Basic Fit 价值怎么算：Buckley Capital 的 Zack Buckley $BFIT

Hello and welcome to the Yet Another Value Podcast. I’m your host, Andrew Walker. With me today, I’m happy to have on Zack Buckley—I think this might be the 4th time, though I’m missing it—one of our popular repeat guests from Buckley Capital. Zack, how’s it going?

Quick disclaimer: Nothing on this podcast is investing advice. We’re talking about an international stock today, so my domestic listeners should remember that there are some extra concerns and risks. Zack, the company we’re going to talk about is Basic-Fit. I’ll just stop right there and ask you: What is Basic-Fit, and why are they so interesting?

Yeah, Basic-Fit is the largest European gym chain. Think of it like Planet Fitness, but across Europe. They’ve been absolutely dominant in that field and have been around for a long time now. They’ve grown their gyms at a very high rate, with very strong economics over time. I think there are a number of reasons why it’s exciting today and why it’s misunderstood, which I’m obviously happy to get into.

Great, let’s start at a high level. The first question I always like to ask—you know, markets are a competitive place—is: Why is Basic-Fit right now an alpha opportunity?

I think there’s been so much negativity around the name over the last 4 years that almost everyone has thrown in the towel. The remaining people who are still around are so pessimistic and downtrodden on the name, but they just agree that it’s so cheap that they can’t not be invested. But I don’t think there’s anyone who’s actually optimistic that they could really beat the numbers by a significant amount and that the business could actually improve dramatically relative to investor expectations. I think that’s what I’m excited about, because it’s hard for me to get to a place where consensus estimates are correct for 2026. If that’s true, you’ll get a multiple rerating on top of quite a bit higher numbers, and so I’m quite excited about it.

I’m laughing because you hit the nail on the head. My first question is one I really want to ask because I’ve followed Basic-Fit for 4 years. Vim Pearlman came on and pitched it 4 years ago, and I really liked the story then. To be honest with you, I still really like the story, but as I’ve told the bulls—or I think I mentioned this on the Gym Group podcast—I look at the stock chart, which has been flat over the past 4 years, and just say, “I was bullish then. I don’t know what I missed or why this hasn’t worked.”

People are going to pull up the stock chart and see flat numbers, probably below what people were hoping for 4 years ago. Why hasn’t this already worked, I guess, would be my question?

Yeah, I think the short answer is that they’ve missed numbers for a long time now. They had an investor day in 2021. I mean, they missed those numbers terribly. They had an investor day, I believe, in 2023, and they’ve missed those numbers as well. They just haven’t hit numbers in a long time. They were always too optimistic.

Essentially, what happened was that the gyms from 2016 to 2019 had certain unit economics and payback periods, and they assumed those unit economics would continue. But the 2020 to 2022 cohort did not continue because it was the COVID period. They opened a lot of gyms during COVID, and those gyms did poorly.

First of all, they opened the gyms too quickly, so arguably they didn’t have the right people in place to be running those gyms. Sometimes they weren’t making the right decisions. Secondly, they were doing it during COVID, which is just a very hard time to be opening a lot of gyms. There was a really bad member and user experience because they might be open for 6 weeks, and then they’d have to shut down, and then they would open again.

They weren’t able to get to the same member numbers per gym because, oftentimes, you needed a vaccine card to enter the gym. Some nationalities or religions weren’t getting the vaccines in those geographies, so those people automatically weren’t coming. It was just a bad time to be running gyms, and they opened a lot of gyms during that period.

That bled through to results from 2021, I would say, to 2024. The 2023, 2024, and 2025 cohorts are performing the same way that 2016 to 2019 did. There’s reason to believe that things have already gone back to normal, and those gyms from 2020 to 2022 have seasoned and are almost getting to a mature level, but are still not quite there.

Part of the issue is that the member experience oftentimes wasn’t as strong, and that led to bad Google reviews, as an example. If you look at the Google reviews in Spain—in Barcelona—versus in Paris, France, there’s a big delta between the 2. The average in Paris is probably—and I’m guessing, just based off of looking at it and eyeballing it—maybe 3.3 to 3.5 for a Google review average. Barcelona is probably a 4.2. So there’s almost a point of difference in the Google review between where they are in Barcelona and where they are in Paris.

Ultimately, that does drive customer decision-making. They are very focused on driving up their Google reviews over time, and they can fix all of this. They are working to grow and improve the Google reviews every single day. Each shift manager is supposed to get about 2 Google reviews. So that’s about 2 shift managers per day, and you’re looking at about 4 Google reviews per day. But if a gym has 300 or 400 Google reviews, getting 4 reviews per day is going to take a long time to shift that higher.

That’s just really interesting. I’ve never thought about gym managers getting rewarded on Google reviews. I guess they’re just telling people on their way out, “Hey, don’t forget to drop us a Google review,” or—I don’t know—that’s just really interesting. I hadn’t even thought about that as shifting everything.

As part of my due diligence, I went over this past summer, in August, and visited gyms in Paris, Luxembourg, and Barcelona. In Spain, the new person who is co-heading IR—her name is Heather—came out to meet me, along with the Spanish country manager and the regional country manager for Barcelona. So it was the 4 of us.

I learned a lot about the gym’s economics and unit economics from that trip. It was really interesting touring the gyms. The Spanish country manager, especially, was just extremely well-versed. He had worked for McFIT, which was one of their competitors, for a long time. He had come over in the Spanish acquisition, right? Because Basic-Fit acquired McFIT’s Spanish gyms, and so they got him in that acquisition.

