the joins come in, meaning the higher the workouts, the more joins we get.

And as I mentioned on my opening remarks, we saw our workouts was, the end of January, the highest we have seen since our original shutdown in May and March of 2020. So it’s evident that from our lack of workouts in the first part of January, the Omicron probably had a much larger impact than the advertising did for sure. I think the Super Bowl was a great spot. We’ve got tons of good credit from it. We were [one] of the top 10 commercials for the Super Bowl list this year for our first year ever. I think those big things are important for our brand and important for the industry, where no one else has our size and scope to really do this, right? And now with 25% of the gyms shut down in the U.S., our moat is larger, and our size and scale advantage is even better. So I think more things like this with Super Bowl, New Year’s Eve, we’ll have to continue to look at other things like that and quantify which is the right place to spend and where do we put more money or more commercial. But I couldn’t be more happy with the Super Bowl commercial and all the play we got, and we actually had — it was perfect timing because it played out right in the middle of our February national sales. So it was good for us.

John Edward Heinbockel — Guggenheim Securities — Analyst

And then maybe as a follow-up, right? So do you think because — you do now know how much franchisees have spent locally. I mean I know there was a target. Were they actually spending that? Or do you think they were spending that? And then secondly, you talked about Gen Z. So do we get back the Teen Summer Challenge this year? And if so, how big an event do you want that to be?

Chris Rondeau — Chief Executive Officer

Yes. Good question. Yes, I don’t see there’s much variation or lack of spend necessarily. I think it’s more where are they spending it and how are they spending it. There was always — nobody really had best practices. So some believe or some agency believe that more network TV is better than cable or FM radio was dead and it really isn’t. So it’s all that data we can capture that the rest of the Zs going forward because it’s got to learn by and us learn by it quite frankly because we really didn’t have the insight to it. So we’d have markets throughout the country that would overperform others. But no real data that prove what was the reason behind us. So that’s probably the big part. Yes, the Teen Summer Challenge, like if you go back — you’ve always been a big fan of it as we are, too. We had almost one million teens in 2019 in that summer activate, those 5% of all Gen Zs of age that joined within three months. It’s a free summer membership.

So — and then through COVID, with all what was going on, we didn’t reactivate it. And I think we’re seeing how these Gen Zs are coming into our gyms and working out now is really astonishing and great. I think with mental health, and you’ve seen some many reports with the Gen Zs are failing almost more than others that they’re gravitating towards fitness to hopefully deal with some of that. So yes, we’re definitely weighing the options now and preparing to hopefully launch that, more to come on it, but hopefully, we get to launch it. And I think it will probably be even a bigger — if you got able to do it, I think it was a bigger launch than the 2019 year.

Operator

Our next question comes from Alex Perry of Bank of America.

Alexander Thomas Perry — BofA Securities — Analyst

Hi. Thanks for taking my question. Could you maybe just give us a bit more color on sort of how you would expect member sign-ups to trend in 1Q this year versus prior years? Do you think that there will be a bit of a seasonality shift given Omicron in January? And — or maybe remind us how much January usually represents as a percent of one key memberships? And then just off of that, are you thinking of doing sort of additional promotions to sort of help sign-ups through sort of February and March?

Chris Rondeau — Chief Executive Officer

Sure. Thanks, Alex. This is Chris. Currently, we don’t plan on changing our normal cadence of national sales throughout the year. So it’s pretty much the same as it’s been for historically over the years as far as like our April sales so on in July and so on the rest of the year. The — yes, as you probably recall, like last year was very unseasonable. Our second quarter was bigger than our first quarter, and that never happens. First quarter historically accounts for about 60% of the entire year’s net joins and January about 40% of net joins, which last year was completely upside down. So more to come and we’ll see. It’s hard to really predict right now what’s going to happen.

But as I mentioned, like the workouts definitely are the first sign before joins. In the end of January, we had the highest number of workouts we have seen since the original shutdowns. So — that’s a huge sign for us. And I think the — and I think the other important thing is our cancellations are actually better than January of 2020. So even pre-COVID. So I think people are realizing now with the different variants we’ve seen, they’re just temporary, right? And eventually, you get back to working out and get back to outdoor. So the fact that our cancellations didn’t spike, people realize it’s a temporary pause on workouts until you feel comfortable to go back out. So that’s another good sign for us.

