FDD Talk: Average Service Gross Sales and First-Time Student Enrollment for Farrell’s Extreme Bodyshaping Centers (2013 FDD)

Highlights of Farrell’s Extreme Bodyshaping’s Item 19 Financial Performance Representations (2013 FDD) – Part 1

• The franchise is to operate a health and fitness center under the “Farrell’s eXtreme Bodyshaping” name providing instruction in bodyshaping, kickboxing, and resistance training, and related products and services.

The Covered Centers

• The franchisor provides below a financial performance representation based on revenue information for certain Farrell’s Centers during 2012. As of December 31, 2012, there were 42 total Farrell’s Centers open and operating.

• Of those, the franchisor or its affiliate owned and operated 8 Farrell’s Centers that offered a different mix of products and services than franchised Farrell’s Centers, including martial arts classes and other experimental courses that franchised Farrell’s Centers did not offer among their current Courses.

• Of the remaining 34 franchised Farrell’s Centers that were open and operating as of December 31, 2012, 4 franchised Farrell’s Centers did not operate for 4 full 10-week Course sessions during the 2012 calendar year because they first opened during the year.

• The financial performance representations that follow below cover the remaining 30 Farrell’s Center franchises that offered and ran 4 full 10-week Course sessions during the 2012 calendar year (the “Covered Centers”).

• The 30 Covered Centers are located in the following states:  4 in Colorado; 2 in Illinois; 10 in Iowa; 2 in Minnesota; 8 in Nebraska; 2 in South Dakota; and 2 in Wisconsin.

• As of December 31, 2012, the Covered Centers had operated for between 1 year and 5 years, with an average of 2.5 years of operating history.

• Of the 30 Covered Centers, 13 are located in generally urban areas having populations over 150,000 people, 6 are located in suburban areas (meaning small cities or towns situated within the proximity of an urban metropolis) having populations between approximately 8,800 and 57,000, and 11 are located in rural areas having populations under 150,000 people.

• The sizes of the Covered Centers range from approximately 3,200 to 8,500 square feet per Center, with approximately 60% falling between 4,000 and 5,000 square feet.

• All of the Covered Centers are located in commercial spaces within strip malls, whether as end-cap tenants or otherwise.

Scope of Representations

• The tables below list results for the top 1/3, middle 1/3, and bottom 1/3 of the Covered Centers based on their Service Gross Sales (each a “Tier”) in 2012, as well as the average of all Covered Outlets in 2012 for:

• (i) average Service Gross Sale;
• (ii) average first-time student enrollment in initial 10-week Courses; and
• (iii) average conversion rate of first-time students to ongoing Course enrollment.

• The franchisor has excluded Merchandise Gross Sales from the tables below because those revenues derived from equipment and apparel sales typically comprise 5% or less of a Farrell’s Center’s total revenue and those revenues tend to vary among Farrell’s Centers depending on a particular Center’s retail space and emphasis on merchandising.

• The franchisor uses the actual Service Gross Sales, student enrollment, and conversion figures that franchisees reported to it to calculate the figures for the franchisee-owned Covered Centers in these tables. The figures have not been audited nor has the franchisor sought to independently verify their accuracy.

• The figures contained in these tables do not reflect the cost of sales, operating expenses, or other costs or expenses that must be deducted from the Service Gross Sales figures to obtain net income or profit.

Table 1 – Average Service Gross Sales for Fiscal Year Ended December 31, 2012

Top 1/3