February 27, 2024

A monitor displays the signage of Peloton Interactive Inc. during the company’s IPO across the Nasdaq MarketSite in New York, United States on Thursday, September 26, 2019.

Michael Nagle | Bloomberg | Getty Images

Peloton announced Thursday that its fiscal third quarter revenue increased 141% as recent investments in its supply chain allowed it to improve the pace of delivery.

Yet even as the company made progress in addressing supply bottlenecks – brought about by its popularity as a way to exercise at home during the coronavirus pandemic – it faced another challenge: the need to recall all treadmills after having a child died and dozens were injured in accidents involving the Tread + machine.

Peloton shares initially fell after the financial results were released. The report did not provide details on the impact of the recall or its outlook.

However, the stock quickly made up for losses after the company released more details on its earnings call. Peloton stock recently gained more than 4% in extended trading.

The company believes the recall of the treadmill, which halted sales of its two models and delayed planned rollouts of a lower-priced version in the U.S., will lower sales by $ 165 million in the fourth quarter.

Refinitiv estimates fourth-quarter sales of $ 915 million, down from analysts’ $ 1.12 billion.

Peloton too Expects additional costs as customers receive full refunds and all treadmill customers are waived membership fees for three months. That should lower adjusted EBITDA for the fourth quarter by around $ 16 million, Peloton said.

“Our goal is to have the best safety features for treadmill products on the market,” said Chief Executive John Foley during the conference call. “There will be short-term financial implications because of the steps we are taking.”

Still, the demand for its cycles, which make up most of its business, remains strong. Peloton said its cycle sales should be more than three times higher in the fourth quarter than two years ago.

The company reported for the quarter ended March 31st, versus Wall Street’s expectations, based on an analyst survey conducted by Refinitiv:

  • Loss per share: 3 cents compared to 12 cents expected
  • Revenue: $ 1.26 billion versus $ 1.1 billion expected

Peloton’s net loss declined from a loss of $ 55.6 million, or 20 cents per share, last year to $ 8.6 million, or 3 cents per share. That was better than the loss of 12 cents per share that analysts had expected.

Total revenue rose 141% from $ 524.6 million a year ago to $ 1.26 billion, beating a Wall Street forecast of $ 1.1 billion.

Connected Fitness revenue increased 140% to $ 1.02 billion, representing 81% of total revenue. Subscription revenue increased 144% to $ 239.4 million from 2020, accounting for 19% of total revenue.

The sales are partly due to an acceleration of the expected deliveries, said Peloton. Last quarter announced plans to invest $ 100 million in air freight and expedited ocean freight over a six-month period to expedite shipping. The company recently completed the $ 420 million acquisition of Precor to improve its manufacturing capabilities in the United States.

The company said the average waiting time for its bike is now back to pre-pandemic levels.

“While progress has been made, more efforts are still needed to reduce lead times for the rest of our product portfolio and regions,” said Foley in a letter to shareholders.

Churn hits record low

Peloton ended the quarter with 2.08 million connected fitness subscriptions, up 135% year over year. Connected Fitness Subscribers are individuals who own a Peloton product and also pay a monthly fee to access the company’s digital training content.

The average monthly connected fitness churn, which Peloton uses to measure retention of connected fitness subscribers, hit a six-year low of 0.31%. The lower the churn rate, the less revenue Peloton has from its user base.

The total number of workouts, which include connected fitness users and digital-only customers, increased from 48 million last year to over 171 million.

The company has added new content such as barre and Pilates classes to keep its customers engaged. It is also preparing to launch in Australia later this year as it continues to enter new markets.

Working to Approve New Design

On Wednesday, Foley apologized for initially rejecting the US Consumer Product Safety Commission’s recommendation to recall the treadmills. In a statement, he said he should have acted faster to resolve the issue than the security concerns were raised.

Peloton originally declined to be recalled, saying customers should use their machines when children and pets are not around and lock the machines when they are not in use.

The CPSC must approve new improvements to their treadmills that will make the equipment safer before it can be sold again, Foley said Thursday. He added that he believes the Tread will be back on the market “much sooner” than the Tread +.

“This process typically takes six to eight weeks. It can take longer, so we are currently unable to offer a sales date or revised start date,” said Foley.

Peloton’s Tread + machine has an unusual belt design that uses individual rigid rubberized slats or treads that are connected to each other and travel on a rail. Many other treadmills on the market have a thinner, continuous belt. There is also a large gap between the bottom and the belt of the Tread +, which leaves a space underneath that can pose a risk.

In April, the CPSC released a graphics video showing a boy being pulled under one of the Tread + machines and struggling to break free. It was recorded on a surveillance camera.

With the Tread, some users have reported their screens unscrewed and falling off.

“We know that millions upon millions of Americans use treadmills safely in homes today, so we remain incredibly optimistic about the opportunity,” Foley said Thursday. “To run at home, you need a treadmill.”

Peloton stock is down 45% since the market closed on Thursday. It has a market capitalization of $ 24 billion.

Here you can find the results of Peloton.