Citron Research Extremely Bearish On Life Time Fitness (LTM)
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Citron Research, a research shop that focuses on overvalued situations or scams in the stock market, came out with a negative piece on Life Time Fitness (NYSE: LTM) this morning.
In this current economic environment, investors should obviously stay away from highly debt-leveraged businesses with high fixed costs that depends on the US consumer. Citron says Lifetime Fitness fits that bill and "into that equation a business model that NO ONE has ever proven successful."
Citron believes that Lifetime's equity will eventually be wiped away as the chain of 77 health clubs will carry a debt load that the company will no longer be able to service.
Citron mentions how health clubs and private trainers are the ultimate discretionary purchase. Lifetime's CFO told the Denver Post, "When somebody looks at that Visa statement and they know that times are tougher, they're making a decision a little bit quicker to leave the club if they're not utilizing it."
Citron uncovered this quote from Life Time Fitness's 10Q which should worry investors, "During 2008, our attrition rate increased, driven primarily by inactive members leaving earlier than in the past." The attrition rate of Lifetime Fitness is around 40% and with industry high membership rates and a declining economy, one does not need to be a psychic to guess where membership levels are heading.
"These huge debt-heavy and capex-heavy club operations are the antithesis of the agile, nimble and cash-flow positive companies that will survive a severe downturn in consumer discretionary spending", Citron said.
Citron was founded by Andrew Left, who has created a track record for uncovering various overvalued situations. The site is followed by many in the "short" community.
Life Time Fitness, Inc. operates multi-use sports and athletic, professional fitness, family recreation and resort and spa centers under the LIFE TIME FITNESS brand.
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