Peloton Tumbles on Downbeat Forecast, Accounting Problem
(Bloomberg) -- Peloton Interactive Inc. slumped in late trading after the fitness company warned that a price cut would hurt its bottom line this year and that it found a problem with the way it accounts for inventory.
The shares fell as much as 15% to $97 following the release of its quarterly results and a worse-than-expected outlook for fiscal 2022. The price cut, also announced Thursday, will lower the cost of Peloton’s most popular bike by $400 to $1,495, part of a bid to make the upscale product more mainstream. And Peloton is now offering financing plans that last as long as 43 months, up from 39 months, which will lower monthly payments for its higher-end bike and treadmill.
The changes help remove a barrier for consumers, Peloton said, but will take a toll on sales and profit in the coming months. The company warned that its adjusted loss would be $325 million in the current fiscal year, and its sales this quarter will miss Wall Street estimates. Peloton expects to return to profitability by fiscal 2023.
The company also pointed to a problem with its accounting. An audit of fiscal 2021, which ended June 30, found “a material weakness” in the internal controls that govern Peloton’s financial reporting. The problem stemmed from a discrepancy in the company’s year-end inventory counts.
“It did not result in a material misstatement of our financial statements or disclosures, nor will result in any restatements of historical results,” the New York-based company said. “We are committed to fully remediating these issues as soon as possible.”
Peloton, best known for its stationary bikes and online classes, has benefited from consumers exercising at home during the pandemic. But it’s also had setbacks in the past year, including supply constraints and a recall of its recently launched treadmill line. It’s facing higher costs for materials and shipping as well, and the company is spending more on marketing as it tries to broaden its appeal.
Even before Thursday’s slide, the shares were down 25% this year.
Earlier this week, Peloton announced plans to restart sales of its lower-end treadmill, the Tread, which had been taken off the market to fix a problem with its screen detaching. A more upscale model, the Tread+, is still on hold after it was linked to child injuries and one death.
Still, sales in the just-ended quarter were slightly stronger than analysts predicted. Revenue rose 54% to $936.9 million, compared with an average estimate of $929 million. Roughly two-thirds of sales come from its fitness product line, with subscriptions making up the rest.
Peloton posted a net loss of $313.2 million, or $1.05 a share, in the quarter, compared with net income of $89.1 million, or 27 cents, a year earlier. The company expects an adjusted loss of $285 million in the current quarter, with $800 million in revenue. Analysts had projected sales of $1 billion on average.
Connected fitness subscribers -- people who subscribe to content on a Peloton machine -- reached 2.33 million last quarter. Wall Street estimated 2.28 million. The company expects that number to reach 3.63 million this fiscal year.
Thursday’s price cut is the second one in less than a year. Upon launching a higher-end bike last September, the Bike+, Peloton lowered the price of its original model from $2,245. With the latest changes, the Bike model will cost users $39 per month over 43 months, down from $49. The Bike+ and Tread will each cost $59 per month, down from $64.
In addition to its bikes and treadmills, Peloton is working on new devices such as rowing machines and a wearable gadget for tracking heart rates.
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