Smartfit Escola de Ginástica e Dança S.A.: Navigating Earnings Outperformance and Strategic AI Expansion in a Competitive Landscape

Smartfit Escola de Ginástica e Dança S.A. (SMFT3.SA) delivered a mixed yet strategically significant Q3 2025 performance, outperforming earnings expectations while navigating revenue headwinds. The company reported an adjusted earnings per share (EPS) of $0.2914, surpassing forecasts of $0.2789 by 4.48%, according to a Yahoo Finance earnings call. This EPS beat, coupled with a 490-basis-point year-over-year improvement in operating margin to 41.1%, according to the same earnings call, underscored Smartfit's operational discipline. However, revenue fell short of projections at $1.76 billion, a 0.7% decline compared to the prior year, according to the same earnings call, raising questions about its ability to sustain top-line growth in a competitive Latin American fitness market.

Strategic AI Integration and Product Innovation

Smartfit's earnings call highlighted its aggressive pivot toward AI-driven solutions, particularly through its Dash product. The company emphasized a 75% reduction in search latency and enhanced video transcription capabilities, according to the same earnings call, positioning Dash as a scalable tool for small and medium-sized businesses (SMBs). A self-serve version of Dash, priced at $19 per user per month, was launched in the U.S., signaling a strategic shift to monetize AI tools directly, according to the same earnings call. CEO Drew framed AI as a "last-mile" integration, aiming to bridge the "context gap" between workplace tools and user productivity, according to the same earnings call. These initiatives align with broader industry trends, as Latin America's AI sector gains traction in predictive maintenance and operational efficiency, as noted in a Barchart article.

Competitive Positioning and Market Dynamics

Smartfit's performance must be contextualized against its peers. Dexco, a key competitor in the region, reported a Q3 2025 net loss of R$43 million ($8 million), a stark contrast to its R$184 million ($34 million) profit in Q3 2024, according to a Rio Times report. Armac, meanwhile, pursued a defensive strategy, acquiring Engelog Fornecedora to bolster its heavy machinery fleet in Brazil's Northeast, according to the same Rio Times report. Smartfit's ability to maintain a 32.1% EBITDA margin, according to the same Rio Times report, despite its 28% revenue growth in local currency, highlights its superior cost management. However, challenges persist: per-gym revenue in Mexico declined 7% year-over-year, even as membership prices rose 13%, according to the same Rio Times report, suggesting pricing pressures in key markets.

Growth Potential and Risks

Smartfit's expansion strategy hinges on its 1,867 gyms across 16 Latin American countries and a recent foray into Morocco, according to the Rio Times report. The company plans to open 340–360 new locations in 2025, betting on the region's growing middle class to drive 19% annual membership growth, according to the Rio Times report. However, this aggressive expansion risks diluting margins, as evidenced by Dexco's deleveraging challenges. Additionally, the AI sector's rapid evolution demands sustained R&D investment, which could strain profitability.

Despite these risks, Smartfit's stock price rose 1.28% post-earnings, according to the Yahoo Finance earnings call, reflecting investor confidence in its AI roadmap and free cash flow potential. The company aims to exceed $1 billion in unlevered free cash flow for 2025, according to the Yahoo Finance earnings call, a target achievable if Dash adoption accelerates.

Conclusion

Smartfit's Q3 2025 results demonstrate a compelling blend of earnings resilience and strategic innovation. While revenue shortfalls and competitive pressures persist, its AI-driven product suite and margin expansion position it as a leader in Latin America's evolving fitness and technology landscape. Investors should monitor Dash's traction in SMB markets and the company's ability to balance expansion with profitability.