Peloton 4Q sales top Street, but posts bigger-than-expected loss partly on recall costs

Peloton managed to beat sales expectations during its fiscal fourth quarter, but the exercise equipment maker reported a bigger loss than anticipated partly due to recall costs and a shift in consumer spending.

Shares plunged more than 23% in afternoon trading on Wednesday.

Revenue fell to $642.1 million from $678.7 million in the quarter, but still topped the $640.5 million that analysts surveyed by Zacks Investment Research expected.

Subscription revenue rose 10%, while connected fitness products revenue slipped 25%.

The number of members declined 5% to 6.5 million from 6.9 million.

In a letter to shareholders, President and CEO Barry McCarthy said that consumers have been shifting their spending to travel and experiences, but that the New York-based company is starting to see an uptick in hardware sales.

McCarthy also said that costs related to a seat post recall that was announced in May had substantially exceeded initial expectations.

“An estimated 15,000 to 20,000 of our 2.2 million impacted members elected to pause their monthly subscriptions in Q4 pending the receipt of a replacement seat post,” he added.

Peloton Interactive Inc. lost $241.8 million, or 68 cents per share, for the three months ended June 30. A year earlier, the company lost $1.26 billion, or $3.72 per share.

Wall Street was calling for a loss of 45 cents per share.

McCarthy cautioned on the upcoming quarters.

“We don’t currently expect to remain free cash flow positive in the two upcoming quarters, mainly due to seasonality of our hardware sales, timing of inventory payments, marketing spend as we invest for growth and prepare for the holiday season, and one-time cash outlay for seat posts; but we do expect to achieve this objective once again in the second half of fiscal 2024,” he said.

In addition, Peloton plans to resume pre-sales of its Tread+ treadmill in the U.S. this holiday season. McCarthy said that the Consumer Product Safety Commission approved its design for a new rear guard for the product this past quarter. Peloton will start retrofitting existing Tread+ products later this year. It will install the rear guard for members that request one, which is 17,000 to date.

Looking ahead to the first quarter, Peloton foresees revenue in a range of $580 million to $600 million.