Peloton shares tumbled more than 25 percent on Thursday, after the company reported weakening sales growth and a wider-than-expected loss in its fiscal first quarter.
The company slashed its outlook for the full fiscal year amid softened demand for its exercise equipment and ongoing supply chain challenges. More consumers are opting to return to gyms such as Planet Fitness and Equinox, or fitness junkies are purchasing another at-home option from the flurry of companies that sell everything from rowing machines to connected mirrors.
“We anticipated fiscal 2022 would be a very challenging year to forecast, given unusual year-ago comparisons, demand uncertainty amidst re-opening economies, and widely-reported supply chain constraints and commodity cost pressures,” Chief Executive Officer John Foley said in a letter to shareholders.
A slower-than-expected start to the second quarter and “challenged visibility” in the near term led the company to lower its expectations, Foley said.
For the three-month period ended Sept. 30, Peloton reported a net loss of $376 million, compared with net income of $69.3 million a year earlier. Revenue grew 6 percent to $805.2 million from $757.9 million a year earlier, missing estimates for $810.7 million.
Sales of Peloton's connected fitness products, including its Bikes and Treads, fell 17 percent.
That marked a significant slowdown from the 250 percent sales surge that Peloton booked in the first quarter of 2020, when consumers were eager to get their hands on at-home bikes to work out when gyms were closed.
Sales of connected fitness products, including its Bikes and Treads, fell 17 percent to $501 million. Subscription revenue grew 94 percent, to $304.1 million. Connected fitness sales accounted for 62 percent of Peloton’s business in the quarter.
Connected fitness subscribers are people who own a Peloton product and also pay a monthly fee to access the company’s digital workout content.
Its entire member base, which includes digital-only subscribers, totaled 6.2 million.
Sales and marketing expenses surged 148 percent, to $284.3 million, representing roughly 35 percent of revenue. The company has poured dollars into advertising its now less-expensive Bike product and Tread treadmill machine. The latter was just recently put back on sale in the U.S. following a widespread recall.
In August, Peloton slashed the price of its original Bike by 20 percent, to $1,495. On Thursday, Chief Financial Officer Jill Woodworth said that while Bike sales accelerated after the change, the results haven’t entirely met Peloton’s expectations.
Peloton faces heightened competition to continue growing equipment sales and keep people around. Companies such as Tonal, Hydrow and Mirror are winning customers in the at-home market, while shares of Planet Fitness hit a record high earlier Thursday after the gym chain offered up a better-than-anticipated outlook.
Shares of Planet Fitness hit a record high on Thursday after the gym chain offered up a better-than-anticipated outlook.
“At the end of the day, we are seeing how large the Peloton business is rather than how far its voice has spread,” BMO Capital Markets analyst Simeon Siegel said. “What Peloton has accomplished is remarkable, but that doesn’t mean its trajectory is limitless.”
“Connected fitness is becoming a sector rather than a one company story,” Siegel added.
Due to the uncertain nature of the pandemic, Peloton said it is now presenting its outlook in ranges, rather than single estimates.
Peloton added that it expects a “healthy” holiday season, now that it has adequate inventory to meet demand and normal delivery windows.
For the fiscal year, it slashed its expectations for subscribers and sales. It now anticipates connected fitness subscribers to amount to between 3.35 million to 3.45 million, down from a prior outlook of 3.63 million. It sees revenue ranging between $4.4 billion to $4.8 billion, down from $5.4 billion. Analysts’ consensus was for $5.39 billion.
Opportunities for cost savings include scaling back hiring plans and limiting the number of brick-and-mortar retail locations it opens, the company said.
Peloton shares have fallen 43 percent year to date, as of market close Thursday. The company’s market cap is about $26 billion.