Alexander Thomas Perry — BofA Securities — Analyst

That’s incredibly helpful. And then maybe just a question on the club openings for the year. So what would drive upside to sort of 170 franchise number that you laid out on the franchise side? And then maybe just a little more color on how you expect the corporate store portfolio to evolve given the Sunshine deal and a bigger opportunity there given the white space from Sunshine. Thanks.

Dorvin Lively — President

Sure, Alex. This is Dorvin. I’ll take that. One of the things that we said throughout kind of the latter half of 2021 was that we expected to see acceleration of our growth given that most of our clubs were open, and then we ended the year now we have all of our clubs open. We certainly saw franchisee activity out there in the field in their areas that they have starting to submit sites. We opened 132 last year. We guided to the 170 this year. That 170 placements would not include Sunshine because that’s now — internally, we don’t recognize revenue on placements. So that number would have been a bit higher if Sunshine was a stand-alone franchisee. Clearly, there was a pipeline in that territory that they owned. They have not fully built out their various area development agreements that they had at the time that deal was being marketed. We looked at the white space they had and their required development under their existing ADAs at the time and believe that there were incremental sites to be built. You may recall, Alex, we’ve talked about in the past that virtually every time we re-review on the development agreement, we tend to add more sites to it just because the more we open, it seems like the more we can open.

So that’s just one factor to keep in mind. But I think the crux to your question is that the franchisee sentiment has continued to get more positive and positive as we’ve kind of gotten into the state of where now there’s fewer cases with Omicron. Obviously, there were some peaks in that back in late last year even into early January, but it’s started to subside. But when you think about it, we didn’t have a single store closure during COVID. And when we open back up, the member base was still there, the economics of the model, although that has been impacted some with a bit fewer members, and Tom talked about earlier, slight impact from wage increases, etc. But net-net, when you look at the four-wall economics of our model, it’s still superior to about any kind of other four-wall box that you can invest in. So our private equity guys that own the businesses are extremely positive. We still have other private equity guys that are trying to get in. And so we feel really good about it. We’ll have more — obviously, more info as we get throughout the year. But we’ve said that we’ll get back into that 200-plus range. It’s just a matter of plan, not if.

Alexander Thomas Perry — BofA Securities — Analyst

Perfect. That’s really helpful. Thanks.

Operator

Our next question comes from John Ivankoe of JPMorgan.

John William Ivankoe — JPMorgan Chase & Co — Analyst

Thank you very much. The question was also on the 170 of placements or, I guess, franchise unit development being an approximate of that. There was at least some conversation that — or some thought at various points in 2021 that 2022 — given your current run rate for 2021 development, that 2022 development would actually be above or at least in line with the 200-plus type of run rate that you’re on, basically 2019 and before. So I just wanted to see if there were any constraints on the franchise side that we should be sensitive to, especially as we think about 2023, 2024. Are they still rebuilding balance sheets? Is it staffing that they might be concerned about, even though there only are 12 to 15 employees per gym? Is it things like Omicron? Or is it permitting construction, the other types of delays that we’re hearing about broadly in the marketplace? You could talk about what may be transitory and specific to 2022 in terms of perhaps constraining that unit development versus what may be more structural.

Dorvin Lively — President

Tom and I will tag team this. I’ll let him address kind of the financing side of it from the franchisee perspective. But I’ll make just a couple of comments to the first part of your question. I think that the rebuild of the pipeline, which we’ve talked about kind of Q3, Q4 clearly started because we got into — we ended up with a good number of openings in the back half of 2021. And there is certainly a — there’s not a lack of willingness to get out there and build sites. There was probably a bit of — I don’t know if hesitation is the right word or negotiation maybe is another word to add into that. Could there be an impact of softness in the real estate development markets that could benefit you when you sign a 10-year lease? So I think a lot of views going into this. There’s going to be a lot of closures across the real estate landscape, etc., and there certainly has been, but maybe not 20,000-square-foot boxes. I think you’ve heard us say, and it really hasn’t changed much, a bit softness in some markets, some of the really strong power centers where we would like to get into probably not much, a bit more on the TI, tenant improvement allowance dollars, which obviously helps on the overall ROI. But I would say we’re seeing an acceleration from where we were six months ago of sites being submitted.

