Peloton Revenue Impact: $165M Loss from Treadmill Recalls

Peloton Issues Apology Amidst Tread Recalls

A typically positive earnings report was overshadowed today by an apology issued by Peloton CEO John Foley at the start of the call.

“As an organization prioritizing our members, the safety of the Peloton community is paramount,” stated the executive. “It is important to acknowledge that Peloton erred in its initial response to the Consumer Product Safety Commission’s (CPSC) recall request concerning the Tread+ product. A more collaborative dialogue with the CPSC should have been initiated from the beginning.”

Shift in Tone and Joint Recall Announcement

This statement represents a significant change in approach. Previously, the company contested statements made by the CPSC last month, with Foley expressing concern over what he described as “inaccurate and misleading” filings.

Yesterday, Peloton and the CPSC jointly announced a voluntary recall of the Tread+ product. This decision followed reports of 72 incidents, including 29 injuries to children and one fatality.

Additional Recall for the Lower-Cost Tread

Furthermore, the company agreed to an additional recall for the more affordable Tread model.

Currently, this product has only been officially released in Canada and the U.K., with limited availability to “select users” in the U.S. Consequently, the U.S. launch will be postponed.

Tread Tablet Console Issues

While less severe than the issues associated with the Tread+, the lower-cost Tread has experienced some quality concerns. “The new Tread has been generally well-received, however, we’ve identified minor issues regarding the attachment of the tablet console,” Foley explained.

Specifically, reports indicate that screws securing the touchscreen to the Tread have loosened in some instances, leading to console detachment.

Impact on Stock Price and Revenue

Despite positive financial results driven by continued home fitness demand and easing supply chain constraints, the recalls immediately impacted Peloton’s stock price. Shares experienced a 13.6% decline yesterday, as noted by analysts.

Following Foley’s remarks, CFO Jill Woodworth detailed the anticipated financial consequences.

Financial Implications of the Recalls

“We project the revenue impact of the Tread and Tread+ recalls to be approximately $165 million,” the executive stated.

This figure encompasses $105 million related to halting deliveries of the affected products. A full refund offering will impact return reserves by $50 million in the next quarter. Waiving three months of All Access subscription fees for Tread and Tread+ users will account for the remaining $10 million.

The company will continue content production while the CPSC assesses the products.

Resolution for the Tread Tablet Issue

Peloton is actively developing a hardware solution to address the tablet dislodgement issue on the Tread. Foley indicated that the resolution process typically takes six to eight weeks, but could potentially extend longer.