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May 6, 2021

Peloton says recall will reduce revenue by US$165M

Peloton growth in Canada outpacing U.S., but customer geography creates challenges: Peloton president

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Peloton Interactive Inc. projected revenue of US$915 million in the current quarter, saying the recall of its treadmills would reduce sales by about US$165 million. Shares gained about 5 per cent in extended trading after investors had prepared for a larger blow.

Chief Executive Officer John Foley said the financial impact would be “short term” from the halt to sales and recall of the Tread+ and Tread products. Peloton had planned May 27 for an expanded U.S. rollout of its less-expensive Tread, which has only about 1,050 models on the market, but Foley said Thursday the widespread launch will be delayed while safety improvements are put in place.

Peloton, in conjunction with the U.S. Consumer Product and Safety Commission, on Wednesday announced the recall of the treadmills. The US$4,295 Tread+ was connected to the death of a child and more than 70 reports of incidents, while the touchscreen of the less-expensive Tread was at risk of falling off. The products account for a small percentage of the company’s hardware revenue, which is primarily generated by stationary bicycles, but are seen as key future growth drivers.

Foley said the company is working on new safety measures for the treadmills, including a software update that will include a passcode requirement for the more expensive model. Hardware changes are also being worked on, but must be approved by regulators, and may take six to eight weeks, he said. The company expects about 10 per cent of users to seek refunds for their treadmills.

In light of the recall, the company revised its forecasts and said annual revenue would be US$4 billion compared with the previous guidance of US$4.075 billion. Shares, which had fallen while investors awaited the foreast, jumped to a high of US$89.20 in extended trading after closing at US$83.78 in New York.

Earlier, Peloton said sales gained 141 per cent to US$1.26 billion in the fiscal third quarter, which ended March 31. Analysts, on average, projected US$1.12 billion, according to data compiled by Bloomberg.

Connected fitness subscriptions -- users who pay for classes on Peloton equipment -- jumped 135 per cent to 2.08 million, the New York-based fitness technology company said in a statement. Paid digital subscriptions, made up of people who take classes on smartphones, tablets and other devices, increased to 891,000. Both numbers topped analysts’ average estimates.

Peloton sales have soared in the past year as the pandemic shut gyms and forced people to work out from home. However, the company has struggled to keep up with demand for months, leading to long wait times and frustrated customers. Those supply issues droves shares down about 45 per cent in 2021.

In a letter to shareholders, Peloton said average shipping times for its original bike are back to pre-pandemic levels. “While progress has been made, additional work remains to reduce delivery times across the remainder of our product portfolio and regions,” the company said.

Peloton said it completed its acquisition of fitness equipment maker Precor on April 1 and integration is “well underway.” The company plans to make a limited number of products at Precor’s North Carolina facility by the end of 2021.

The company recently said it would expand to Australia later this year, adding in the letter that it sees “significant growth opportunities in a broad range of international markets.” but had no announcements at this time.

Peloton said connected fitness subscription workouts increased 239 per cent to 149.5 million in the quarter, an average of 26 monthly per user compared with 17.7 in the same period a year earlier. The monthly churn rate was 0.31 per cent, though 98 per cent of subscribers are on a month-to-month basis.

Peloton reported an adjusted profit before interest, taxes, depreciation and amortization of US$63.2 million in the fiscal third quarter, topping analysts’ estimates of US$18.3 million. Net loss narrowed to US$8.6 million, or 3 cents a share, from US$55.6 million, or 20 cents, a year earlier.