And so we — from a run rate perspective, I think we’ll be there sometime this year, barring any other issues with COVID impacts. But it just takes a bit of time to kind of get up into that run rate, I guess, is the way I’d say it. But we’re feeling really good about the number of franchisees that are out there looking at sites, submitting sites and have sites in the existing pipeline right now. You may recall — just one more comment I’ll make is we have really good insights into, say, the next, call it, three months or so because those are sites that are in construction or in permitting or coming out of permitting and being bid out with GCs, etc. When you get into the next three months, they’re LOIs and leases being negotiated. And then past that, you don’t have a lot of insight yet. So sites, call it, September, October, November, December, we don’t have a lot of insight into those yet. But we will, as we get further into the year, and I think that’s how we will — as you will recall, we’ve kind of done this every year. We get more insights. We give more updates as to where we see us coming. But Tom can kind of address the constraint or no constraint on the franchisee financial side.

Tom Fitzgerald — Chief Financial Officer

John, I think the system has obviously gotten better and better with each subsequent quarter financially. And as you know, we raised our outlook for 2021 new store growth across the year and still beat it. So I think all that is very good signs. I think it’s really more a function of what Dorvin said, not so much on the financial side of franchisees and their ability to get the capital to invest. I think they’re doing quite well. Are there some that were harder hit in — from the pandemic based on where their stores were? Yes. But I think in the main, it continues to strengthen, and I think the best way to demonstrate that is the new store growth and how it improved across the year. From the standpoint of supply chain and other factors, there were some issues in Q4 with the ships backing up, and on equipment, it really didn’t hurt us, but it caused a lot of jostling and extra effort on our behalf and our main vendors for equipment behalf. But now that’s really quite different. Our largest vendor actually has more inventory than our demand, so the lead times are down considerably from where they were in Q4. So all that is very positive. So we think it’s all what Dorvin said. It’s just a matter of time and the momentum continuing to build so that we go from the low 100s to the mid-100s, the higher 100s and ultimately 200.

Dorvin Lively — President

Yes. John, that 170, as I said earlier, would have been higher with Sunshine being a franchisee. So it’s a bit harder than that, apples to apples.

John William Ivankoe — JPMorgan Chase & Co — Analyst

And can you — just for the benefit of all this, could you quote that number? I mean, were they going to open five or 10 stores that would have otherwise been there? Or would you prefer not to?

Dorvin Lively — President

Yes. I don’t think we will from the perspective of the same thing as the rest of the group because if I were to ask Sunshine back in December, when they put their budget together, exactly what they would have built. And we don’t always do that. We try to get a decent number, and that’s kind of how we come up to the 170. But everybody kind of holds a little bit back sometimes. And then sometimes, they get more, and sometimes, they get less. But the kind of the full number that they might have built on a stand-alone basis is probably different than what it would have been back in December or so.

John William Ivankoe — JPMorgan Chase & Co — Analyst

Okay. And I just want to revisit one point. Certainly, in restaurants, permitting delays are very, very common. Is that the case? You’re permitting a restaurant. I think it’s probably harder than that or definitely harder than permitting a gym like yours. Could you comment on potential permit delays that maybe are kind of kicking some units out to future quarters? And how is overall construction GC type of availability to work on your style projects?

Dorvin Lively — President

Yes. I think that permitting is no doubt taking longer now. It’s not quite as bad as it was back in June, July or something like that. The issue, California is always very difficult. It can take six months or longer, whereas other locations maybe could be done in three months or something like that. But I think we’re probably at kind of an apples-to-apples basis with where we were kind of in Q3 or so now. I mean it hasn’t gotten a lot better, but it’s not getting worse. It’s market by market. But it’s probably just the new world we have to live in, with where pre-COVID, there were probably more inspectors and more staff in municipality offices to be able to work with you, and you can walk in and sit down and work out a permit and come back and sit down and get it finalized.

