Peloton (PTON) Q3 2021 earnings

Earnings


A monitor displays Peloton Interactive Inc. signage during the company’s initial public offering (IPO) across from the Nasdaq MarketSite in New York, U.S., on Thursday, Sept. 26, 2019.

Michael Nagle | Bloomberg | Getty Images

Peloton said Thursday its fiscal third-quarter sales grew 141%, as recent investments in its supply chain allowed it to improve the pace of deliveries.

However, even as the company made progress in easing delivery bottlenecks, brought on by its popularity as a way to exercise at home during the pandemic, it faced another challenge: The need to recall its treadmills in the U.S. after one child died and dozens were injured in accidents involving the Tread+ machine.

Peloton shares initally fell Thursday when its financial results were released. The report didn’t disclose any details about the financial impact of the recall or its outlook. However, the stock recouped losses after the company provided more detail on its earnings call.

Peloton shares were recently up more than 4% in extended trading.

The company expects the treadmill recall — which has halted sales of both of its treadmills, and delayed the planned launch of a less expensive version — to reduce fourth-quarter sales by $165 million.

It now expects fourth-quarter sales of $915 million, which is lower than the $1.12 billion analysts were expecting, according to Refinitiv estimates.

Peloton also expects to incur costs because it is offering customers full refunds and will waive these customers’ membership fees for three months. The company expects the cost to reduce its fourth-quarter adjusted EBITDA by about $16 million.

“Our goal is to have the best safety features for treadmill products on the market,” Chief Executive John Foley said during the call. “There will be a short-term financial impact due to the steps we’re taking.”

A day earlier, Peloton issued a voluntary recall of all treadmills, which impacts about 125,000 Tread+ machines and roughly 1,050 Tread products in the U.S.

Still, demand for its cycles, which represent the majority of its business, remains strong.

Here’s what the company reported for the quarter ended March 31 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Loss per share: 3 cents vs. 12 cents expected
  • Revenue: $1.26 billion vs. $1.1 billion expected

Peloton’s net loss shrank to $8.6 million, or 3 cents per share, from a loss of $55.6 million, or 20 cents per share, a year earlier. That was better than the 12-cent per share loss that analysts were anticipating. 

Total revenue surged 141% to $1.26 billion from $524.6 million a year earlier, and topped a Wall Street forecast for $1.1 billion. 

Connected fitness revenue rose 140% to $1.02 billion, representing 81% of its total sales. Subscription revenue grew 144% from 2020 levels to $239.4 million, and makes up 19% of total revenue, the company said. 

Sales were driven, in part, by an acceleration of expected deliveries, Peloton said. Last quarter, it announced plans to invest $100 million in air freight and expedited ocean freight over a six-month period to help speed shipments. It also recently completed its $420 million acquisition of the manufacturer Precor, in a bid to boost its production capabilities in the United States. 

The company said average wait times for its Bike are now 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,” Chief Executive John Foley said in a letter to shareholders Thursday. 

Churn hits record low

Peloton ended the quarter with 2.08 million connected fitness subscriptions, up 135% from a year earlier. Connected fitness subscribers are people who own a Peloton product and also pay a monthly fee for access to the company’s digital workout content. 

Average net 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 turnover Peloton is seeing with its user base. 

Total workouts, which include those from connected fitness users and from digital-only customers, grew to more than 171 million from 48 million a year earlier.

The company has been adding new content, such as barre and Pilates classes, to keep its customers engaged. It’s also preparing to launch in Australia later this year, as it continues pushing into new markets. 

Working to approve new design

On Wednesday, Foley apologized for initially rebuffing the U.S. Consumer Product Safety Commission’s recommendation that the treadmills be recalled. In a statement, he said he should have acted more quickly to resolve the issue when the safety concerns were raised. 

Peloton originally opposed a recall, saying customers should use its machines when children and pets are not present, and lock the machines when they’re not in use.

The CPSC must approve new enhancements to its treadmills that will make the equipment safer before it can be sold again, Foley said. He added that he anticipates the Tread to go on sale again “much sooner” than the Tread+.

“This process typically takes six to eight weeks. It could take longer. So we can’t offer an on-sale or revised launch date at this time,” Foley explained.

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

In April, the CPSC released a graphic video that showed a young boy being pulled under one of the Tread+ machines and struggling to free himself. It was captured on a home security camera.

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

Peloton shares are down more than 45% year to date, as of Thursday’s market close. It has a market cap of $24 billion. 

Check here for the earnings release from Peloton.



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