He was just very knowledgeable and very interesting to talk to. One of the things I learned from him was that you can fix this, right? It is fixable, but it really takes time, and it's not something that's going to happen overnight.

Those gyms that opened with issues—it could be that the air conditioning had broken down. If the air conditioning isn't working in your gym in August in Spain, that's obviously a problem, or in southern France, because Spain never had these same issues. There were just a lot of things to fix that probably occurred because of rapid growth that are now being fixed, and the benefits of those fixes are starting to flow through the financials, which is why I'm excited today.

Let's talk about the unit economics real quick. One of the things I always loved about Basic-Fit is that they argued, “Hey, we do this fortressing method.” I believe you've said everyone thinks it's reminiscent of Domino's Pizza, right? You put 5 units in a city instead of 1, and then it's tough for your competitors to come in. You get economies of scale on the local marketing. Maybe somebody has a gym by both their home and their office, so they join because instead of having to join 2 gyms, they can just get 1 overall membership.

I've always been attracted to that story, but I think bears would say, “Hey, they're opening low-cost gyms. This is about as much of a commodity product as you can get, and it's going to get competed down to cost of capital.” So let's just quickly talk about what the unit economics of a new box look like here.

Their goal is to get a 30% return on invested capital for all gyms, and their average buildout ends up being about 1.3 million per gym. It depends a little bit, because square footage can obviously be different. It can be different between a city and the countryside, because they are expanding into the countryside and smaller towns in France.

In general, let's say on average you're looking at about 1.3 million in buildout cost and getting, at scale, roughly plus or minus 450,000 per box—say, 400,000 to 450,000 in free cash flow per unit. Those end up being the unit economics. Obviously, the ramp, generally speaking, is quite quick, but that 2020 to 2022 cohort is still sort of nearing maturity. That will be a big boost for them over the next few years as that helps them.

I hate to drill down into an accounting concept, but I think the other thing I've heard from bears, or that I've thought about, is you just laid out the math to 30% returns. Let's make the numbers very easy and say 1.3 million investment, and you get 400,000 of box-level EBITDA. Is that okay to use? I know you said 450,000, but if you're okay with 400,000 to make it easy, let's do that.

All that math is fine. I think one of the things I would hear bears say is, “Hey, these guys are pitching this as: the maintenance capex on these units is like $50,000 per year.” On a $1.3 million investment, that would imply something like 25 years of depreciation to replace it. Bears would say, “Hey, that is way too low for a gym, right? You probably need to be replacing these things more frequently than once every 10 years.”

So the actual maintenance cost here is more like $130,000 to $150,000. If you take $400,000 minus $50,000—the bull-case maintenance capex number—that's $350,000 of unlevered cash flow per box before corporate overhead and everything. That's a great return. If you bump it up to $150,000 or $200,000, the numbers start getting really skinny. Do you understand what I'm saying about the maintenance capex, and where would you shake out there?

Yeah, I think a lot of the buildout is not just the machines, right? Certainly, I would agree that machines need to be replaced faster than every 25 years.

Planet Fitness franchisees would agree with you there, too.

Yeah, but we've talked to a ton of people in the space, including equipment suppliers. We've talked to Planet Fitness franchisees. I've talked to a variety of people in the gym ecosystem, and I haven't seen anyone disagree with the capex numbers among operators in the space.

I think we triangulated and reverse-engineered it through speaking to a bunch of different industry practitioners, and we haven't seen anyone who largely disagrees with it. People making that contention might be doing the math just thinking about the equipment, but there are so many other parts to a gym buildout outside of equipment, and a lot of those other assets are longer-lived than the equipment is.

So I think some of the assets you would point to are probably that a gym needs showers, right? You've got to build out a lot of piping for the showers, the toiletries, and all that sort of stuff, which is—

They're really expensive, but have a longer life.

But how long would that longer life be? Because if I'm just thinking about the $1.3 million, I can't remember the exact space, but I think everyone agrees the equipment needs to be replaced. If you think that doesn't need to get replaced pretty frequently, go to a gym that's 4 years old and hasn't replaced the equipment, and you'll notice it real fast.

The toilets—you would have to replace the piping at some point, right? If it's 20 years, maybe the maintenance—maybe they're properly depreciated—but how do you think about that end of the depreciation, I guess?

Yeah, look, I think it's flooring, walls, obviously ceilings—all of that buildout. Bathrooms are a big component of it, and I think those are longer-lived. With a wall, obviously you might need a new coat of paint on it, but you don't need much beyond that.

Again, I think of it more in aggregate. We've spoken to a bunch of different people in the industry, and in aggregate I think the capex numbers are very reasonable. I've visited a bunch of the different gyms. I've visited old gyms and new gyms, and they all look pretty solid.

Of course, a brand-new gym looks better, but I never walked into a gym where I was like, “This gym looks terrible,” or, “I'm not happy in this gym.” They all looked very nice, and all the gyms I went to were packed. I know it's a small sample size, but I've been to gyms in Amsterdam, Luxembourg, Paris, and Barcelona, across the system. They all look pretty similar, they're all nicely laid out, and they all were quite packed.

Cool. Okay, that's perfect. Let's turn, just high level, to what we're paying for here. If this works, and 3 years from now they're growing members—before we get there, growing members—I think when I've talked to some bulls in preparation for this podcast, the one thing, as you said, is that a lot of bulls have either thrown in the towel or they're quite frustrated. What they've said is, “Hey, when is this thing finally going to grow members?”

They don't mean overall members, because they are growing members. They mean members per store, because if you grow members per store, you finally start getting the real operating leverage I think everyone's talking about. When does this start growing members for sure? That's where I want to start.

