Peloton, the maker of upscale fitness equipment and workout programs, said Thursday (May 6) its connected fitness subscribers rose 135 percent to a record 2 million users despite being embroiled in an ongoing government-mandated safety recall of its two treadmill products.
In his opening commentary on Peloton’s latest earnings results, Co-Founder and CEO John Foley apologized for not acting sooner on the recall issue and expressed confidence that the financial and reputational costs to the company would only be temporary.
“I want to be clear, Peloton made a mistake in our initial response to the Consumer Product Safety Commission’s request that we recall our Tread+ product,” Foley said on the company’s earnings call. “Promptly stopping the sales of our products while cooperating more closely with the CPSC was something we should have considered sooner and for that, I apologize.”
While Foley admitted the company still had work to do to “get back on the right side of the line with trust and safety,” he also said that Wednesday’s recall agreement was a big step forward.
“We’re going to take some short term financial pain to be able to invest in building something that lasts for decades and where our brand is pristine again,” Foley said, pegging the initial revenue hit from the recall at $165 million due to halted sales, expected refunds to existing customers and temporary waivers of treadmill subscription fees.
Core Business Adds Record Subscribers
Beyond Foley’s mea culpa, the ordeal has not slowed the momentum of the connected fitness leader, which added unprecedented new subscribers — and retained existing ones — for the three months ending March 31.
“We added a record 414,000 net connected fitness subscriptions in the quarter, bringing our end of quarter connected fitness membership base to 2.08 million, up 135 percent year on year,” CFO Jill Woodworht told investors and analysts on the call.
The New York-based company also said that its revenues rose 141 percent to $1.2 billion as delivery wait times improved and subscriber cancellations dropped to a six year low of 0.3 percent.
“Our record low churn is due in large part to the efforts that we all make at Peloton day in and day out to drive engagement,” Woodworth said. “In Q3, we averaged 26 monthly workouts per connected fitness subscription versus 17.7 [workouts per month] in the year ago period, an increase of 47 percent.”
At the same time Peloton said its less expensive digital subscriptions, used by people who tune in to classes on their own device, rose 400 percent to 891,000.
Guidance Is A Challenge
In light of the ongoing implications concerning the treadmill recall, Peloton said it was more difficult than usual to predict financial results but said, for the three months ending June 30 — its fiscal fourth quarter — it expects sales will grow about 50 percent from a year ago to $915 million.
While the company is in the process of retro-fitting a new passcode login feature to its treadmills to prevent unauthorized use, it said it still expected to reap the benefit of new and expanded domestic production capability following its acquisition of Precor last year.
“As a company we believe strongly in the future of at-home connected fitness, and we know we have a responsibility to be an industry leader in product safety,” Foley said. “We are a members-first organization, and that means for all of us at Peloton that the safety of our member community comes first.”
Shares of Peloton have almost been cut in half year to date, dragging its market value down to roughly $25 billion.
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