What happened
Shares of Xponential Fitness (XPOF 1.84%) tanked as much as 34% this week, according to data from S&P Global Market Intelligence. The fitness company and manager of brands such as Pure Barre and Rowing House was shaken due to a comprehensive short report made by a firm called Fuzzy Panda Research. Fuzzy Panda alleges that management has misled investors, has possibly missed its debt covenants, and that many of the brand franchise locations are losing money. If true, this was some bad news for shareholders.
The company denied these allegations and called them "inaccurate" in a press release issued by its investor relations team. Shares of Xponential Fitness are down 25% this year.
So what
Fuzzy Panda Research alleges multiple things in its short report, but there were a few important highlights. First, it claims that CEO Anthony Geisler has a checkered past including as the executive of a shady penny stock that allegedly tried pump-and-dump schemes. He also has an arrest record. Second, according to Fuzzy Panda, the franchises that manage the Xponential Fitness brands are doing poorly. According to their research, eight out of 10 of the Xponential Fitness brands are losing money and franchisees have sometimes sold their locations at 75% discounts to their purchase price. Third, they talked to owners of these locations, who say that the Xponential Fitness parent company gouges them with fees and overcharges them for "almost everything."
In its press release after the report was publicized, management cautioned investors "not to rely on it" due to the inaccuracies laid out by Fuzzy Panda. However, they did not specifically dispute some of the allegations in the research.
Now what
Time will tell how true these allegations are, or whether they are mostly fluff. However, if we look at the fundamentals, Xponential Fitness does not look great at the moment. The company has lost $58 million in net income over the past 12 months, which is an all-time low since going public. If this trend continues, the short-sellers betting against Xponential Fitness may be proven right.
Investors should expect more volatility in Xponential Fitness throughout this year. This story is far from finished.
XPOF Net Income (TTM) data by YCharts
