Actions of Platoon plunged on Thursday after the fitness company warned investors that it is still months away from increasing sales or turning a profit.
The retailer posted mixed results for its holiday quarter, as it lost a little more money than Wall Street expected but beat revenue estimates. Peloton also forecast weaker sales and a larger-than-expected loss in its current quarter.
Peloton shares closed more than 24% lower.
Here's how Peloton fared in its fiscal second quarter compared to what Wall Street anticipated, according to a survey of analysts by LSEG, formerly known as Refinitiv:
- Loss per share: 54 cents vs. 53 cents expected
- Revenue: $743.6 million vs. $733.5 million expected
The company reported a net loss for the three months ended Dec. 31 of $194.9 million, or 54 cents per share, compared with a loss of $335.4 million, or 98 cents per share. , a year before.
Sales fell to $743.6 million, down from $792.7 million a year earlier.
The company issued dismal forecasts for the current quarter and tepid sales prospects for the full year.
For its fiscal third quarter, Peloton expects sales to be between $700 million and $725 million, compared with a Wall Street estimate of $754 million, according to LSEG. The company expects its adjusted EBITDA loss to be between $20 million and $30 million, compared to analyst estimates of a loss of $2 million, according to StreetAccount.
“Our outlook is tempered by uncertainty surrounding our ability to efficiently grow paid app subscribers and the performance of other new initiatives, as well as an uncertain macroeconomic outlook,” Chief Financial Officer Liz Coddington wrote in a letter to shareholders. shareholders.
Peloton's connected fitness subscription guide was bigger than expected. The company also said it saw strong sales at retail partners such as Dick's Sporting Goods and Amazonand demand for its Tread+ was “significantly stronger” than expected.
For the second quarter in a row, Peloton managed to turn a gross profit on its connected fitness products, which have long been a loss-making business. Peloton's gross margin for its connected fitness products was 4.3%, compared to a Wall Street estimate of 3.4%, according to StreetAccount.
Nearly two years into CEO Barry McCarthy's tenure, Peloton is showing some signs of progress but has yet to meet its key goals.
In a letter to shareholders last February, McCarthy set a goal for the company to return to revenue growth within a year, but Peloton fell short. The company now expects to reach that milestone in June at the end of the current fiscal year.
McCarthy also set a goal of achieving sustained positive adjusted EBITDA within one year, which he also failed to achieve. He now expects Peloton to generate positive free cash flow during its fiscal fourth quarter, which ends at the end of June.
During a call with analysts, Coddington said Peloton is It again expects weak sales of hardware products in the coming quarters, which is hurting its free cash flow. Its bike rental program has also reduced free cash flow because it does not receive full payment for the product up front.
However, Peloton achieved a number of other goals that McCarthy set for it, including expanding its business and corporate wellness partnerships, selling its Ohio manufacturing facility and restructuring its retail footprint.
In a letter to shareholders, McCarthy outlined a series of initiatives he has spearheaded since taking the helm and explained which ones were working and which weren't.
On the positive side, McCarthy said Peloton's retail partnerships with companies like Dick's Sporting Goods and Amazon were working well.
“We saw exceptionally strong sales growth across these channels this holiday season, with 74% year-over-year unit growth in the second quarter,” McCarthy said. “Our key learning from these holiday results is that we can better optimize our sales and marketing tactics in the future to make sales from these partners even more incremental, which will drive a better margin mix for Peloton.”
The top executive said Peloton's bike rental program was also doing well and the company is forecasting 100% year-over-year revenue growth in fiscal 2024.
“The underlying economics remain attractive, given current Bike and Bike+ purchase and abandonment rates. The bike rental program is attracting a more diverse, more female and younger customer than it was 6 months ago,” McCarthy said. “Bike rentals are growing rapidly with attractive economics, and we are aggressively leaning into new opportunities to drive that growth.”
Demand has also been strong for its Tread+, which was withdrawn from the market in 2021. Sales of the base Tread also exceeded the company's expectations.
“The overall treadmill market is about 2 times larger than the exercise bike market. Therefore, our new push into the treadmill category and diversification of our hardware sales beyond Bike/Bike+ are good news for Peloton's future growth, as long as we maintain our momentum,” McCarthy said.
But during a call with analysts, McCarthy said he's not sure what demand for Treads will be like in the coming quarters and whether the company will be able to meet it. Peloton has “limited” experience selling products. let alone a history of selling them at full price without discounts or promotions, he said.
In his letter to shareholders, McCarthy said that if the company is not failing on some projects, “we are not being aggressive enough in trying new initiatives.”
Over the summer, Peloton announced a partnership with the University of Michigan that included the sale of co-branded bikes in the school's colors, but sales to alumni and boosters were much lower than expected. Peloton had planned to implement similar initiatives with other universities, but now hopes to end the program.
Peloton also failed to improve customer service, another goal McCarthy had set for the company last year.
“This past holiday season was particularly grueling for members. The member support experience has tarnished our brand and we simply must do better,” McCarthy wrote. “The team is currently in the middle of a reset. New leadership. New systems. New external vendors. New training. New staff. I am confident that we are on the right track this time. I am confident in the new leadership, and I am confident that in In the coming months our members will receive the level of service they deserve and expect and of which we can be proud.
Read the full earnings release here.
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