Lifetime Fitness Research Note Eps

LTM—A Healthy Forecast

I. OVERVIEW AND SUMMARY OF EPS DATA

Lifetime Fitness has set a standard for being a high-end fitness club with a wide range of amenities for its guests. Has this lofty reputation translated into success for the business, and what does the future look like for the health club? Through an analysis of Lifetime’s historical Earnings per Share (EPS) data, a history of the company and its industry, and any government or economic issues they faces, we will attempt to answer these questions.

In order to get an initial look at Lifetime’s performance to date, we will consider the quarterly EPS (a basic measure of profitability) of the company since it debuted on the New York Stock Exchange in 2004 under the ticker symbol LTM until its last reported quarter (3rd) in 2014.

Figure 1

Quarterly EPS Time Series for LTM 1st Q 2004 – 3rd Q 2014

Figure 2

Top—Autocorrelogram for all LTM EPS data

Bottom—Autocorrelogram for LTM EPS data 1st Q 2009 – 3rd Q 2014

In Figure 1, which depicts the EPS time series, we can see that quarterly EPS has risen steadily over time, indicating a positive trend. This is also supported by the top autocorrelogram in Figure 2, which shows significant lags decreasing to zero rapidly. While no clear seasonality was present during the first few years after the IPO; since 2009, a pattern has emerged where EPS rises throughout the first three quarters of the year, then bottoms out in the fourth quarter. This demonstrates a seasonality of 4, also illustrated in the bottom autocorrelogram of Figure 2 with a significant lag of 4.

The data point marked in orange in Figure 1 is the third quarter data for 2008. This marks the single greatest decline in EPS (-.22) that Lifetime has thus far experienced. This data point corresponds with the beginning of the Great Recession in the United States, a time where consumer confidence was low and many businesses suffered. Conversely, the largest jump in EPS (.15) that Lifetime has had is...