Peloton Says Financial Hit From Recall Will Be ‘Short Term’

(Bloomberg) -- Peloton Interactive Inc. eased the concerns of investors, saying the financial impact of its treadmill recall would be “short term” and the company had overcome supply issues that had slowed deliveries of its popular stationary bicycles.

Fiscal-year revenue will be $4 billion, compared with an earlier forecast of $4.075 billion, the New York-based company said Thursday on a conference call after reporting earnings. The halt to sales of the Tread+ and Tread and the costs of the recall will reduce revenue by about $165 million, Chief Executive Office John Foley said.

Investors had been preparing for a larger blow after Peloton, in conjunction with the U.S. Consumer Product and Safety Commission, announced Wednesday the recall of the products. The $4,295 Tread+ was connected to the death of a child and more than 70 incident reports, including adults, children, pets and objects being pulled under the rear of the treadmill. The less-expensive Tread was pulled because the touchscreen was at risk of falling off.

Peloton had planned May 27 for an expanded U.S. rollout of the Tread, but Foley said the widespread launch will be delayed while safety improvements are put in place. Among the fixes are hardware changes that must be approved by regulators and a software update for the Tread+, including a passcode requirement, he said.

Peloton originally rebuffed safety warnings from regulators, but Foley apologized on Wednesday when the recall was announced. On Thursday, he said the company was working to regain whatever trust had been lost by the incidents involving the treadmills.

“We feel like we have some work to do to get back on the right side of trust, safety and to let people know what we stand for,” Folley said on the call. “We are taking some financial pain to keep our brand pristine for the coming decades. This is something we are committed to.

The treadmills 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.

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% so far this year.

In a letter Thursday 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. Bike sales are expected to return to normal seasonality as lockdowns ease, but the company projected it will sell three times as many bikes in the current quarter as it did in the same period in 2019.

Peloton said it completed the 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.

Apart from the recall, Peloton’s results showed continued popularity for its products and classes. Sales gained 141% to $1.26 billion in the fiscal third quarter, which ended March 31.

Connected fitness subscriptions -- users who pay for classes on Peloton equipment -- jumped 135% to 2.08 million. 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.

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