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In a report made public on Tuesday, Fuzzy Panda said Xponential had misled investors and that more than 50% of the company’s fitness studios did not make a positive financial return, while eight out of 10 brands were losing money monthly.
The report also said CEO Anthony Geisler had made “false claims” that Xponential had never closed a store.
Shares of Xponential, which closed more than 37% lower after the report on Tuesday to log their biggest one-day percentage decline, were up about 17% at $18.37 in early trading on Wednesday.
Xponential said while it relocates underperforming studios to other franchisees, which may result in temporary store closures during that period, those outlets represented an “immaterial number” across its store network.
The company also said it has, in limited cases, repurchased some underperforming studios from franchisees, which accounts for a “very small number” of its overall system. It added franchisee unit economics were also strong, with an estimated 25%-30% operating margin and 40% cash-on-cash return.
The Fuzzy Panda report “seems like a stretch” and is “nothing more than speculation,” Jefferies analyst Randal Konik wrote in a note, adding the brokerage was confident in Xponential’s ability to generate healthy results.
