Peloton Interactive Inc. experienced a significant drop in its shares as the fitness company issued a disappointing revenue forecast for the current quarter. The company estimated revenue of $580 million to $600 million for the fiscal first quarter, well below the average analyst estimate of $647.8 million.
One of the factors contributing to this weak forecast was the unexpectedly high cost of a product recall in May. The cost ended up being $40 million more than anticipated, resulting in additional expenses and a projected decline in future costs. Approximately 15,000 to 20,000 subscribers paused their monthly subscriptions due to the recall, leading to a decrease of 29,000 subscribers compared to the previous quarter.
Peloton CEO Barry McCarthy acknowledged the challenges faced by the company, including the product recall and an expensive lawsuit settlement. However, he expressed optimism that the worst was behind them. Unfortunately, investors were not reassured, and Peloton’s shares fell by 23%, the most since January, to $5.41 following the news.
Peloton has been struggling with a decline in demand after experiencing a surge in sales during the COVID-19 pandemic. Additionally, the company has faced several product recalls in recent years. Despite these setbacks, Peloton hopes to resume pre-sales of its Tread+ treadmill in the US during the holiday season, with the first shipments expected about six weeks later.
CEO Barry McCarthy has been implementing various strategies to turnaround the company, including reducing the workforce, reshuffling management, and expanding partnerships with businesses and schools. However, some analysts are skeptical about Peloton’s ability to regain its former status and raise concerns about the company’s ability to sell more hardware while remaining independent.
In the fiscal fourth quarter, Peloton’s sales fell by 5% to $642.1 million, slightly below analysts’ expectations. However, the company remains hopeful and expects to achieve cash flow positivity in the second half of the fiscal year.
Analysts are uncertain about the demand for Peloton’s products, questioning whether there is already a sufficient number of households and owners for fitness equipment. As the company faces these challenges, it will need to reassess its strategies and adapt to changing market dynamics in order to regain momentum and drive growth in the coming months.