I think now is the short answer. By way of background, I've been following it since 2021. We've mostly stayed out of it, I would say, until 2024. We were involved to some degree, but ultimately we've been profitable in the name. My average cost is in the low 20s, even though I started following it when it was in the 40s.

The way we were able to do that is by using alternative data. We've been tracking it with alt data for the last 3 or 4 years. We saw the weakness and stayed away when the business was really weak, and the alt data more recently has gotten much stronger.

I think the business and the stock would have probably taken off in 2025 had they not done the 24/7 investment. They did a $35 million investment for the rollout of 24/7 gyms in France, but I think it was the right decision. Ultimately, I think they'll get a very good return on that, and so it just kind of—

Do you want to describe what that investment was? I was going to ask about that at some point.

In March, on their earnings call this year, they announced what I think was a surprise investment. They had started to have strong member trends really in the past 6 to 12 months, but they threw investors off because they made a €35 million investment in basically keeping about 330 of their gyms in France open 24/7.

I was definitely frustrated when I initially saw it, and I was skeptical of whether that was a good idea or not at the time, but I totally buy into it now. I definitely believe it was the right decision. Essentially, what the math is, is they think there's a very high chance that they're going to get that investment back.

They are lobbying the French government and working with the French regulators to allow these gyms to go staffless. To the extent that they're able to get them staffless, they will get back almost the entirety of that investment. Let's say they put in €35 million; they probably get back €30 million of those costs, because right now they have to have a person in each one of those 330 gyms all night.

I went to one of them. I went to a gym in Paris at 11:30 at night. I worked out from 10:30 until midnight, and it was packed. There were a lot of people in there. It was a cool experience and definitely validated the thought process.

The other thing that validated it was that the Spanish country manager, when I met with him, said the gyms that they're turning 24/7 in Barcelona or in Spain are getting about 30% more members per gym, which is a crazy-high number and much higher than what Basic-Fit has guided. Who knows, maybe that's anecdotal or a small sample size, but I think the point is people just want to have that flexibility of going 24/7. What Basic-Fit has guided is that they'll get back that 35 million investment by 2026. So they're making this investment, and the way they get it back is, first, member growth, right? If you get 30% more members, that's probably covering, or more than covering, the investment they made.

And then your second hope is France changes the laws, and, as you said, 30 million of the 35 million goes away because you no longer need these things staffed full-time.

Exactly. So you'll end up with, say, a net positive 30 to 40 million in EBITDA because, instead of having 35 million in costs and that just being offset by the incremental members, you'll have 5 million in costs, and you'll have probably 35 or 40 million of incremental EBITDA from the new members that are coming because of the 24/7 policy.

So this is an interesting one, and I thought a lot about the right analogy. I think I settled on one. Are you familiar with blue laws in the United States?

I'm not.

So blue laws in the United States are largely legacy, but they are still in place in some areas. They forbid sales of alcohol on certain days, largely on Sundays, right? They used to be pretty popular, and they got overturned. In New York, I think they largely overturned them in 2006. You couldn't sell alcohol anywhere.

I could be wrong, but when a blue law gets overturned, if you're an NFL team, that's a bonanza for you, right? If you couldn't sell alcohol on Sunday and now you can sell alcohol at the stadium on Sunday, that's an absolute bonanza—huge profits. If you're a liquor store, it's good for you, right? Now you can operate on Sunday and sell, but it kind of creates a one-time, temporary windfall. Eventually, more liquor stores get built out, right?

So that is a commodity business. I think you get a one-time windfall as all the current liquor stores get a boost, but then it gets competed away. I guess where I'm driving is this: if in France they overturn the staffing laws, I think Basic-Fit will definitely, in the short term, get a big boost from that. But in the long term, is that sustainable? Wouldn't a lot of other gyms switch to 24/7? Or if that really increases the membership amount, aren't you going to see more gyms built out? I think it broadly goes to how competitive this model is and how big of a moat they have.

I would make the argument that they have a significant moat. The best unit economics, I think, across the Basic-Fit system are in Amsterdam. Amsterdam is one of their oldest markets, and there is extremely high revenue per gym and EBITDA per gym. I think their EBITDA margins in Amsterdam are above 50%.

So these gyms get better over time. They get more customers over time, and they perform better over time, in the sense that, with the clustering strategy, it just doesn't really make sense to build another gym, right? It is, to some degree, a land grab where, once you have a gym in a geographic area, it's somewhat of a local monopoly. Opening up a new low-cost gym right nearby is not going to be a great decision once that option already exists.

So they're winning that land grab. Overall, sure, there will always be more gyms opening up, and it will always be competitive to some degree, but I think this is a huge benefit to them that will last for a long time. The other thing is that not only will the 330 gyms that are currently open have the cost go away, but then they can potentially open up the other 500 gyms in France, and it won't be all the gyms.

There are about 875 gyms in France today. Some of them will never operate 24/7, but let's say 600 to 800 of them can operate 24/7. That will be a big boost because you will also get the benefit of all of those. I strongly believe that it will benefit them, and I don't think all the economics will be competed away.

Okay. I want to turn to some base rates here. Actually, when we were prepping for this, I think the last time you came on the podcast was Dentalcorp. We talked about Dentalcorp, and I believe you had sent them a letter saying, “Hey, it's time to sell.” The reason I mention this is because, good for you, less than a month ago, Dentalcorp announced an acquisition at a pretty big premium.

