Loss of confidence sees mass cancellation of F45 franchise sales

Australian-founded fitness franchise group F45 has advised that more than 300 franchise outlet sales in the USA have been cancelled following the company’s loss of external financing last month.

Having last month revealed a more than 50% drop in projected income for the last financial year (which nonetheless still indicated US$120 to US$130 million in revenue) on 27th July the company’s co-founder and Chief Executive Adam Gilchrist stepped down while 110 employees were laid off and expansion plans were slashed significantly.

The now Texas, USA-based company’s guidance assumed that US$250 million of growth capital provided by two previously announced franchise financing facilities, which F45 had arranged so that franchisees could open additional studios, would now not be available despite strong demand from franchisees.

Overnight, the group reported a loss of $US38.5 million on revenues of just over $US30 million for the June quarter, with F45’s interim Chief Executive, Ben Coates advising “in total franchises, sales declined by 175 in the (US) region. The franchises sold in the US will comprise of 132 gross franchise sales, less 307 terminations during the quarter.

“The terminations were due to the inability of franchisees to access the financing facilities, we announced that the end of (the first quarter).”

F45 said it is anticipating another 300 multi-unit franchise sales - comprising 45% of its sales backlog - and said it does not believe this entire block of sales would be “eliminated” by the collapse of financing.

Coates, along with Chief Financial Officer Chris Payne, see that the group is on track to stem losses and generate free cash flow this year and confirmed it “won’t go anywhere near tripping debt covenants” despite a massive rise in debt levels.

Nonetheless, F45’s share price tumbled as low as $US1.35 last month, more than 90% below the $US16 a share paid by investors in July last year. 

The business, which has been involved in a lengthy legal battle with Body Fit Training (BFT) over alleged patents infringement, is reported to be subject to five class action lawsuits in the USA over whether F45 misrepresented itself to investors.

Since the July announcements, Hollywood actor Mark Wahlberg, a high profile backer of F45, has continued to promote its gyms.

Wahlberg, has been a major shareholder in F45, took to Instagram, advising in a video “F45, come check it out.”

However, reports suggest that Wahlberg may have sold some or all of his shareholding earlier this year.

In Australia, the group has been ranked by Canstar Blue as delivering the highest level of customer satisfaction among gyms for four years in a row while GapMaps advise that F45 has over 500 outlets.

Images: F45 (top) and Mark Wahlberg, a high profile backer of F45, promote the gyms (below). Credit: F45.