Peloton (PTON) Reports First Quarter Results

Platoon posted a bigger-than-expected loss in its fiscal first quarter as a sharp decline in connected fitness product revenue offset an increase in subscription revenue.

The shares fell more than 20% in premarket trading on Thursday. As of Wednesday’s close, Peloton’s stock had fallen about 75% so far this year.

Here’s how the fitness equipment maker performed against Wall Street estimates, according to Refinitiv.

• Loss per share: $1.20 versus 64 cents, expected
• Revenue: $616.5 million vs. $650.1 million, expected.

Revenue fell 23% compared to the same period last year. Peloton’s revenue outlook for the holiday quarter of $700 million to $725 million would mark a quarter-over-quarter increase, but is well below analyst estimates of $874 million.

“Given the macroeconomic uncertainties, we believe near-term demand for Connected Fitness hardware is likely to remain challenging,” the company said.

Peloton CEO Barry McCarthy said in an earnings announcement Thursday that the company’s turnaround was a “work in progress.” The company has been grappling with the end of pandemic-era demand, when lockdowns spurred the growth of home exercise. This year the company undertook major management changes, massive layoffs and a new business strategy under McCarthy. The company has moved beyond its direct-to-consumer roots into deals with other retailers and into a model that emphasizes subscriptions.

“The ship is turning,” McCarthy, a former Spotify and Netflix executive, said Thursday.

Co-founder and former CEO John Foley stepped down as chairman of the board in September along with co-founder and chief legal officer Hisao Kushi, followed soon after by Peloton chief marketing officer Dara Treseder. Foley had resigned as CEO in February, when he was replaced by McCarthy.

McCarthy led an extensive turnaround effort for the company. He oversaw thousands of layoffs, including 500 job cuts in early October. Cost-cutting efforts were coupled with new initiatives to sell more bikes and increase Peloton’s digital subscribers.

Subscription revenue increased to $412.3 million from $304.1 million last year. Meanwhile, revenue from connected fitness products fell to $204.2 million from $501 million. Peloton’s gross margin of 35.2% was broadly in line with expectations and a drastic improvement from the negative 4.4% in the prior quarter.

Peloton reported 6.7 million total members, down from 6.3 million last year, but down from 6.9 million in the prior quarter. McCarthy said the company hopes to one day reach 100 million members.

The company also touted its improved free cash flow, which was negative $246.3 million from $411.9 million in the prior quarter and negative $651.9 million a year ago. . Peloton said it hopes to be close to breakeven on this by the second half of the fiscal year.

Among McCarthy’s recent moves was Peloton’s decision to sell bikes and treads through Amazon and by dick Sport stuff. The company also began certifying used bikes and expanded its bike rental program nationwide. And, in partnership with Hilton, the company is set to put bikes in the fitness centers of about 5,400 hotels across the country.

The first quarter also saw the release of Peloton’s $3,195 rowing machine. Most recently, the company extended its refund period for its recalled Tread+ treadmill, which was recalled following multiple user injuries and one fatality.

The company reported $199 million in recall reserves, restructuring expenses and impairment in the first quarter as it continues its turnaround.