The state of recalls. That’s what it feels like with Peloton, as on Wednesday (Aug. 23) the company reported a loss that exceeded expectations and a reduction in new quarterly subscribers. The fitness company cited the recall of its bike seat post and seasonal patterns as the driving factors.
Coming in the summer months, the company’s fiscal fourth quarter encounters a deceleration not just impacting Peloton but also other fitness retailers during this time. Consumers often curtail their workout routines due to travel and various summer-related commitments.
For the quarter ending on June 30, the company posted a net loss of $241.8 million, in contrast to the loss of $1.26 billion in the same period previously. Revenues also declined to $642.1 million, marking a decrease of $678.7 million compared to the previous year.
Back in May, CEO Barry McCarthy cautioned that the upcoming fourth quarter would present notable growth challenges. However, this was the first time Peloton forecasted a decrease in subscribers.
The quarter closed with 3.08 million subscribers, marking a 4% rise over the prior year, consistent with the company’s forecasts. Nevertheless, there was a decline of 29,000 subscribers in contrast to the preceding quarter. Peloton ascribed this drop to a “seasonal” reduction in hardware sales and a churn rate that exceeded expectations.
“Peloton’s FYQ4 performance is a reminder we operate a seasonal business,” McCarthy said in a statement.
McCarthy said the deceleration went beyond the company’s predictions from May and extended into the initial three weeks of June, driven by a shift in consumer spending towards travel and experiences.
Earlier this month, PYMNTS highlighted that this summer witnessed a surge in travel — albeit not in the manner airlines might have anticipated.
Read more: Domestic Airlines Struggle as Consumers Embrace Global Travel
However, around eight weeks ago, this pattern reversed, and Peloton observed a resurgence in hardware sales.
Peloton also indicated that the recall of its bike seat resulted in higher customer turnover than initially predicted. This metric stood at 1.4% for the quarter. The company suspects that around 15,000 to 20,000 individuals opted to temporarily pause their monthly subscriptions during this time, anticipating the replacement of their seat posts.
The recall, declared in May, impacted over 2 million bikes sold by the company since January 2018, incurring a cost of $40 million in the quarter, a sum higher than Peloton’s initial projections, as McCarthy pointed out. The company has gotten 750,000 replacement requests, surpassing its initial predictions. So far, Peloton has addressed 340,000 of these requests and expects to fulfill the rest by the end of September.
Peloton has been striving to reach out to customers not inclined to spend substantial amounts on a stationary bike or treadmill. This has led to a rental program and a certified refurbished choice. The rental service, recently introduced in Germany, has already garnered over 48,000 subscribers. Additionally, the refurbished line achieved 6,500 sales within the quarter.
During May, the company introduced a range of new pricing tiers for its fitness app, encompassing an unrestricted free membership option (without needing a credit card) and subscription levels priced at $12.99 and $24 per month. The app enables users to access Peloton’s fitness classes and design customized workouts from any location, including their gyms.
“We’re shifting perceptions from in-home to everywhere, fitness enthusiasts to people at all levels, exclusivity to inclusivity across all Peloton Members present and future,” said Leslie Berland, the fitness company’s chief marketing officer, at the time of the announcement.
Read more: Peloton Unveils Membership Tiers in ‘Anyone Anywhere’ Rebrand
“The anytime anywhere, any place message is absolutely landing,” said McCarthy during the company earnings call.
Peloton noted during the call that it saw favorable changes in perception across various metrics, including increases among Gen Z consumers and individuals who might be older yet new to fitness. Moreover, there’s a noticeable shift in the demographic composition of app downloaders, particularly towards men, Gen Z, Black and Hispanic consumers.
In addition to its rebranding efforts, McCarthy noted during that call that Peloton is beginning to offer a variety of limited-edition bike frame colors and graphics to both the consumer and commercial markets.
“For the last 10 years, Peloton has been the Henry Ford of stationary bikes. We sold any color bike frame you wanted as long as you wanted black,” he told shareholders. “I’m excited to announce a change in strategy … Expect to hear more about this exciting initiative this fall.”
Peloton is actively embracing its B2B strategy to enhance revenue generation and attract new clientele. On Aug. 17, Peloton unveiled the introduction of “Peloton for Business,” a B2B solution aimed at catering to customers “wherever and whenever.”
“Our goal is to be a solution-oriented partner that provides customizable options for each client’s unique needs, regardless of a company’s size,” said Greg Hybl, senior vice president and general manager of Peloton for Business. “By offering both holistic and individualized solutions, we can now widen our client base to include [SMBs] in addition to the larger enterprise businesses we currently serve.”
Read more: Peloton Sets Sights on Building a Small Business Ecosystem
Additionally, Peloton has unveiled a novel initiative focused on collaborating with NCAA Division 1 schools. Peloton revealed a collaboration with the University of Michigan on Tuesday (Aug. 22) to enhance the fitness of students, athletes and alumni.
As a component of this partnership, Peloton will introduce co-branded Peloton Bikes and will offer fitness guidance, co-branded content, and in-venue engagements for University of Michigan football, basketball, hockey, and Olympic Sports teams and their supporters.
Read more: Peloton Becomes Official Fitness Partner of University of Michigan Athletics
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More