Thousands of Franchisees Fail but Franchisor Curves Remains Profitable

Since 2007, the Curves women's fitness chain has lost about a third of its franchises.  While some excuse the decline as due to  "cheaper competitors with more amenities and options," the president of the company, Mike Raymond, explains it differently:

The company disagrees with its critics, contending that much of the club closings were intended as part of a plan to "prune the system,". . .Some owners had bought into Curves for the wrong reasons, he says, "they were motivated primarily as investors rather than owners."   The Wall Street Journal

While Mr. Raymond argues against Curves' critics who claim the companies inflexibility to move with the times has anything to do with the franchise's decline, one could argue that Curves' clients are voting with their feet.

Apparently, regardless that thousands of franchisees have closed their businesses and were financially hurt (perhaps bankruptcies?), Curves itself seems to be doing well:

Financial statements filed by the closely held company show it to be profitable. For the year ended Dec. 31, Curves earned $16.4 million on revenue of $84.1 million, compared with earnings of $17.2 million on revenue of $128.7 million the prior year. The revenue falloff reflects lower franchising royalties and equipment sales. Franchisees pay the company 5% of their monthly gross plus another 3% for advertising.

top line vs. bottom line

No surprise.  The Zor gets its % off the top, the Zee only makes $ if there is any $ left at the bottom line after expenses.  Inherent conflict of Zee and Zor.


''$16.4 million on revenue of $84.1 million, compared with earnings of $17.2 million on revenue of $128.7 million the prior year.''

That is less than a 5% drop in earnings off almost a 35% drop in revenue. Anyone want to hazzard a guess as to how this was achieved? Genius or was there a pick up on asset sales? Maybe franchisees were paying more to zor off massive growth? Anyone believe that.

Curves: Not Genius, Just Despicable

Bruce, I understand your analysis but I believe there is a point you are missing.  Drop the prior year's earnings by 35% and they still profit around $11 million.  All while Rome burns.  Curves has been a mess for years with stories of massive turnover and closures and management now claims, after being more than willing to sell these people franchises, that destroying thousands of families was nothing more than pruning.

Granville's point is dead on.  It doesn't matter whether the system is fabulous or flawed, the franchisor profits.  Nero holds nothing over this industry.

I've never seen

a business that can lose 35% of gross and only lose 5% of net.  Unless they are selling something on the corner.

Or a genius has come on board amongst total idjits.

Re: I've never seen

Ray, in how many industries can a company lose 35% of their gross and be profitable at all let alone show a still healthy profit.  Franchising is one of the great untold sc-m stories in modern history.


is the net EBITDA or does it include depreciation? perhaps they took less depreciation. hard to tell without seeing the financials.

Hard to tell

but without clarity I tend to suspect some cute creativity with those numbers.

I suspect...

That they are not reinvesting in their system ("concept" if you like).  This is the Zor we are talking about so they wouldn't have much to depreciate besides the corporate jet and all that, since they don't own the stores' real estate.  Major expenses might be brand advertising, and marketing to gain more Zees.  If they shift out of growth mode and stop doing that kind of stuff, then they are in cash cow mode until the cow dies.  Why reinvest in a sinking ship.

That could be it, I'm just speculating.  Or expectorating.


The largest money-maker at Curves is the Legal Department.  They sue the 1,000's of former owners who had to close their clubs early because Curves International would not adapt their business model to changing times.  And they would not allow the franchisees to employ any changes either.