Fitness Time profits decline 29% to SR36 mln in 2Q

Leejam Sports Company (Fitness Time) announced that its profits after zakat and tax declined 29.22% to SR 36.02 million in the second quarter of 2022 compared to SR 51 million during the same period of 2021.

This came after Fitness Time announcement on Thursday of the preliminary financial results for the period ending on 30.06.2022 (six months).

The company’s operational profits fell 22.4% to SR 49.7 million in the 2^nd quarter of the current year from SR 64.11 million in the same period of the previous year.

Net Profits of Fitness Time over the first half of 2022 were up 8.67% to SR 82.04 million from SR 43.9 million a year ago, while the profit per share surged to SR 1.57 from SR 0.84.

The decrease in net profit for the current quarter compared to the same quarter of the previous year is due to an increase in the cost of revenue by SR 21.81 million, and a net increase in all other costs (including financing costs and zakat) by SR 4.16 million riyals, despite the increase in revenues by SR 11.1 million.

Increase in Revenue reasons:

• Membership revenue Increased by SR 4.3M due to high subscription Income.
• Personal Training (PT) revenue Increased by SR 1.86M due to more session conducted.
• Rental income and other income increased by SR 4.94M due to new real estate contracts and higher sales of other services.

Overall Cost of revenue increased due to increase in employees ‘costs, utilities and depreciation in addition to decrease of rent concession comparing with prior year. The main driver to this increase in the cost of revenue is the additional 18 Fitness centers opened since Q3 2021.

General & administrative cost increased mainly due to increase in employees’ costs and other costs.

Finance cost increase by SR 0.85M mainly due to increase in interest rate compared to similar quarter of the previous year.

The Company recorded a net profit of SR 36.02M in current quarter compared to a profit of SR 46.01 M in the previous quarter.

The decrease in net profit for the current quarter compared to the previous quarter is due to which was mainly driven by the increase in cost of revenue by SR 9.04M, and net increase in all other costs (including finance cost and zakat) by SR 2.32M, despite the increase in revenue by SR 1.37M.

Increase in Revenue mainly due to increase in rental income and other income because of new real estate contracts and better price terms.

Overall Cost of revenue increased mainly due to the increase of governmental fees and utilities.

General & administrative cost increased mainly due to increase in employees’ costs.

Finance cost increased by SR 1.3M mainly due to higher interest payment against long term loans.

Leejam Sports Company (Fitness Time) has recorded a net profit of SR 82.04M in the current period compared to SR 43.92M in the similar period of last year.

The increase in net income during the current period compared to the similar period of last year was mainly driven by Increase in revenue by SR 94M and partly offset by increase in cost of revenue by SR 49.64M, and net increase in all other costs (including finance cost and zakat) by SR 6.24M.

Increase in Revenue reasons:

• Membership revenue Increased by SR 76M due to high subscription Income.
• Personal Training (PT) revenue Increased by SR 10M due to more session conducted.
• Rental income and other income increased by SR 8M due to new real estate contracts and high sales of other services.

The increase in revenue was mainly due to the more operating days during the current period compared to the similar period last year (In previous year the Gyms was closed for 30 Day).

Overall Cost of revenue increased mainly due to more operating days. In previous year the Gym was closed for 30 Day to prevent the Covid pandemic.

General & administrative cost increased mainly due to more operating days in current year Vs Last Year.

Finance cost immaterially increased by 0.8M mainly due to higher interest rates.

Additional Information:

During Q2 2022 Leejam Sports Company “Fitness Time” recorded a revenue of SR 233M with the 18 new centers that were opened during the previous 12 months continuing its gradual improvement. The new 18 centers, mostly Xpress Centers, are still under ramp up in terms of revenue while the company is incurring all costs.

Xpress segment as whole is still performing as per the feasibility taking into consideration that 1 Xpress center is 1/3 of big box center in terms of revenue & cost.

On the cost side, the company recorded higher cost during the Q2 & 1st Half of 2022 compared to the similar periods of last year, which was due to:

– Adding 18 new centers during the past 12 months which increased employees & depreciation costs.

– Slight increase in the cost of operating 24/hr. centers.

– Base year (2021) included for non-recurring items (rent reductions and 30-day centers closure).

– Recording a provision of SR 2.7M for expected credit losses that relates to rent receivables.

– Increase in Finance cost due higher interest rate.

All the above contributed to lower net profit in Q2 2022 compared to Q2 2021 & Q1 2022.

As for the fitness market, during the first half of this year, it faced challenges, especially with the shift in consumers’ spending behavior. The company expects the current market conditions to continue as is during the second half of 2022.

During the first half of 2022, the company witnessed a change in the members’ trends, as they are increasing their leaner towards buying short-term subscriptions, which can lead to an increase in the seasonality effect of the company’s business.