Fast Fitness Japan Incorporated Q3 FY2025 earnings call

Overall Strategic Positioning

• The current fiscal year is positioned as a cost-early investment phase for transition to a new growth stage, aligned with the mid-term management plan announced in May 2024.
• Management is focused on strengthening the core domestic AnyTime Fitness business while executing planned growth investments and expanding/ diversifying the business portfolio for sustained long-term growth.

Core Domestic Business Progress

• 13 new stores opened in 3Q, for a net increase of 58 stores year-over-year (8 direct, 50 franchise), with only 3 store closures due to landlord-related contract expirations, maintaining stable expansion amid growing competition in the 24-hour gym category.
• Two national promotions were executed in the current fiscal year (June-July 2024 and December 2024-January 2025), with the third promotion (Dec 2024-Jan 2025) testing a SNS-focused strategy without TV CM that achieved comparable results to prior TV-included promotions at lower cost. Management is continuously testing and optimizing promotion channel mix and frequency.
• The new AnyTime Fitness app launched in August 2024 has achieved 58% growth in Monthly Active Users (MAU) by January 2025. Over 30% of entry uses the app's phone tap access function as of December 2024, improving member convenience, supporting member retention, and enabling better member-staff communication.

New Growth Initiative Progress

• Germany: The local subsidiary was renamed Fast Fitness Brands GmbH, and management is developing store locations and recruiting franchise candidates to enable rapid franchise expansion, leveraging Germany's high 10-14% fitness participation rate.
• Singapore: Two existing franchise stores were acquired to gain overseas operation know-how and train local-ready staff, with two Japanese staff currently dispatched, and a third store planned for spring 2025.
• The Bar Method: Fast Fitness Japan holds the master franchise right for Japan (the first non-US market for this US-popular ballet-inspired fitness concept), with the first store opened in Jiuyogaoka in November 2024, and a second Tokyo store planned for early spring 2025, targeting future franchise expansion.
• A PROP E-commerce: The official online store launched in December 2024 (delayed from original plan due to extended US headquarters contract negotiations), offering workout apparel, protein/supplements and lifestyle goods, targeting long-term growth via recurring subscription for repeat-purchase supplements, with a focus on building out unique original and co-branded product assortments.

Financial and Capital Structure

• 3Q consolidated operating profit was 2.44 billion yen, down 14.6% year-over-year, in line with the initial plan that expected front-loaded investment costs, though the strong performance of the core domestic business offset some investment costs and improved the profit decline versus the lower end of the initial plan range. Sequentially, profit increased from 1Q to 2Q to 3Q.
• The mid-term plan targets 9.6 billion yen in total 3-year investment, with 2.9 billion yen invested through 3Q of the first year, in line with plan, and the company maintains a strong 63.0% equity ratio.

Shareholder Return

• Dividend policy was updated to target a 40% consolidated payout ratio with a 4.5% minimum DOE, switching from a range forecast to a fixed 45 yen per share full-year dividend, to provide stable returns to investors accounting for potential near-term earnings volatility from growth investment.
• A new shareholder dividend program was launched offering discount coupons for the A PROP online store, in response to shareholder requests.

1. Domestic AnyTime Fitness: This is the core segment, with 1,173 stores and 936,000 total members as of 3Q. It achieved 11.3% year-over-year revenue growth on an apples-to-apples basis (adjusted for special factors and overseas business). Average members per store reached 819 as of January 2025, exceeding the pre-COVID level of 811. 2. Overseas AnyTime Fitness: Germany holds master franchise rights for the entire country, with 1 direct-operated store currently, and plans to open a second direct store in spring 2025. Singapore has 2 franchise stores, and plans to open a third franchise store in spring 2025. This segment is in early investment stage with no meaningful revenue contribution yet. 3. The Bar Method (new brand): This is a new studio fitness concept, with the first direct-operated store opened in November 2024 in Tokyo. It is in early launch/investment stage with no meaningful revenue contribution. 4. EC/E-commerce (A PROP): This is the new official online store for fitness apparel, supplements and goods, opened in December 2024. It is in early launch stage with no meaningful revenue contribution. Overall consolidated revenue for 3Q was 13.28 billion yen, up 12.6% year-over-year, with 85.7% of revenue coming from stable recurring royalty and membership fees.

• The full-year 2025 March fiscal year plan announced in May 2024 is maintained with no revisions. Performance is on track, with profit within the planned range and 3Q coming in above plan on a sequential basis, as the strong core domestic business partially offset front-loaded new growth investment costs.
• National promotions will continue to be run multiple times a year at a steady scale in coming fiscal years, with continuous optimization of channel mix and efficiency based on accumulated test results.
• New store expansion is planned for all new growth initiatives: a second direct store in Germany and third franchise store in Singapore in spring 2025, and a second The Bar Method store in Tokyo in early spring 2025.

• Front-loaded investment costs for new growth initiatives (overseas expansion, new brand, e-commerce) will lead to near-term lower profit compared to prior periods, and there is risk that new initiatives do not achieve expected growth or profitability targets in the planned timeline.
• Saturated demand and cannibalization could potentially limit future domestic store expansion, though management currently sees significant remaining headroom. Intensifying competition in the 24-hour gym category could pressure member growth and margins.

Q: What is the expected sales ratio for advertising costs going forward, will cost controls hurt member and franchisee acquisition? / A: Management is currently testing different promotion strategies to find the optimal balance between cost efficiency and growth results, having tested combinations including TV CM and SNS-only promotions over three national campaigns. They will continue testing to find efficient spending levels that do not negatively impact acquisition, with the ratio adjusting based on initiative stage (higher for new launches, lower when stable). Management notes that higher sales will enable larger absolute promotion budgets long-term.

Q: Are there material differences in franchise regulation for Germany compared to Japan, how will this affect expansion? / A: The only key regulatory difference is some small German towns restrict fully 24-hour operation, but even these locations can operate from 6AM to midnight which is nearly equivalent to full 24-hour service with no material impact. Unlike Germany's common revenue-percentage royalty model, Japan uses fixed monthly royalties which benefits franchisees by letting them keep more profit above the fixed fee, a more franchise-friendly structure. Management is testing mixed royalty models to find a structure that works for both Fast Fitness and German franchisees.

Q: Is there still significant room for additional domestic store openings, or will cannibalization end growth soon? / A: Management sees ample remaining white space for openings, especially in regional areas. In dense Tokyo markets where popular stores become overcrowded during peak hours, opening additional nearby locations has created a healthy cycle: the original store sees a small member decline (not a 50% cut) and the new store fills up, with some major Tokyo locations already supporting three overcrowded locations. Japan's current fitness participation rate is only 3-4%, compared to 20% in the US and 15% in Europe, so even reaching 10-12% participation would triple total demand and require 2-3x more stores. Management sees no near-term saturation point, as demand grows with overall fitness participation in Japan.