"We are still in the early stages of executing a plan to turn around the business," Barry Elson told investors and analysts in a conference call announcing the quarterly results. Elson said company officials are currently "evaluating a broad range of alternatives," including divesting unprofitable clubs, franchising clubs in less desirable geographic areas, entering into joint-venture agreements and other tactics to deploy capital and maximize returns.
The company, which has already entered into four recent leaseback arrangements, will also conduct its first primary market research study to help it better target areas for its customer retention and recruiting efforts, Elson said. "It's certainly not going to be a one-size-fits-all solution, but we are confident this system-wide review will help us achieve a more optimal club footprint and improve returns."
News of the firm's change in strategy comes as the company announced that third-quarter losses grew to $5.7 million, or 14 cents a share, compared with the previous year's $214,000, or one-cent-a-share loss.
Bally's management said losses for the quarter ended Sept. 30 increased primarily due to a $26-million, or 19%-rise in interest expenses. A $3-million asset impairment charge, along with a more than $4-million increase in general and administrative charges, which rose from $14 million to $18.7 million, also contributed to the losses, the company said. Included in those charges was $5.4 million in compensation costs associated with a separation agreement with former chairman and CEO Paul Tobak, who resigned in August.
Company officials said revenues for the three-month period were up slightly to $248.4 million from $247.9 million in the prior year's quarter. The company, which has nearly 390 facilities and 30 franchises and joint ventures in 29 states, Mexico, Canada, Korea, China and the Caribbean, operates under the Bally Total Fitness, Bally Sports Clubs, and Sports Clubs of Canada banners.
Elson noted that total contract volume increased 7.1% during the quarter. The company, which is saddled with debt repayments of $275 million next year, recently escaped from default after creditors agreed to give the firm a $284-million loan to refinance some debt that was due in April.
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