Xponential Fitness, the parent company of popular fitness studios like CycleBar and Pure Barre, experienced a significant upheaval when it announced the suspension of CEO Anthony Geisler and his removal from the board. This news caused the company’s shares to plummet by almost 30%, resulting in a market cap below $500,000. However, there has been some recovery, with the shares bouncing back into positive territory after initially being down 10% on Monday morning.
To fill the leadership vacuum, Brenda Morris, a board member since 2019, will be taking over as interim CEO. This transition aims to provide stability during this challenging period for Xponential Fitness. Alongside this internal change, the company also revealed that it is under investigation by the U.S. Attorney’s Office for the Central District of California. The nature of this investigation appears to overlap with the previously disclosed Securities and Exchange Commission (SEC) investigation.
The SEC investigation, which was announced in December, accused Xponential Fitness of misleading investors by providing false information regarding unit volume metrics and franchise closures. This led to a class action lawsuit filed by shareholders seeking financial damages. Despite these legal challenges, Xponential Fitness remains committed to cooperating with both the SEC and the U.S. Attorney’s Office.
While these developments may have raised concerns among investors, Xponential Fitness stands firm in its full-year 2024 guidance, which it reaffirmed in May. This indicates that the company is confident in its ability to navigate through these investigations and legal proceedings without compromising its long-term goals.
Korinne Wolfmeyer, an analyst at Piper Sandler, commented on this situation, stating that the requested information from the U.S. Attorney’s Office aligns with the SEC investigation. Piper Sandler maintains a hold rating on Xponential Fitness stock but has lowered its price target to $9 from $12. The current trading price of the shares stands at around $9.
Despite the reassurances from Xponential Fitness and analysts like Wolfmeyer, some caution remains. The company’s reputation has been tarnished by the allegations, and investors may remain skeptical until further progress is made. However, the fact that Xponential Fitness has chosen an experienced board member as interim CEO and has kept its financial targets intact could be seen as positive signs of stability.
In conclusion, Xponential Fitness finds itself in a precarious position due to the suspension of its CEO and ongoing investigations by both the SEC and the U.S. Attorney’s Office. The company’s shares have taken a hit, but there are indications of a recovery. Xponential Fitness remains committed to cooperating with the authorities and has reaffirmed its long-term goals. While challenges lie ahead, the appointment of an interim CEO and the maintenance of financial targets offer some hope for the future. Investors will be closely watching how the company navigates through these turbulent times.