I was thinking about Dentalcorp and Basic-Fit, and they have a lot of rhymes, right? These are consumer-focused businesses. I think shareholders had gotten pretty frustrated with the stock price. There had been some rumors around acquisition activity. I understand I'm drawing loose parallels—you know, it's Canada versus the U.S., so these are loose parallels. Do you think there's any rhyme between the 2 of them?

I think the difference between Basic-Fit and Dentalcorp is that Dentalcorp had already run a strategic process. So they had shown a willingness to sell. I don't think Basic-Fit has an interest in selling, and I think the reason I wrote the letter at the time was really to show how undervalued Basic-Fit was relative to where it was trading.

But I think we will get that value in the public markets, and I do think the public markets would value Basic-Fit correctly. I think you just need a period of time where they're actually beating numbers, which is why I'm very excited. I'm excited for Basic-Fit to stay public at this point. I would not want them to go private because I think the opportunity that they have in the next 18 months is huge relative to where consensus estimates are.

I think they'll be able to significantly beat expectations over the next 12 to 18 months, and I think the stock will rerate as they do that.

That brings—actually, what you said, “in the public markets,” brings me nicely to my next question. When I was just trying to base-rate this, you and I have talked separately, and I've done several podcasts on Xponential Fitness. I was trying to frame this: can I think of a single example of a fitness concept in the public markets that has worked out well for shareholders?

There is one: Planet Fitness has worked out extremely well for shareholders. I think Life Time Fitness has been hit or miss. It went private, but I think it probably worked out well for shareholders. But other than those 2, I can't think of any gym, and this is across multiple geographies. The Gym Group out in the U.K. has been pretty negative over 10 years. Basic-Fit has been flat for a long time, as have plenty of others.

Why do you think this has been such a tough sector? I guess the market is saying, “Hey, aside from 1 or 2 gems—maybe Basic-Fit is one of them—this is just such a commodity business. You can't make money in these things.” Or is there something else I'm missing?

I would make the argument that Basic-Fit has done well, but I think it certainly could have done better. Using Basic-Fit as its own example, once it gets to fair value, I think it will be a reasonable return. Over a 10-year period, I think fair value today is probably around €60. That would be like it IPOed somewhere in the €12 to €15 range, I believe.

So you're talking about 300% to 400% upside in 10 years. It's not an unbelievable outcome, but I think that's pretty acceptable, I would say.

I think Planet Fitness is a great outcome. I think you've had a lot of subpar, smaller gym businesses, and that's probably part of the issue. Then I think a lot of them just haven't been the right concepts. I think Basic-Fit and Planet Fitness are the right concepts, right? You have low cost, which I think is really important across all of consumer, right?

I think that's part of what attracts so many people to Basic-Fit. Whether it's Costco, Amazon, Walmart, Ross, or TJ Maxx, there are so many different winners across consumer in the low-cost vertical. To be fair, there's a ton of losers across consumer, like in retail specifically. There are tons of retailers that fail over time. The best-performing retail stocks of the last 30 years have really all been low-cost.

I think that's what attracts people to low-cost gyms as well, because it rhymes and kind of feels the same as the retailers. The other benefit is, as I said, there's that local monopoly. I think of it kind of like cable, or like you mentioned Domino's: once it's built, the economics are much harder for any gym in that area, and that cluster strategy really does create a local monopoly.

Yeah. No, look, I love the cluster strategy because, again, if you do the cluster strategy and you're building them so that there's kind of no room for anyone else, if there were only 1 gym in New York City, it'd be very clear that there's room for more gyms in New York City. But if you build properly, like 1 gym every 5 blocks—I don't know what the number is—there's no room for anyone. You've got all the economies of scale from the advertising.

You've got the economies of scale. If someone works in FiDi and lives on the Upper East Side, they sign up for one global membership and go to both of them. You can see how it can be a really attractive model where I'm not saying you're going to earn NVIDIA-like returns, but why you would earn an above-average cost of capital on a business that is pretty resilient. Once you start going to the gym, when are you going to cancel your membership? It's going to be one of the last things you're going to cancel, even in a recession or something. I'm rambling a little bit, but I think that's what's so attractive about it.

Yeah, I'm very convinced. This model has worked for a long period of time, and there's no reason that it won't get stronger over time. It is working very well. It has worked very well for a long time, and I think it continues to get stronger. Again, the reason I think now is the time is that the alt data is very strong now. It is showing that members are doing very well, and the company also confirmed that. They spoke at an ING conference in September where they basically said things are going very well so far in Q3.

I think expectations are very low. I think they're finally going to get into this beat-and-raise cadence where people are not expecting things to be that great, and I think Q3, Q4, and 2026 will be very strong. There are a number of things that set them up to be very strong, both on the member side and on the cost-opportunity side.

Four years ago, if I remember correctly, they said no franchising, right? “We're going to buy these boxes ourselves. The returns on invested capital are pretty good.” I think they've started some nascent franchising efforts, and I'd love to dive into the change of strategy there. Tell me if I'm wrong, but do you think that presents further upside? How do you think about the franchising strategy?

I think franchising will be a blip on the total. It won't matter; it will be relatively inconsequential compared to the overall performance of the business. At most, franchising could end up being maybe 10% of the value if it's successful 3 to 5 years from now.

Let's say I think it'll be a $90 stock 5 years from now, roughly. Maybe it could be a $100 stock if franchising is successful. It matters some, but it's not changing the fact that my 5-year price target is roughly $90.

So you don't see them leaning all the way in? It's not lost on me that Planet Fitness has a hugely successful franchising model. Domino's Pizza, who they're copying, kind of comes up with the fortressing and franchising model. It does seem to me that there would be some benefits to really leaning into franchising.

