Life Time Fitness, Inc. (LTM)

The company's business model is dependent upon the slightly-above average Joe shelling out $100/month for a gym which is a bit more shiny than the other gym around teh corner which costs only $30/month.

Now that the tide is down, it is apparent that even the slightly-above average Joe is swimming naked. When you're busy worrying about making the next rent/mortgage payment, your kids tuition fees or simply getting the rude awakening that "Oh My God, maybe its time we started saving some money for a rainy day", it becomes tough to justify paying a 300% premium for the privilege of being handed a fresh towel before your workout. There are no customer contracts in LTM's world.

This will (very quickly) lead to one of two scenarios: 1. LTM has to offer significant discounts to retain its customers or 2. Lose a healthy (no pun intended) chunk of their membership. Either of these are terminal to their business which because of its high fixed costs relies on economies of scale.

One person pitched that their membership numbers are improving. True. But look at the same store membership which is declining. You can spend $20 million to open a new location and obviously some people will show up even in this economy.

It is arguable if the company will eventually file for BK or the stock will languish in low-to-mid single digits whereby some unfortunate PE fund buys it for $8/share on its way to eventual bankruptcy. In short, their business model was dependent on cheap and abundant consumer credit which is not coming back as far as I can see. Estimates of any "hidden" real estate value are grossly exaggerated, IMO.

It is only a matter of time before it becomes evident that like its customers, LTM is also swimming naked.