LA Fitness profits in need of a workout

The chief executive of LA Fitness yesterday admitted he had failed to anticipate the impact that an economic downturn would have on his chain of health clubs.

Fred Turok, reporting a 50 per cent fall in pre-tax profits, said it had been a "year of two halves". He said: "We hadn't foreseen the economic downturn so it had an effect on the business." This was during a period when war with Iraq became a question of when, not if, and consumers began to get nervous about the economy. "We didn't sign up as many members as we wanted to, which flowed straight through to the bottom line," he added.

The company, which is the sole surviving quoted fitness group, reported pre-tax profits of £3.6m, down from £7.3m for the year to 31 July. This included £3.6m of exceptional charges to cover the cost of closing three clubs and aborting plans to expand in Spain. A string of the group's rivals, from Holmes Place to Fitness First, have been taken private during the past 18 months after struggling to cope with a more competitive market.

Striking an upbeat note, Mr Turok said trading had picked up in the company's second half and it had hit all of its sales targets since the year end. The group's change in fortunes helped its shares to jump 14.5p to 133.5p. "Demand is increasing, predominantly driven by people wanting to be more healthy," Mr Turok said.

LA Fitness saw its total membership rise by almost one third to 165,300 after opening 14 new clubs. Dismissing suggestions that the health club market was becoming saturated, Mr Turok said he planned to open up to six clubs this year. He said there was scope to accelerate the opening programme from July 2004 "because the opportunity is so substantial to open clubs in areas where there is no competition".

However, the group's expansion plans in Spain, which it once saw as a growth market and where it has one club, remain on hold.