LA Fitness update fails to calm market jitters
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Your support makes all the difference.LA Fitness, the budget health club operator, was forced to rush out a bullish trading statement yesterday in an attempt to calm stockmarket jitters a day after its rival Fitness First issued a profit warning.
The group, which also brought forward its full-year results announcement by 24 hours to Monday, promised record turnover and pre-tax profits in line with expectations.
Fred Turok, the chief executive of LA Fitness, said he could "absolutely and unequivocally" state that Monday's announcement would not include anything disappointing. "We've given as clear as crystal blue water an indication that we are in line with City expectations of £7.7m," he added.
But despite rising in early trade, LA Fitness shares closed down 9.5p at 165.5p, hit by the negative sentiment swamping the sector as investors continued to punish Fitness First. Even the purchase of just under 1 million shares by its management failed to halt the decline, which analysts said was likely to prompt takeover attention.
Shares in Fitness First dived a further 27 per cent per cent to 98p, after losing 36 per cent of their value on Thursday. This valued the company at £113m against close to £1bn at its peak.
Private equity groups have piled into the sector during the past year to take advantage of trading difficulties at companies operating at the premium end of the market. Last month, Holmes Place succumbed to a £205m bid from Cannons, with financial backing from Royal Bank Private Equity and PPM Ventures, the Prudential's venture capitalist arm. In July, Esporta bowed to a hostile bid from Duke Street Capital.
Mr Turok said LA had no plans to follow Fitness First and remove spa baths from its clubs. On Thursday, Fitness First cited health and safety concerns on the back of a recent outbreak of legionnaire's disease in Japan and said it would remove all the spa baths in its clubs, forcing it to write-down its fixed assets by £1.8m.
Mike Balfour, Fitness First's chief executive, yesterday bought 300,000 new shares, taking his stake to 5.44 per cent. Chris Pierce, its chairman, bought 100,000, increasing his stake to 6.13 per cent, while other directors and managers bought a further 560,000 shares.
James Hollins, an analyst at WestLB Panmure, said the group's management would have to "rebuild" confidence. "They messed up. They ramped up expansion at a time when the market was softening."
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