The company is slated to report its third-quarter FY23 earnings on November 7, 2023.

According to the analyst, Planet Fitness' domestic system added 23-28 net units during 3Q, shy of the +33 unit Street mean.

If the company misses the unit count mark in 3Q, it would mark the fourth quarter out of the last seven that has fallen short of consensus projections, says the analyst.

The 2023 guidance calls for approximately 160 new locations. Based on the analyst's expected range for 3Q, it would leave 70-75 openings for 4Q (Street mean 60 openings) to achieve the 2023 target, up from 58 openings in 4Q22. As a result, the analyst expects the company may need to lower its unit growth outlook again.

The analyst keeps FY24 net additions unchanged at 127 gyms, comprising 110 franchise and 17 company stores.

The analyst notes franchisees will likely open fewer units in 2024 than in 2023 since the backdrop for making decisions about 2024 development (late 2022/early 2023) was even less favorable than the prior year.

In late 2021/early 2022, supply chain and construction issues were common, but those were likely viewed as transitory, notes the analyst.

The development challenges started feeling less transient about a year ago with persistent construction inflation and rising interest rates, says the analyst.

Although the analyst recognizes the drag on earnings growth from fewer franchise openings, the analyst remains constructive on shares as several opportunities exist to improve new unit returns for franchisees.

Also, the analyst notes Planet should make it easier for experienced franchise operators outside the fitness industry to join their system.

The analyst also mentions Planet's competitive positioning and notes the concept can enhance its leadership position without eroding the unit-level returns.

Price Action: PLNT shares are trading higher by 0.45% at $55.55 on the last check Tuesday.