30 Locations for Armah: Does Expansion Mean Higher Profitability?

When a company announces new branches or expansion into additional locations, the news is often seen as a positive indicator of growth.

But does having more branches necessarily mean higher profits?

This question caught my attention as Armah Sports continues to expand in the Saudi market. The company recently announced that it had signed a contract to invest in a plot of land in Riyadh’s Al-Sulaimaniyah district to build and operate a new sports club under its B Fit brand.

With the addition of this new location, the company’s total number of locations has risen to 30, as part of a plan to reach 50 clubs by 2030.

These figures reflect clear ambitions for growth, but they raise an important question:

Is expansion measured by the number of new clubs, or by the returns each club generates?

Growth starts with investment, before revenue

Building a new sports club does not mean the company will start making a profit as soon as it signs the lease.

The project requires fitting out the premises, purchasing equipment, developing facilities, installing technology systems, and hiring staff before it can welcome members.

This phase may require significant investment without generating corresponding operating revenue from the new location.

At the same time, some financial obligations may begin before operations start, depending on the terms of the contracts.

This is where the difference between announcing a new project and generating an actual return from it becomes clear.

A company may be able to add several locations to its plans in a short period, but the real financial impact depends on when each location opens, how efficiently it operates, and how well it attracts members.

Is every new club a profitable opportunity?

The profitability of sports clubs can vary, even when they belong to the same company.

A club in a densely populated area may attract more memberships than one elsewhere, but it may also face higher rent and operating costs.

A club’s financial results are also affected by its size, service level, surrounding competition, and target customers.

That is why it is not enough to choose a location that looks commercially attractive.

The company needs to estimate expected demand, determine how many memberships are required to cover costs, and compare projected revenue with expenses.

In my view, a good location is not necessarily the most famous or expensive one, but the one that can generate an appropriate return relative to the investment it requires.

Not all membership revenue turns into profit

Sports clubs rely primarily on customer memberships and the additional services they offer.

A rise in the number of members may be a positive indicator, but it is not enough on its own to assess profitability.

The company incurs expenses such as payroll, maintenance, cleaning, electricity, water, and technology systems.

Sports equipment also needs to be maintained and replaced, with the cost of its use recognized over its useful life through depreciation.

This is where contribution margin becomes important. It helps management understand how much revenue remains after variable costs to help cover fixed costs and generate profit.

A club may generate high revenue, but high expenses can reduce the profit it retains.

That is why it is important to look at the profitability of each club individually, rather than relying only on the company’s total revenue.

When does a club reach break-even?

One of the most important questions to ask before opening any sports club is how many members it needs to cover its expenses.

This is where the concept of the break-even point comes in.

For example, if a hypothetical club has monthly fixed costs of SAR 300,000 and an average contribution margin of SAR 300 per monthly membership, it would need the equivalent of about 1,000 monthly memberships to break even.

This example is for illustrative purposes only and does not represent Armah’s actual figures.

It shows that an increase in the number of locations does not guarantee profitability, since each location needs to generate enough revenue to cover its costs.

Reaching break-even also does not necessarily mean the initial investment has been fully recouped; a project may take years to generate cash flows that make up for its setup costs.

Rapid expansion can put pressure on cash flow

One aspect I consider important when analyzing expanding companies is the difference between profit and cash flow.

A company may record growth in membership revenue while also needing to spend significant amounts on fitting out new clubs.

This may increase financing needs during the growth phase.

Some memberships paid in advance may provide the company with liquidity, but that does not mean the full amount is recognized as revenue as soon as it is received. Revenue is generally recognized as the service is provided over the membership period.

That is why liquidity management matters: it helps prevent expansion from putting pressure on the company’s ability to meet its obligations.

What does an accountant look at?

When an accountant sees that Armah is targeting 50 clubs by 2030, they do not focus only on the difference between the current and target number of locations.

Instead, they start asking other questions:

How much does it cost to build a single club? What is the average revenue per member? What is the membership renewal rate? How long does it take a club to break even? And what is the expected payback period for the invested capital?

The accounting treatment of lease contracts, depreciation, deferred revenue, and cash flows also becomes important to understanding performance.

In my view, expansion in the sports club sector offers an opportunity to benefit from growing interest in health and fitness, but it requires a balance between rapid growth and operational efficiency.

A company may succeed in opening a large number of clubs, but the success of its business model depends on its ability to operate those locations and generate sustainable returns from them.

So perhaps the most important question is not:

How many new clubs will Armah open?

But rather:

How much value can each new club add to the company?