Now a lot of it is through online because they have less people, and they just use that as a way to kind of shift, I think, the way they do business because a lot of those people are still working from home. As far as the GC side, we’re not seeing too much difficulty on that. There’s guys out there that we’ve used repetitively in these markets because we’re generally building where we already have stores. And so we have a good network of guys kind of in that area. Trade skills when you get on further down the chain, it gets a little bit harder at times. We were seeing inflationary costs like a number back 12-plus months ago and even into the spring last year. That’s come way back down from where it was, but there’s clearly been some inflationary costs on the total side of the build, but at least it’s not quite as bad as it was 9, 10, 12 months ago.

John William Ivankoe — JPMorgan Chase & Co — Analyst

Thanks.

Operator

Our next question comes from Brian Harbour of Morgan Stanley.

Brian James Harbour — Morgan Stanley — Analyst

Yes. Good morning guys. Maybe just to follow up on a couple of the things that you’ve addressed, the more directed and kind of new unit returns, new unit economics. Are those kind of back to where they were? And you’ve given good detail on this before, but are they back to where they were pre-COVID? Are you seeing some of these things like construction costs or equipment costs pressuring that perhaps? You talked — you mentioned kind of real estate costs and tenant improvement allowance. I’m just kind of tying that together and trying to think about kind of new unit returns.

Tom Fitzgerald — Chief Financial Officer

Yes. Brian, it’s Tom. I’ll take that one. So I think in terms of some of the factors you mentioned, are they higher? Yes. Are they changing like — things like the equipment cost, the — we’re now seeing some inflation there where, prior, it was really pretty de minimis. But it’s still — whether it’s that or the cost to build for some of the costs that they incur locally, are they higher? Yes, they’re higher than they were. Is it uniform? Not exactly. Does it take a decision to — as we talk to franchisees, which we do all the time, is it changing a decision to build a store to hold or wait? No. As we look at the store performance, we’re not quite back to where we were pre-COVID in terms of new stores ramping, but it’s pretty close. It’s 85% so — of where we would have expected them to be for the 2021 opening. So it is not — and franchisees just see that as working our way through all the things we’ve been working our way through COVID-related, nothing hampering the longer term.

And I think when you look back as I — or not look back but think back to pre-COVID, we had so many quarters of strong same-store sales performance. Even the last few years, high single digit, low double digit, all of those factors you could argue with us — with an industry that now has 25% fewer units, each successive generation being — having a higher degree or more inclination to work out and join fitness clubs, boomers to X to millennials to Zs. Everybody just sees all the momentum moving in the right direction, both in the short term and the long term, so these decisions are long, and they’re not, as I said, taking a decision to build to one that says pause or don’t build. The short answer, the returns are still terrific.

Brian James Harbour — Morgan Stanley — Analyst

Okay. And maybe just a second question on the corporate unit margins. So obviously, those will kind of change this year as you fold in all of the new units. Is there any way to think about kind of how much those will change? And also, you were still kind of in the process of recovering margin on your preexisting corporate storage. Do you think that will happen this year? Or will that take a little bit longer?

Tom Fitzgerald — Chief Financial Officer

Yes. I think we’ll talk about the system maybe more generally here. So the good news is, as Chris mentioned, our membership levels are above their pre-COVID peak now. But we have more stores, a couple of hundred more stores than we did then. So membership on a per store basis has not quite recovered again. We think that’s a matter of time, not — if it will, I think we’ll get back to those levels and then some. On the corporate store side, if you think about that metric, it’s more depressed than the rest of the system just based on the geography we operate in the Northeast was hit harder in terms of the membership change. But it’s building back.

So that — and we’ve talked about that, but it’s just going to take a little bit longer for those stores to rebound. Clearly, the mix of stores now with Sunshine in the mix and their — the geographies they operate in, the margins that they had being quite a bit better than the existing corporate store portfolio, we’ll margin up the weighted average quite significantly. So all of this is just a matter of us working our way through and ultimately bringing some of those better best practices from the Sunshine Group, which was among our top-performing franchisees to the existing portfolio to accelerate those membership rebounds and the margin improvement.

Brian James Harbour — Morgan Stanley — Analyst

Thank you guys.

Operator

Our next question comes from Sharon Zackfia of William Blair.

Sharon Zackfia — William Blair & Company L.L.C. — Analyst

Hi, good morning. I guess two questions. First, you’re seeing pretty impressive Black Card penetration improvements over the past year. Can you talk about what might be more compelling the members now than it was kind of in prior years to drive that penetration and what that is telling you about your pricing power? And then secondarily, just given the acquisition, how does that at all impact the potential timing of kind of resumption of returning capital to shareholders?

