on Wednesday reported a wider-than-expected loss and a quarterly drop in new subscribers that it blamed on its recall of its Bike seat post and seasonality, sending shares plunging about 22%.
The company fell short of analysts’ earnings estimates but beat sales expectations.Here’s how the fitness company did in its fourth fiscal quarter compared with what Wall Street was anticipating
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- on Wednesday reported a wider-than-expected loss and a quarterly drop in new subscribers that it blamed on its recall of its Bike seat post and seasonality, sending shares plunging about 22%.
- The company fell short of analysts’ earnings estimates but beat sales expectations.
Here’s how the fitness company did in its fourth fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:
Loss per share: 68 cents vs. 38 cents expected
Revenue: $642.1 million vs. $639.9 million expected
The company reported a net loss of $241.8 million, or 68 cents per share, for the three-month period that ended June 30, compared with a loss of $1.26 billion, or $3.72 a share, a year earlier.
Sales fell to $642.10 million, down from $678.7 millions a year ago.
Revenue: $642.1 million vs. $639.9 million expected
The fitness company reported a net loss of $241.8 million, or 68 cents per share, for the three-month period that ended June 30, compared with a loss of $1.26 billion, or $3.72.101010101010101010101010 The fourth quarter of the company’s fiscal year, which falls during summer months, is traditionally slow for Peloton and other fitness retailers. In May, Barry McCarthy, the CEO of Peloton, warned that it would be a challenging fourth quarter from a perspective of growth. For the first time, Peloton projected a decline in subscribers.
It ended the quarter with 3.08 million subscribers, up 4% year over year and in line with the company’s expectations. Peloton’s quarterly decline in subscribers was 29,000 less than the previous quarter. Peloton attributed the drop to a “seasonal” slowdown in hardware sales and higher-than-anticipated churn.
“Peloton’s FYQ4 performance is a reminder we operate a seasonal business,” McCarthy wrote in a letter to shareholders.
“The slowdown exceeded our expectations through May and through the first three weeks of June as consumer spending shifted toward travel and experiences,” he wrote. The trend started to reverse itself eight weeks ago, and sales of hardware began to accelerate. “
Peloton believes that the recall of their Bike seat posts, which were prone to breaking and detaching unexpectedly while in use, caused more churning than they expected. The quarter’s metric was 1.4%. McCarthy stated that the recall announced in May affected more than 2,000,000 Bikes sold by the company since January 2018. The recall cost Peloton $40 million during the first quarter. This was far more than they expected. The company has also received more requests than expected for seat post replacements. So far, Peloton has fulfilled 340,000 requests and expects to wrap up the rest by the end of September. Peloton narrowly reached positive free cash flow status on an adjusted basis, but doesn’t expect that will last during the next two quarters due to expected slowdowns in hardware sales, timing of inventory payments, marketing spending and the cash needed for the seat posts. In premarket trading Peloton shares fell about 30%. However, they recovered some ground during the day. The stock has now fallen about 32% this year.
McCarthy commented on the stock price during his call with analysts, saying there is “enormous disconnect between the stock price” and the work the company is doing to drive growth.
“I don’t mean to sound like one of those CEOs who’s completely disconnected from the stock price, because it’s not lost on me,” said McCarthy. McCarthy said, “I have never felt more optimistic or more excited about the business’s future. “
Strategy changes on the path to growth
McCarthy, a former Netflix and Spotify executive, has spent the last three months focusing on new strategies aimed at getting the fitness company back on a path to growth.
The company has been working to capture customers who don’t have thousands of dollars to splurge on a stationary bike or treadmill by offering a rental program and a certified refurbished option. The company has now attracted more than 48, 000 subscribers to its rental service. It was recently launched in Germany. The refurbished line generated 6,500 sales in the first quarter. McCarthy said that both initiatives “prove to be important growth strategies”. The company’s rebranding under Leslie Berland (formerly of Twitter, now known as X), its Chief Marketing Officer is part of this strategy. The retailer is positioning itself as a fitness brand for all, and is equally invested in both its app and its expensive connected fitness products such as the Bike, Row, Tread, and Tread. In May, the retailer announced a new set of pricing levels for its fitness app. These include an unlimited free option (no credit card is required), and levels costing $12.99 and $24 per month. It allows users to create their own workouts and watch Peloton fitness classes from anywhere, including the gym. Since the relaunch of the app, more than 900,000.00 downloads have been recorded, with over two thirds being non-Peloton subscribers. The company is also seeing more sales of its premium membership than expected. It ended the quarter with 256,000 free monthly active users.
“The anytime, anywhere, anyplace message is absolutely landing,” McCarthy said on a call with analysts.
“The last objective
was to remind people that, and particularly with the launch of the app, that it’s more than just a stationary bike company and that message is also finding traction. Peloton also sees “meaningful shifts in perception” across a variety of measures, including gains among Gen Z and other consumers who are older but new to fitness. Peloton also sees a shift among the people downloading its app, with a greater number of men, Gen Z and Black consumers. “For the last ten years, Peloton has been the Henry Ford of stationary bikes,” McCarthy told shareholders. “I am excited to announce this change in strategy. This exciting initiative will be discussed in greater detail this fall. “
Peloton is also leveraging its business-tobusiness strategy to drive new revenue and capture more customers. Peloton for Business was launched earlier this month. It allows companies to provide access to its app and connected fitness products via their benefits. Volvo is one of the clients who offers its employees the Peloton App, the All-Access Membership, and discounts on the hardware including the Bike, Bike+ and Tread. Dropbox offers its employees a similar offer.
Peloton has also launched a program to partner with NCAA Division 1 Schools. McCarthy said that “you can expect to hear more announcements about additional global partners in the weeks ahead.” McCarthy stated that more announcements will be made in the coming weeks about other global partners.