A shopper walks past a Peloton store in a shopping mall on May 11, 2023, in Oak Park, Illinois. The exercise equipment maker said it is recalling more than 2 million of its exercise bikes because the bike’s seat post can break during use.
Indoor cycling distributor Peloton reported Wednesday (August 23) that it experienced a wider-than-expected loss and a quarterly drop in new subscribers as its shares plummeted to about 23%.
The company has blamed the recall of its Bike seat post, as well as the seasonality of its product and the cycling trend in general, CNBC reported.
While Peloton fell short of analysts' earnings estimates, they have beaten sales expectations. According to Refinitiv's analysis, the company actually lost $0.68 per share compared to its $0.38 per share projection and sales actually dropped to $642.1 million, down $678.7 million a year earlier.
Nevertheless, the company earned $642.1 million, around $2 million more than the $639.9 million prediction.
Summer Slowdown
Peloton CEO Barry McCarthy said in May its fourth quarter would be among its most challenging from a growth perspective.
Unlike other companies, Peloton's fourth fiscal quarter falls during the summer months (Q2 2023), which was historically slow for the company and other fitness firms and retailers. Consumers have a tendency to pull back on workouts during the season as they travel and take part in other summer plans.
In addition, subscriptions to the company's affiliated services dropped by 29,000 from last quarter (Q1 2023) despite it currently having around 3.08 million in total, a 4% increase year over year (YoY).
"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."
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Peloton's Bike Seat Post Recall is Main Culprit for Downturn, McCarthy Said
Moreover, McCarthy blamed Peloton's slow business growth on the recall of its Bike seat post, which had the tendency to detach and break unexpectedly. Defective seat posts were described to be creating more churn than expected.
During the time the recall was announced, which happened last May, around 15,000 to 20,000 people decided to pause their monthly subscriptions while waiting for their seat post replacements. The recall impacted more than 2 million Bike units the company had sold since January 2018 and cost them $40 million in the quarter, far more than Peloton expected.
To date, the company received 750,000 replacement requests, which was also more than anticipated.
McCarthy joined Peloton in 2022 and has made a number of changes to restore its early pandemic success as cycling was restricted in the early months of COVID-19. This included the implementation of layoffs and store closures while giving the Peloton app and pricing tiers an overhaul.
The company's shares are at an all-time low of 30% year to date.
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