Chris Rondeau — Chief Executive Officer

Sharon, this is Chris. I’ll handle the Black Card and then hand it off to Tom or Dorvin to handle the capital question. Yes, the Black Card penetration now is 62.5%, up 200 basis points over last year. Definitely, reciprocity still, even today, is the #1 used function, and there was some conversations during — even all of last year, quite frankly, about with the whole new work from home, is reciprocity is still a big sell, and it still happens to be a #1 used function. And each year, we open more stores and, even during COVID, has. That continues to be a more and more — bigger value over time, and we’ll always continue to be a bigger value as we get to 3,000 or 4,000 stores. So that will definitely be the big push, and we’ll continue. And as I mentioned, we do have — we always test to do things like the meditation products we’re testing right now in about five stores. We have the test we have in about 100 stores now, which unblocks the digital component of premium content in the app for the 100 stores. We’re going to run that through the first quarter and probably more to report on it at the end of the first quarter on how that result is. Maybe we’re still excited about digital. Content is still a part of it. It’s for sure. And as we’ve mentioned in the past, what we’re really seeing people do with digital was — has changed quite a bit from pre-COVID. And the workout part is really just a small piece of it.

It’s important but a small piece in the QR codes on the equipment that people can teach themselves how to use it is important. But just the joining function today, about almost 70% of our joins are digitally in pre-COVID. That was about 35%, so — and how they pay their balances on their membership is in the app, how they check up the crowd meter in the app, how they refer a friend in the app now. I mean all that functionality didn’t exist pre-COVID. So it just helps move the needle here and collections keeping billing and keeping the customers happy and engaged. So that’s definitely a plus. But I continue to see the Black Card — as it continues to penetrate, the bigger question, I think, Sharon, price elasticity, and is there another $1 or $2 in the Black Card longer term just from the penetration? Do we write this up to $62, $63, $64? Raise it a little bit, maybe it comes back slightly and then write it up again as we open more stores.

Tom Fitzgerald — Chief Financial Officer

Yes, Sharon. It’s Tom. And by the way, to Chris’ point on the digital, I just want to come back to something Simeon mentioned that I didn’t cover. So the iFit — the allowance we took against iFit, that’s really based on the financial picture that we see there and all the modeling we had to do. As I mentioned, it doesn’t affect our strategic partnership and their ability to produce content as we see it. So it’s really — it’s more on the financial side, not on the operational side. And we’ve had a lot of conversations with their team here in the last couple of weeks about where they sit. In terms of the corporate store acquisition, I mean, we — we’ve said before, we were not in any hurry to make any key capital allocation policy decisions based on what was going on with the variant. And as we saw the opportunity with Sunshine, frankly, we didn’t see a better place to invest our money, so we did it. And the good news is we still have a lot of cash on the balance sheet when — because we only essentially wrote a check for a little over $100 million to acquire them.

As we think about where the industry is, we think it is a historic time of disruption. Chris has talked about the fact that industry consolidation has probably accelerated by several years and weeding out the smaller folks, and when you look at what’s happening outside of the traditional brick-and-mortar operators, it’s also very disruptive, a time of incredible dislocation. Valuations are changing dramatically. So frankly, we like the optionality to see how all this unfolds. And if there’s, in fact, a strategic move to make, we have the flexibility to do it, and if there’s not, then we won’t. If there’s not one that’s attractive, but we don’t have anything planned, but we think having the optionality, let this all play out a little bit further to see how it shakes out and then ultimately figure out what the best capital allocation strategy is going forward. And does that mean we resume share repurchases? We think so. It’s just — we’re not sure when that starts. We’d rather see some of these things unfold, give ourselves the flexibility to potentially react to them before we make any decisions.

Sharon Zackfia — William Blair & Company L.L.C. — Analyst

Thanks.

Operator

Our next question comes from Jonathan Komp of Baird.

Jonathan Robert Komp — Robert W. Baird & Co. — Analyst

Hopefully, you can hear me. First question just on the corporate stores. Could you share — good. Yes. On the corporate stores, could you just share how many openings you’re planning in the guidance for 2022? And then how should we think about the growth rate going forward for the combined corporate business now on the store side?

