The 24 Hour Fitness chain announced Monday that it has filed for Chapter 11 bankruptcy relief due to the “disproportionate impact” of the COVID-19 pandemic.
The Chapter 11 petition, filed in U.S. Bankruptcy Court for the District of Delaware, will give the company time to work out a plan to repay its creditors and deal with lease obligations.
The club at 150 Hana Highway in Kahului, however, is among the more than 130 clubs that have been shuttered permanently across the nation.
“If it were not for COVID-19 and its devastating effects, we would not be filing for Chapter 11,” said Chief Executive Officer Tony Ueber in a news release. “With that said, we intend to use the process to strengthen the future of 24 Hour Fitness for our team and club members, as well as our stakeholders.”
In conjunction with the Chapter 11 filing, the San Ramon, Calif.-based company said it expects to secure about $250 million in debtor-in-possession financing, which would allow it to continue operations and reopen clubs without interruption.
Six other 24 Hour Fitness locations on Oahu are expected to reopen Friday, when gyms, along with spas, yoga, barre and dance studios, have been given the green light by Gov. David Ige to do so.
The company plans to reopen clubs in phases, with most of them open by the end of this month.
While some gyms start to reopen, it’s no guarantee that members will come flocking back, and cancellations could be even more devastating. It costs twice as much to recruit a new member as it does to retain an existing one. Roughly 28 of 100 U.S. gymgoers are expected to bail this year, according to trade group International Health, Racquet & Sportsclub Association.
Even before the onslaught of COVID-19, middle-tier operators like 24 Hour struggled with customer defections to higher-end or budget- friendly fitness options. The gym operator posted a 2% revenue decline in unaudited fourth-quarter earnings, Bloomberg reported in March.
Privately held 24 Hour, which had around 445 clubs in the U.S. in March, reported a slide in 2019 earnings partly due to the rocky debut of an automated system for checking in and signing up customers. Memberships fell to 3.4 million in the third quarter of last year from 3.5 million in the prior quarter, according to Moody’s Investors Service.
The majority of locations to be closed are in California and Texas. As many as 8,352 employees, or roughly 46% of the total workforce, could be affected by the changes, according to people with knowledge of the situation. They asked not to be identified discussing a private matter.
As part of the bankruptcy filing, the company has asked the court for authorization to continue paying employees’ wages, salaries and benefits, and to continue its various member programs.
Lazard is acting as financial adviser, FTI Consulting is acting as restructuring adviser and Weil, Gotshal & Manges LLP as the company’s legal counsel for the Chapter 11 filing.
Bloomberg contributed to this story.