I hear you: it's really hard if you've got 1,000 franchise stores and 1,000 corporate stores. All that matters are the corporate stores because the economics are so much higher. But they could sell all the corporate stores and turn themselves purely into a brand and franchiser. You're just not seeing that. You think this is a cherry on top?

They're not going to do that. Practically speaking, they won't do that. They're not planning on refranchising the corporate stores. When you look at it, 10% of the business would be optimistic.

Okay. Honestly, I think 5% to 10% of the business is really the right number. While I think it's the right strategy to pursue, just run the math. Say they're opening 100 corporate gyms and 200 franchise gyms per year. Run that math for the next 5 years. You get to, let's say, a little over 2,000 corporate gyms and right around 1,000 franchise gyms. It's nice, but it's not going to dramatically change the earnings power of the business at that point.

Now, maybe it does if you look out 15 years, but again, I think most people are focused on the next 5 to 10.

Even there, I mean, if you really want franchising to move the needle, a franchise fee is 5% of revenues, right? It is high-margin, but it's kind of 10 franchise stores—the profits from them equal maybe 0.75 corporate stores. So unless you sell it or go whole hog with franchising, it doesn't really change it. You're betting on corporate.

On the H1 call, they mentioned that they're cutting their marketing spend as a percentage of revenue. I thought that was really interesting because, with the fortressing model we've talked about, you really hope that the marketing spend—that's your customer-acquisition and customer-reacquisition cost, right? You wonder, if they're cutting this, is there an issue?

On the other side, you're saying maybe they're cutting it because they see that they're fully fortressed. There's no more need for them to do this; the returns for other people aren't there. I was just interested because anytime somebody cuts marketing, I always wonder: are they taking a short-term gain for long-term pain, or is there something else going on?

Yeah, I didn't read much into it, to be perfectly honest. I don't see it as being a huge swing factor for them either way. I think the big swing factor for them in the next 6 to 9 months is really whether they're able to get France staffless and what their incremental members per gym are.

To lay out some of the math, you have cumulatively as much as 65 to 70 million of EBITDA, really divided into 4 buckets. Going basically 24/7 and getting the benefit of those gyms is about 28 million, per our calculations. I'm pretty conservative. On a run-rate basis, you have about another—say it's 7 million in 2026 if they get half the year—but it's probably 14 million to get those other French gyms.

Then, if you're insourcing the labor—meaning if they don't get the French legislation—that's about another 17 or 18 million they'll be able to cut. Right now, in that $35 million of cost, they have contract employees because they want to be able to fire those people. It's hard to fire people in France, so they have all those employees as contractors, and they cost about twice as much. If they decide they're not going to win this legislation, they'll end up insourcing those employees, and that'll cut the cost in half. So that's another 18 million.

If they do get the staffless model, let's say that's another 12 million. Those 4 buckets are really the 4 most important drivers of what can create a beat relative to where investor expectations are.

To give you an idea, if you go back and look at where consensus was in late 2024, basically before they changed to this model, 2025 was at 385 and 2026 was somewhere around 450. Twelve months ago, 450 was the baseline of EBITDA for 2026. Now you have all of these things that theoretically should be additive, right? If you get France to go staffless and get the benefit of having higher members per gym, theoretically you could do better than 450.

I'm not saying they will at this point. I don't think they will because I think their numbers have come in a little bit, but I still think consensus is at 390 for 2026. I think 450 is doable. A few things have to go right for them, but to me, those are the main drivers of value creation in the next 12 to 24 months. The marketing budget being fiddled with or changed a little bit is not something I'm too concerned about. They've been very consistent with marketing over time.

Makes total sense. I just saw the change and thought it was worth asking. You mentioned earlier that you think Basic-Fit is a $90 stock in a couple of years. The stock's $25 right now, so $90 would be quite a good return. Could you walk me through the math that gets you there?

Yeah. In short, I think they get to somewhere in the ballpark of €6 a share in free cash flow, and it trades around 15 times. What year it gets there is up for debate, but I think they do it by 2030 at the latest, and I certainly could see it happening, in the most bullish case, probably by 2028. I think the range is probably somewhere between 2028 and 2030.

To be fair, everyone has forecasted this business wrong. I forecasted this business wrong. I think I'm being conservative enough by giving that range. It has been a tough one for people to forecast, and I think being conservative with the forecasting is smart.

With that being said, I think people went overboard. I think consensus has gone too conservative for the first time in a long time. That's why I'm optimistic today, because again, we see the business in the alt data. The management team is saying the business is doing well, and now you have consensus estimates that are $60 million lower than they were 12 months ago for 2026. I don't think there's any rational reason for that. Maybe they should be $10 million lower or something, but not $60 million.

No, look, as you said, when you said we forecasted it wrong, if you'd asked me in 2021, I would've said this is a killer compounder growth stock. As you said, most of the bulls are just so frustrated and so tired of this name. I think it's really interesting, but it's one of those things where I've been wrong for 3 years running. Do I really want to? Do I think I'm going to? It didn't work for them, but will it work for me now? Sure.

I do think it's understandable why they missed and why everyone was wrong. It basically just comes down to COVID. People modeled the 2020 through 2022 gym openings with the same unit economics that they modeled from 2016 through 2019, and that was wrong. So, there's a reason why everyone was wrong previously, and there's a reason why we should be able to forecast this with more accuracy going forward, if that makes sense. There was a one-time change in basically the unit economics of the gyms, and now that that's really fully worked through the system, it should be much more forecastable going forward.