Tom Fitzgerald — Chief Financial Officer

John, we haven’t historically — so first of all, we’re moving away from store openings to placements again. We did that only temporarily during the sort of height of COVID in 2020 and 2021. So we want to get back to placements, which to Dorvin’s point earlier, excludes the corporate stores and now Sunshine. And I apologize, I forgot the second part of your question there.

Jonathan Robert Komp — Robert W. Baird & Co. — Analyst

Sorry. Yes, I was just asking specifically on the company store openings. I think you typically have talked to sort of a rough number that you expect to open per year, but is that something you’re not going to do going forward?

Dorvin Lively — President

Yes, John, we typically opened in somewhere in the 6% to 8% range, something like that corporately. Around — most of our stores are kind of in the northeast kind of Pennsylvania or north. But what we have — what we are not doing in this release is kind of combining what the Sunshine number would be. We can talk more as we get throughout the year in terms of kind of total capital to be spent in store development. But when you think about it, a lot of our capex is in replacement of equipment and other things, not just in new stores itself, but we have not disclosed that number for this year.

Jonathan Robert Komp — Robert W. Baird & Co. — Analyst

Okay. Understood. And then Tom, maybe a broader question on the 2022 guidance, the revenue and the EBITDA ranges you gave. Could you just share what’s coming from the organic business? And what the contribution from Sunshine is so we can — as we think through the modeling?

Tom Fitzgerald — Chief Financial Officer

Yes, John. What we didn’t want to do is kind of get into the specifics there. I think there’s a lot of moving parts as we talked about during the call or I talked about during the call with equipment moving. The equipment margin and revenue goes away. The royalty web join fees, all those things go away. So it’s — what I would say is we have factored in the 10.5 months that we will have Sunshine in our business for this year, fully reflected in the guidance, and I think that’s all we want to get into at this point in terms of breaking it out because otherwise, it just becomes a big reconciliation game that I don’t think we want to get into.

Dorvin Lively — President

Yes. Maybe just one last statement on this, John, is that I think Tom, in his prepared remarks, talked about how capex for the year could be kind of double what it was in the prior year. So that could be one way to think about it. I think the other point is that the — Sunshine ended up — have about 100 stores. So they don’t typically open 10% to 15% of growth in one year. But when we get, obviously, quarter-by-quarter, we’ll be talking about what our actual capital was for each of the quarter and then how many corporate stores we opened, what have we grown in the fleet itself. But one way to think about it is kind of the double of the capex in the prior year, with that being — a good chunk of that being in replacement of equipment, as I said earlier, versus new capex for store development. Obviously, in that number other things on the HQ side, whether it’s IT investments and other things as well.

Jonathan Robert Komp — Robert W. Baird & Co. — Analyst

Okay. Understood. Thank you.

Operator

Our final question for today comes from Chris O’Cull from Stifel.

Patrick Lee Johnson — Stifel, Nicolaus & Company — Analyst

Good morning guys. This is Patrick on for Chris. I had a brief phone issue as well as, so if a redundant question, forgive me. But I wanted to ask you about Sunshine’s management team and how they’ve driven the results they have in their store portfolio. And just can you elaborate a little bit more on specifically how they achieve those results? And how they’re going to replicate that margin in those store portfolio and just the time line generally you expect them to be able to do that?

Chris Rondeau — Chief Executive Officer

Sure. This is Chris. I’ll start off, and then Tom or Dorvin can add if they’d like. They’ve always — they have a great track record. It’s still founder-led. Like I said, they’ve been here from day one as the first franchisee. So the founder there that started the business, he still managed that as the CEO. He came on board here with his management team, which he’s built over the years. This same-store sales trends have always been great. Their operational excellence has always been great. They have a great CMO in place, great COOs in place. I mean they’re just definitely a well-oiled machine. One thing on their margins, and I think they can influence our corporate stores, but also their margins is — they’re also operating in the South and lower-rent areas, right, just lower rents. Sometimes, the payroll cost is slightly lower than here in the Northeast, right? So some of the margin is strictly just that.

