XpresSpa Group Stock Forecast - Financhill

XpresSpa Group Stock Forecast

XpresSpa Group Stock Forecast: Consumers are starting to develop an increasing interest in improving their health, as indicated by their spending habits.

The global wellness industry is valued at $4.2 trillion – and growing. Around $120 billion of that comes from Spas and Wellness Centers.

There are roughly 150,000 spas around the world, and they employ 2.6 million people. At the same time, travel retail is also growing.

That industry almost tripled from 2002 to 2017, growing at an average rate of 8.6% per year with some of the most substantial growth coming out of Asia-Pacific (14.4% per annum) and the Middle East (13.0% per annum).

Spending on global airport infrastructure is also up. The value of that industry is expected to hit $1.5 Trillion by 2023.

XpresSpa Group (XSPA) accesses each of these industries.

What Does XpresSpa Group Do?

XpresSpa creates wellness destinations in airports. Its services attract travelers who are having longer wait times.

In the US alone, 2.8 million people fly in and out of airports every day, and around 20% of them experience delayed flights. In addition, the average wait time AFTER security is over 90 minutes.

In this way, air travelers are a captive audience for in-airport services. Plus, keep in mind that 23% of frequent fliers make over $100,000 per year, so they presumably have extra money to spend.

Many of XpresSpa’s customers are also looking for more experiences while in airports. Airport shopping doesn’t have the allure it once did for many people in that it is very easy to get “stuff” online. Whether consumers want clothes or candy, the product is only a click away and can often be delivered within two days.

Moreover, health and wellness services cannot be “Amazon-ed,” and many people spend a sizable part of their disposable incomes on those expenses.

Today, almost 25% of disposable income for Millennials is spent on health and wellness. Stress relief is a real concern for many of these people.

Aside from the physical impact of travel on the body, many people are also dealing with chronic illnesses. The combination has prompted 87% of employers to commit to workplace wellness, and 73% of them to offer their own wellness programs.

Is XpresSpa Group Stock A Buy?

XpresSpa has more than 50 locations in 25 airports around the world. Its spas offer facials, massage, nail care, and waxing for people on the go. Some of the airports in XpresSpa’s portfolio include Atlanta, Chicago, Dallas, Los Angeles, New York, Dubai, and Amsterdam.

Most importantly, XpresSpa has enviable unit-level economics. The average payback period for installing an XpresSpa location is just 2-2.5 years, and average unit sales are $850,000 to $1 million.

The company has a good product mix too. Despite offering spa services, that revenue stream is only 84%. Retail is 16% of the company’s sales.

Growth for the company has been strong, and it has a new leadership team leading the way. In early 2019, Doug Satzman took over as CEO. His experience includes roles as CEO at Joe Coffee, CEO at Le Pain Quotidien, and SVP at Starbucks.

Scott Milford stepped into a role as Chief People Officer after being VP of People Operations at Soul Cycle and serving as SVP of Human Resources at Le Pain Quotidien. Together with the rest of the executive team, Satzman and Milford are looking to drive top line revenue while reducing costs.

At the same time, the group is looking to develop partnerships, refine its offerings, and pursue conservative growth.

Will XpresSpa Group Competitors Beat It?

XpresSpa does have some competitors, but the company has more than 60% of the US market share, locations in the busiest airports in the United States, and opportunities to expand its presence in those airports – making for 2.5x growth potential.

Risks of Investing in XpresSpa Group

One of the most significant risks facing XpresSpa right now is COVID. Fewer people are traveling right now. While some of them will resume their regular vacations and business travel after restrictions are lifted, some won’t.

XpresSpa did open XpresCheck, a modular, in-airport testing facility at JFK in New York. It can test 500 people a day. XpresCheck screens airport workers as well as TSA officers, airline employees, and the like for COVID and antibodies.

However, this effort doesn’t erase the fact that the company had to temporarily close its spa locations during the worst of the pandemic. The coronavirus caused a liquidity crisis at XpresSpa.

Per its Annual Report, “We are currently seeking sources of capital to help fund our business operations during the COVID-19 crisis

..We have been able to secure financing during 2020 totaling gross proceeds of approximately $9,440,000 by obtaining a cash advance on our accounts receivable balances, a loan from our senior secured lender, B3D, LLC (“B3D”), and through common stock offerings.”

The situation is so significant that an independent registered public accounting firm that XpresSpa engaged in evaluating its operations has listed the company’s ability to remain operational as a going concern.

XpresSpa may be able to pursue some business alternatives, like a restructuring, but those conversations could just as easily end with bankruptcy, liquidation, or otherwise winding the company up.

XpresSpa was already carrying significant debt. Taking cash advances undoubtedly impacts the company’s ability to attract more funding. Then, there is the matter of its books.

When XpresSpa filed its annual report, it identified some problems with its financial reporting. The company calls it a “material weakness.”

They are working to address the issue by putting some additional procedures in place. Still, the company “cannot assure you that any of our remedial measures will be effective in resolving this material weakness.”

XpresSpa Group Stock Forecast: The Bottom Line

XpresSpa may be making a Hail Mary pass – and, sometimes, this risky approach pays off.

COVID could become contained, and people could start traveling. They may want to treat themselves to spa services while waiting on their flight departures or while wasting time between flight connections. It is a possibility.

However, there is no guarantee that XpresSpa turns it around. Some of that they can control – like the books – but the broader situation of COVID and the pandemic’s impact on travel is still undetermined.

Investors buying into this stock are taking a risk. It could pay off, but there is a real risk that the company folds, so buyer beware.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.

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