Shares of fitness franchising company Xponential Fitness(NYSE: XPOF) skyrocketed on Monday after the company announced its new CEO. Normally, a new CEO wouldn't move a stock this much, but this is a special situation, and investors liked the company's choice. As of 3 p.m. ET Monday, Xponential Fitness stock was up a whopping 36%.
The right man for the job?
Xponential Fitness allegedly misled franchisees regarding the financials of its fitness brands, and its founder and former CEO Anthony Geisler allegedly made threatening statements. Both matters are under investigation by the Securities and Exchange Commission (SEC). Geisler was suspended indefinitely in May and resigned a week later, leaving a CEO vacancy.
Today, Xponential Fitness announced Mark King as its new CEO. King was CEO of Taco Bell (of Yum! Brands) from 2019 until he retired on Jan. 1. There are more than 8,500 Taco Bell locations worldwide, 94% of which are franchised. Without a doubt, King is more than qualified to lead a franchise business such as Xponential Fitness.
King's experience is why investors are celebrating this hire today.
What now?
SEC investigations are ongoing, so there's still uncertainty with Xponential Fitness stock, even though Geisler is gone and it made a good hire with King. That's important to keep in mind.
Xponential Fitness franchises concepts for 10 different fitness brands, including for stretching and yoga. Because of this, the financial health of the individual franchisees matters more than the numbers for Xponential Fitness -- if the franchisees aren't making enough money, they won't want to operate existing stores or open new ones.
According to the publicly available information from Xponential Fitness, it would seem its franchisees are doing fine. Both membership and visits to its boutiques are rising. And franchisees reportedly have a payback period of 2.5 years, which isn't bad.
Then again, this is part of what the SEC is investigating, so there's no shame if investors decide to wait until there's greater clarity as to what's going on with Xponential Fitness. For now, I agree with investors that Mark King was a good hire as CEO, so things could be looking up for the company.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