But I do believe their operational excellence, taking care of our corporate store fleet — our existing corporate store fleet will be great influence there. And also, I think to add to that is now also the influence. We had a little bit of a hybrid approach, right, Chris, where our VP of Corporate Stores was tapping into our development department here at the corporate office and then our ops department and our marketing department here that services the franchisees as well. So here now with this franchisee has a well-oiled infrastructure there that’s not running our store fleet. It allows our main office crew here to focus 100% of their time and energy on servicing the franchisees directly, right? So it’s kind of an eloquent solution to both sides here. It runs our corporate stores stronger and also allows our franchisees better service. So I think that’s a big plus for us.

Patrick Lee Johnson — Stifel, Nicolaus & Company — Analyst

Great. And then I was just curious as well on the Black Card membership. I wanted to follow up on that. I know you were testing the rollout of PF+ and if there was any update there in terms of driving a higher subscription rate as you roll that in. And just more broadly, given some of the inflationary pressures just across the board for consumers, do you think, at this point, outside of anything you get from the increase in penetration, but the actual rate that you’re charging on the Black Card membership, is this a moment that you would look to increase that if you were to roll in digital for PF+? Or do you think you’ve got an advantage here where you can widen your gap to the industry by kind of holding that membership rate constant?

Chris Rondeau — Chief Executive Officer

Yes. I think with the — I think I’ve been back at — first, our White Card rate, the $10 price point is one we obviously could ask on first. I don’t think they raised that. And I think the fact that we can advertise $10 a month, which is — at just a price point, cancel any time $10 a month is a price point that really gives access to anyone and everyone out there that can get fitness a try. So — but the fact that people come in and they walk out — 62% of them walk out, paying more than double is just an unbelievable model. And I think the Black Card is probably where we see the pricing flexibility or elasticity where the more perks or benefits we add to it, the more value. And to the earlier question, we talked about Black Card and reciprocity. Every year, we open 100-plus units to 200-plus units. That’s a bigger benefit, right? So I think that’s always in our back pocket. And as well as testing, whether it’s digital, we’re testing the meditation products and adding more value there. So I think that will definitely be the pricing power. Yes, we are testing the 100 stores with the PF+ for $24.99 today, so $2 more than the current price. And we’re also testing that without digital just to see if we can get it without even the digital component to it. So more to come on that. We’ll probably have more to talk about at the end of the first quarter as we run through the joins here, the joins cycle here in the first quarter.

But I think we’ve seen Black Card penetration as we’ve raised price over the last probably a handful of years here, we raised it, and we continue still to eat that up a little bit, 100 to 200 basis points a year, which is great. I think we’ll continue to see that as we add more value to it. And I think the one other thing I’d add to it with the digital world is the PF perks button in the app, which we really had no place for all our perks that we offer our members and now with the data we’re capturing from the number of click-throughs through that perks button is — allows us to now go to more and bigger companies out there. That really open their eyes, right? You figure we do roughly eight million workouts a week in — we have about 65-or-so percent of our members have the app, but 80% of all new joins get the app, and they use that to check into the club. So a lot of eyeballs in that app every week, right? So we have the Shell gasoline one, which is the more recent one, along with Noon and goodr sunglasses. Shell gas is one of the best integrations we’ve done so far. It’s almost one million gallons of gas that have been redeemed by our members for discounts. So that’s another Black Card perk we can add is different discounts with different vendors based on membership types, too. So we constantly look to add value, not necessarily. I think to Tom’s point, our margins are very strong. I think we can weather this inflation here with same-store sales growth and only really raise price if we add value.

Patrick Lee Johnson — Stifel, Nicolaus & Company — Analyst

Great, thanks guys.

Operator

We have no further questions. So I will hand back to Chris Rondeau for any closing remarks.

Chris Rondeau — Chief Executive Officer

Great. Thank you, everyone, for joining us this morning. This is an exciting fourth quarter for us. Look forward to seeing how the first quarter unfolds here. As I mentioned, the workouts are picking up here at the end of January, highest we’ve seen since the original shutdown and, as I mentioned, that joins follows. So I think with less clubs here in the industry, we didn’t lose a single club, and I think our future continues to be brighter as we come on the other side of this. So look forward to our first quarter call. Thank you.

Operator

[Operator Closing Remarks]