Capital allocation: They have a small share repurchase program, but I wouldn't say it's the type of thing that they're really leaning into, or that they're just, like, the compounder bros retiring 15% of the stock. How do you think about capital allocation? Do you think they should be leaning into the share repurchase program a little more heavily? It's not like they're crazy indebted or anything. How do you think about the capital allocation here?

I think it's a relatively easy question to answer. I think opening up gyms is a very good use of capital, and I think buying back shares is a very good use of capital. I don't think they can make a huge mistake, and I don't have a very strong opinion one way or the other.

I think I'd probably like to see a balanced approach where they're opening up at least 100 gyms a year and then also using some of the excess free cash flow to buy back stock. I think that would be my preference.

Makes total sense.

Yeah, they're creating a lot of value with the gym openings, so I don't feel really strongly one way or the other. I would rather them grow at a more measured pace because we saw what happened when they opened up too many gyms at once.

Now, maybe they can do that this time around. Maybe that was more COVID, but I would want them to be really careful to the extent they were thinking about reaccelerating gym openings, because I think they can really open up 100 gyms a year and do that in a way that's very effective, where there are no holes in the system because of growing too fast. I think clearly opening up 200 gyms puts some stress on their system. So, I would be a little nervous if they wanted to go back to that unless they had a really good reason or answer for why they could do it and why the management team is ready.

It's always a little awkward to ask this question, but you mentioned the management team there. When I said you were coming on for this, the question I got most frequently—or the pushback was, “Hey, Renee, the CEO here, has been way too positive for the past 5 years. He's a perma-bull, and we mentioned some clear missteps: growing too fast and overestimating the returns for 2022.” Do you feel comfortable with the management team here?

I know that's an awkward question to ask, but sometimes I have activism on the mind. When somebody misses for 4 years in a row, the stock price is kind of flat, and we're sitting here saying, “Hey, I think this is a really attractive model,” you do have to ask that question at least.

I think that gym CEOs are specialists, and I think that René is a good gym CEO. Gym CEOs are not a dime a dozen. There are not that many people who can run a big gym system well.

I think we saw that with Exponential Fitness, right? Everyone villainized Anthony Gistler, but the numbers fell apart when Anthony left. I mean, I'm not saying unit growth numbers. I'm saying StretchLab AUVs, as an example, fell from 600,000 to 500,000 after Anthony and his team—it wasn't just Anthony—left.

Yes.

Anthony left, and then all the people associated with Anthony left, and Exponential's business unfortunately kind of fell apart after that happened. The damage, in my mind, that the short seller did—he never really proved anything, in the sense that the SEC said everything was fine. The California investigation, everything was fine. There was nothing that Exponential ever really showed had been done wrong. None of the regulators had any issue with their business practices.

But it created an upheaval at the board, where all the people who knew how to run a gym business left, and they put in place people who had no experience running gyms. Unfortunately, the result was really bad. The business has done significantly worse.

My answer for Basic-Fit is that I would want the team that's there running it now. I would not want any change, and I think it would be a mistake to underestimate their expertise in running this business.

That's a really solid answer, by the way.

And that's why I sold Exponential, to be clear. I lost money on Exponential. It was a disappointing outcome for me, but I don't think my research was wrong. I always believed that Exponential had not done something wrong, and I was proven correct. But I ended up selling my shares because the new management team didn't know how to run the business.

It was a really sad and disappointing outcome for me because I spent a lot of time in Exponential. I got to know it extremely well, and I knew the people involved well. Ultimately, I ended up being wrong because the wrong management team was put in place. The board realized that, right? They fired him a year after they put him in, but it was already too late.

Do you think—just zooming out from Exponential to Basic-Fit, like you mentioned—gym companies aren't a dime a dozen? Exponential was extremely highly franchised, and Basic-Fit obviously owns the gyms. I certainly hear you: You need a specialist for both of them, but I would guess Basic-Fit's a little simpler because you own the gym versus Exponential, where you also had 5 brands. So, you're managing 5 brands' worth of franchises and trying to cross-sell.

Is Basic-Fit almost a little easier just because they own it? Yes, it's more capital-intensive, but if you want to make a change to marketing or do promotions, you can do it. You can respond because you control it, versus Xponential, where you're dealing with a lot of personalities and the person can always say, “Hey, I don't need to be a StretchLab. I'll go open Andrew Superstretch down the street and stop paying you the 5% or 7% or whatever the royalty rate is.”

Yeah, I'm not sure. The details are so hard for me to say. I would imagine that managing multiple different gym modalities is harder than managing 1 gym modality, and I would think it's easier just to have 1 concept that works really well as opposed to trying to manage multiple.

With that being said, Xponential was primarily driven by Club Pilates. Club Pilates was always the vast majority of the value there. So, in reality, Xponential really is just Club Pilates in my mind. You really just needed to focus on Club Pilates, and luckily Club Pilates just had massive tailwinds, which was very beneficial to Xponential.

My hunch is that Xponential is probably tougher to run, but it's hard to say. The comparison is interesting, but I'm honestly not sure. I obviously know both businesses really well, but it's hard for me to say with absolute certainty.

Let me ask another weird point. Net debt at Basic-Fit is about 1 billion, and their market cap is about 1.6 billion. So, 2.6 billion EV—and correct me if I'm wrong or off on any of these numbers.

That definitely sounds close to correct.

A little bit over 1,600 clubs, and you and I walked through the math that it costs about 1.3 million to open a club. Now, obviously, some of these clubs are depreciated. There is real depreciation here, but if I just did that math, I would say their club-base replacement cost is about 2.1 billion.

