Xponential Fitness: Strategic Turnaround Gains Momentum Amid Volatile Market Conditions

In the face of a challenging economic landscape, Xponential Fitness (XPOF) has embarked on a strategic transformation that positions it as a compelling value investment opportunity. By refocusing on core brands, streamlining operations, and enhancing franchisee economics, the company is navigating a path to long-term profitability despite near-term headwinds. This analysis evaluates Xponential's progress through the lens of value investing, emphasizing its discounted yet high-growth franchise model.

Financial Resilience Amid Revenue Headwinds

Xponential Fitness has reaffirmed its 2025 revenue guidance of $300 million to $310 million, with system-wide sales projected between $1.73 billion and $1.75 billion. While this represents a 5% year-over-year decline in total revenue, the company has offset this with significant cost-cutting measures. A 37% reduction in net new studio openings (170–190 for 2025) reflects a strategic pivot toward quality over quantity, prioritizing operational efficiency over rapid expansion. These adjustments have yielded annualized SG&A savings of $6 million, as highlighted in Q3 2025 earnings reports according to the company's earnings call.

Profitability metrics underscore this shift. Xponential's adjusted EBITDA margin expanded to 42.5% in Q3 2025, a stark improvement from -8.2% in the same period in 2024. The company's adjusted EBITDA for the quarter rose 9% year-over-year to $33.5 million, driven by streamlined brand operations and improved franchisee economics as reported in Q3 2025. While same-store sales dipped 0.8% in Q3, the broader franchise revenue segment grew 17% to $51.9 million, signaling resilience in its core business.

Strategic Refocusing: Core Brands and Operational Efficiency

A cornerstone of Xponential's turnaround is its refocus on core brands, including Club Pilates, Pure Barre, YogaSix, and StretchLab. The divestiture of Lindora, a medical weight-loss brand, has allowed the company to concentrate resources on high-potential segments. CEO Mike Nuzzo emphasized that this portfolio streamlining creates "significant potential for improvement" in operations and franchisee commitment as noted in company reports.

Club Pilates, with over 1,200 North American studios, remains a key growth driver. The brand's national marketing campaign in Q4 2025 aims to boost member acquisition and retention, while its studios are nearing full capacity within the first year of opening as reported in financial analysis. StretchLab, however, faces challenges due to reduced Medicare Advantage coverage, prompting the company to diversify its membership base and test new operational models according to company updates. Similarly, BFT's U.S. go-to-market strategy is being refined to enhance studio economics and member awareness as stated in recent filings.

Franchise Model Enhancements: A Value-Driven Approach

Xponential's franchise model has evolved to prioritize recurring revenue and unit-level profitability. Franchise revenue grew 17% year-over-year in Q3 2025, reaching $51.9 million, as the company introduced tactical marketing enhancements, outsourced retail models, and AI-powered site selection tools. These innovations aim to reduce initial franchisee costs and improve site viability, aligning with value investing principles of capital efficiency.

While specific royalty rates and initial franchise fees remain undisclosed in recent filings, the company's adjusted EBITDA margin guidance of 35.6% for 2025 suggests robust unit economics according to financial analysis. Xponential's focus on operational tools like the ProfitKeeper system further underscores its commitment to optimizing franchisee profitability as highlighted in Q3 2025 earnings.

Risks and Challenges

Despite these strides, Xponential faces headwinds. The 5% projected revenue decline for 2025 and 0.8% same-store sales contraction highlight broader market pressures, including shifting consumer preferences and macroeconomic uncertainty as noted in company reports. Additionally, the recent layoffs, while cost-effective, may impact short-term operational cohesion. Franchisees in weaker brands like StretchLab require continued support to adapt to changing reimbursement landscapes.

Investment Thesis: A Discounted High-Growth Model

From a value investing perspective, Xponential's discounted valuation-coupled with its strategic clarity and improving margins-presents an attractive opportunity. The company's focus on recurring franchise revenue, cost discipline, and AI-driven operational enhancements aligns with long-term value creation. While unit-level profitability details remain opaque, the 42.5% EBITDA margin in Q3 2025 and 17% franchise revenue growth demonstrate the franchise model's resilience.

Investors should monitor Xponential's ability to execute its brand-specific strategies, particularly in StretchLab and BFT, and its capacity to sustain EBITDA expansion amid revenue volatility. For those willing to navigate near-term challenges, the company's strategic turnaround offers a compelling case for undervalued growth.