Peloton projects $165M revenue impact from treadmill recalls

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What would have been a celebratory earnings call in just about any other quarter ended on a somber note today, as Peloton CEO John Foley kicked things off with an apology.

“We are a members-first organization,” the executive stated. “And that means for all of us at Peloton, the safety of our member community comes first. I want to be clear, though. Peloton made a mistake in our initial response to the Consumer Product Safety Commission’s Request that we recall our Tread+ product. We should have been more open to a productive dialogue with them from the outset.”

The tone marks something of a 180, from the company that pushed back against CPSC statements last month, when Foley said the company was “troubled” by the commission’s “inaccurate and misleading” filings. Yesterday, Peloton and the CPSC issued a joint announcement of a voluntary recall for the Tread+ product, which has been linked with 72 reported incidents, including 29 injuries to children and one death.

The company also agreed to an additional recall for the lower-cost Tread, which thus far has only officially launched in Canada and the U.K., with availability to “select users” in the U.S. The recall will result in a delayed launch of the product in the States.

The issue, while potentially serious, has thus far amounted to far less than the Tread+’s belt issues. “While the new Tread as been well received, there have been some minor quality issues related to how the tablet console is attached to the Tread,” Foley explained. “The touchscreen attaches to the tread with screws. In a handful of cases, we’ve had reports of the screws loosening, causing the console to detach from the unit.”

While the company reported more excellent financial news, amid strong lockdown home fitness growth and a loosening of the supply chain constraints that hampered delivery early on the pandemic, the massive recall had an almost instantaneous impact on the company’s stock price. Alex noted late yesterday a 13.6% dip in shares.

Following Foley’s presentation, CFO Jill Woodworth laid out the expected impact to company revenue. “We estimate the revenue impact of Tread and Tread+ recall will be approximately $165 million,” the executive noted.

The figures include $105 million for ending deliveries on the impacted products. The offer of a full refund on the products will hit the company’s return reserves next quarter to the tune of $50 million, while the decision to waive three months of monthly fees for the All Access subscription to Tread and Tread+ users will make up the remaining $10 million. The company says it will continue to produce content while the CPSC evaluates the product.

The company is working on a hardware fix to the Tread’s dislodging tablet. Foley says the process generally takes six to eight weeks, but could take longer.

 

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