So, you're paying about 500 million over replacement costs for Basic-Fit right now. Is anything in there that I'm saying jumping out as crazy or anything to you?

Sounds directionally correct. There might be slight differences in the numbers, but I think you're in the right ballpark.

Yeah. I just—I have no point I'm driving towards, but when I lay out the numbers that way, and when you were walking through the unit economics, I just thought about replacement costs. That does strike me as pretty cheap, because you're getting the Basic-Fit brand. More importantly, you're getting all the members in place, right?

When we said 1.3 million to build out a club, that ignores that there's a real cost to going out and marketing, grabbing all these members, and getting the recurring fees already set up. Paying 500 million above replacement cost for that—for, I can't remember, the tens or hundreds of thousands of members, if I remember correctly; I don't have the membership number off the top of my head—when I lay it out like that, you're almost talking about a below-replacement-level Ben Graham–style investment.

I don't know if I'm talking myself into it, but I just wanted to throw that math out there and see what you thought of it.

Nothing about that strikes me as wrong. I just think about it differently, in the sense that I'm very focused on what free cash flow is going to be in a conservative scenario and what that's worth.

I think, conservatively, free cash flow will be 350 to 400 next year and 450 to 550—let's say 500—in 2027. So, this is trading at roughly 5 times 2027 free cash flow, maybe 6 at most, and I think it should trade at 15.

I get that from talking to a bunch of Planet Fitness franchisees. They pay roughly 9 or 10 times EBITDA for these businesses, and if you think about what 9 or 10 times EBITDA is, it's about 15 times after-tax free cash flow.

So, I feel pretty good about this being worth 15 times. Right now, it's trading at something in the ballpark of 5 times 2027. Again, depending on what assumptions you want to make, certain people would probably be lower than that. But I think 400 at its most conservative, and probably 500 or 550 at its most aggressive, for 2027 free cash flow.

I just think that's really cheap for this business. You're basically at, let's say, 5 to 6 times 2027 free cash flow. I think that's really cheap.

How do we lose money from here? I ask this because if you had asked me 4 years ago how this investment wouldn't work, I would have had some trouble coming up with it. Obviously, the investment has not worked out that well. Now, multiples have come in, and I think they've addressed some issues. It's quite cheap.

But if you and I were talking in 2029, 4 years from now, and Basic-Fit didn't work, what went wrong here?

Yeah. I think Basic-Fit reminds me of dental in the sense that I always thought both of those were really hard to lose money in. They're really simple, consistent, steady businesses that are dominant in their fields, pretty easy to value and forecast over time, and have very proven unit economics over a long period of time.

So, as a starting point, I think it's very tough. Just like I thought it was with dental, I think it was very tough with Basic-Fit. If there was something, I think it would have to be a tail risk. Certainly, something like COVID again would create an issue.

Well, gyms get shut down by that. That's a pretty good tail risk right there.

It's easy to have some big issues there. Outside of that, I really do believe in what they're doing. I really believe that they have fixed things, and I really do believe the right people are in place.

The way you lose is that you have the wrong people in place, you grow too fast, and you shut your gyms down. That's basically exactly what happened over the last 5 years. They grew too fast, the gyms had to be shut down, and they didn't have the right people running them.

Now, I think they have the right people running them. I think they're growing at a measured pace, and the gyms are doing very well. So, it's a hard question to answer.

I think the probability of losing money here is very low. I don't think our multiples are aggressive. I think you can use more conservative numbers than I've used and still get to upside from here. So, I think it's tough.

I'm domestic. You're domestic, too, though you obviously hop through a lot of Europe visiting some of these gyms, and I'm hoping you're doing other fun stuff as well. I think domestic listeners probably have a good sense of some of the unique differences between Europe and the U.S., but is there anything in particular that the average U.S. listener should be thinking about or be aware of when considering Basic-Fit and the European gym sector?

I don't think so. They're very similar. If you go to a Planet Fitness in the U.S. and a Basic-Fit, they're similar concepts. I've been to a bunch of Planet Fitness locations, and I've been to a bunch of Basic-Fit locations.

The Planet Fitness locations are a little bit bigger on average. The gym layouts are a little bit different. I actually like the Basic-Fit layouts better because Planet Fitness only has Smith machines, whereas Basic-Fit has regular flat benches. But outside of that, they're extremely similar models.

People talk about Europeans not wanting to go to the gym, or not going to the gym as much. A lot of that is just access to gyms. As the density of gyms gets larger, Basic-Fit increases fitness penetration in the countries it enters. In France, fitness penetration has gone up as a result of Basic-Fit. Spain, Germany, and so on will go up as a result of Basic-Fit.

Europeans and Americans are quite similar as it relates to gym usage. So, the short answer is that they're very comparable.

No, look, I was fishing for something, but I was hoping you'd mention that. That's one other thing I liked about Basic-Fit. I could be a little silly on this, but gym membership in Europe is underpenetrated versus the U.S., and people are people. They generally like to be fit, and I'd have to imagine that when you get a good-quality offering, there's room for it to expand.

So, you've got—I don't know if that's fully growth tailwinds—but there is room to run. If you told me, “Hey, in Europe, there's really hard research that just nobody wants to go to the gym in these areas,” yeah, that's kind of what I was hoping for.

Yeah, it's interesting thinking through the differences throughout Europe. One of the things that the Spanish country manager was pointing out to me is that Spain is much more legs-focused because people are wearing shorts in Spain much more because of the warmer weather.

They actually have a lot more leg machines in Spanish Basic-Fit locations than they do in, like, an Amsterdam Basic-Fit or a Netherlands Basic-Fit, because your legs really aren't being shown off, right? It's only warm in the Netherlands for 2, 3, or 4 months of the year at most. Even in the warm months, it can often still be jeans weather.

So, when a new gym is opening up, Fitness Park is probably the biggest real competitor to Basic-Fit. Another aside: Planet Fitness is not a real competitor to Basic-Fit in Spain. There were concerns about it when Planet Fitness initially announced it was entering Spain, and Basic-Fit's stock dropped. I talked to the Spanish country manager, and it's not a concern of theirs at all.

Not that there aren't real competitors—there are real competitors in every geography. Fitness Park is a real competitor. When a Fitness Park opens relatively close to a Basic-Fit, often what Basic-Fit will do is, if it has indoor cycling, it will clear out the indoor cycling and put in more leg machines.

That's how you really differentiate, because both men and women are using them. There's competitiveness, or people competing, for these leg machines. It's interesting to see how specific and precise they are, and how strong their understanding is of the local geographic considerations in just making these businesses better.

I guess I have 2 quick questions. If a local competitor comes in and opens a gym, and that encourages you to clear out the indoor cycling space and put in a bunch of leg machines—which I am all for, by the way; more leg machines. My gym is woefully undersupplied on leg machines—but if it takes a local competitor to do that, why not just do that already?

It seems like you're basically admitting that you're oversupplied on cycling machines and undersupplied on leg machines. Shouldn't you just go ahead and correct that before a competitor even comes in?

I would agree with you. I don't have another answer. I'm sure they would have a good answer for why they're waiting. It could be priorities. It could be resources. I don't have the exact answer for you.

I would be curious to ask them that question, but my hunch is that they'll get there eventually. Maybe it's just a matter of priorities, and they might be focused on other things.

That gym is already at, let's say, 5,000 members, because a lot of the gyms I visited in Barcelona are already at 5,000. They're really profitable, really busy gyms, so they might already just be at a great level. Maybe they'll get there eventually, but people are just happy and going to the gym for now, so it's not an issue.

And look, it could also be that a competitor comes up, right? When you're already kind of overflowing, you need to appeal to everyone, and then a competitor comes, so you can kind of scale down. I can definitely get that.

The last question, and then we can wrap it up: You mentioned a competitor moving into the Spanish market. When somebody comes in, Basic-Fit will often move out the cycling machines and put in more leg machines. One of the things that's attractive about Basic-Fit is the fortressing nature that we've discussed multiple times on this call.

So, why is a competitor in the Spanish market moving down the street, down the block, or a few blocks over and opening up? I thought the fortressing strategy—the monopoly, as you said—would prevent that. Why would someone decide to do that? Or are they seeing good returns from doing that?

Like I said, this is still a competitive market. If you're in Amsterdam, Paris, or Barcelona, there are multiple different brands. I never want people to have the idea that there is no competition. There is, I would say, healthy competition.

Let's say that gym has 5,000 members, and Fitness Park opens up half a mile to a mile away. They might lose 500 members or 250 members. There will be some erosion. They will lose some of their member base simply because gyms are so local—it's whatever is close to you.

The 2 gyms that I use are one in my condominium building and the other one about a 3-minute walk from my office. To me, a gym has to be extremely convenient, and I think 99% of people are the same way.

In general, competitors will be discouraged, but there's still a land grab, right? A gym with 5,000 members can still be really profitable at 3,500 members.

And so there will probably be other gyms that open up, trying to take some of that market share over time. I think they can all coexist and be at a happy medium. Obviously, the question is, would there be overbuilding? We haven't seen that historically, and so I don't believe that will be the case. The gym economics have been very consistent from 2016 until now, absent that 2- or 3-year period from 2020 to 2022.

When the gym down the street opens up and the local Basic-Fit goes from 5,000 to 4,500 members or something, and the new gym opens up, it seems like they're realizing, "Okay, the new gym is getting okay-to-good returns." Do you think Basic-Fit should look at that and say, "Maybe we do need to be leaning more into franchising and opening up more stores"? Does that make sense? Because Basic-Fit could have put the store there, the customers can be shared, and there's no new competitor coming in.

I think Basic-Fit is only looking at the franchise model in new geographies.

Oh, I wasn't saying that. I was saying Basic-Fit should have just opened up its own corporate store and preempted the new competitor that came in.

Yeah. Again, I think it's tough. In an ideal world, that makes sense, but I think it's difficult. You can't open too many gyms at once, right? You want to have the right management in place, and that management starts with someone who might get 1 gym to start off with, grow to 2, go from 2 to 4 to 6 or 7. They're growing people's footprint slowly over time, and so it's hard if you're growing people basically by training them up at the corporate level. It's hard to be able to grow too many gyms at once.

I think it really goes back to the fact that growing too fast leads to sloppy decision-making, and sloppy decision-making, I think, is a bigger issue than letting other gyms open up nearby.

No, that's a great answer. I think, look, we're into 2025, and there are still companies working off the 2021 "grow, grow at all costs" boom. I'm sure there's an AI boom right now, and I'm sure 4 years from now there are going to be more than a few companies saying, "Hey, maybe we shouldn't have built out this much data." I'm not saying all AI, but I'm sure there'll be at least 1 or 2 saying, "Oh, we committed to 5 gigawatts of power. That was a lot of power. Maybe we didn't need that much."

Anyway, Zack, it is 3:00. This has been awesome. It's been a pleasure having you back on. Looking forward to chatting again soon, and it's been really fun talking Basic-Fit.

Yeah, thanks so much. Really enjoyed it.