Peloton (PTON) Q2 2024 Earnings

Peloton shares were down about 20% in morning trading Thursday.

Here's what Peloton did in its fiscal second quarter compared to what Wall Street expected, based on a survey of analysts conducted by LSEG, formerly known as Refinitiv:

• Loss per share: 54 cents vs. 53 cents expected
• Revenue: $743.6 million vs. $733.5 million expected

The company reported a net loss for the three-month period ended Dec. 31 of $194.9 million, or 54 cents per share, compared with a loss of $335.4 million, or 98 cents per share, a year earlier.

Sales fell to $743.6 million from $792.7 million the previous year.

The company issued dismal guidance for the current quarter and tepid sales forecasts for the full year.

For its fiscal third quarter, Peloton expects sales to range between $700 million and $725 million, compared to a Wall Street estimate of $754 million, according to LSEG. The company expects adjusted EBITDA loss to be between $20 million and $30 million, compared to analyst estimates of a loss of $2 million, according to StreetAccount.

“Our outlook is tempered by uncertainty surrounding our ability to efficiently grow paid app subscribers and the performance of other new initiatives, as well as an uncertain macroeconomic outlook,” CFO Liz Coddington wrote in a letter to shareholders.

Peloton's connected fitness subscription guidance came in higher than expected. The company also said it saw strong sales at retail partners like Dick's Sporting Goods and Amazon, and demand for Tread+ was “much stronger” than expected.

For the second straight quarter, Peloton was able to turn a gross profit on its connected fitness products, which have long been a loss-making business. Peloton's gross margin for its connected fitness products was 4.3%, compared to Wall Street estimates of 3.4%, according to StreetAccount.

Nearly two years after CEO Barry McCarthy took over as CEO, Peloton is showing some signs of progress, but it's still not enough to achieve his key goals.

in Message to shareholders Last February, McCarthy set a goal of returning the company to revenue growth within a year, but Peloton has not achieved that. The company now expects to reach this milestone in June at the end of the current fiscal year.

McCarthy also set a goal of reaching sustained positive EBITDA within a year, which he also failed to achieve. Peloton is now expected to generate positive free cash flow during its fiscal fourth quarter, which ends at the end of June.

During a call with analysts, Coddington said Peloton as well We again expect weak sales of its hardware products in the coming quarters, hurting its free cash flow. Its bike rental program also cuts off its free cash flow because it doesn't receive full payment for the product up front.

However, Peloton has reached a number of other goals set for it by McCarthy, including expanding its business and health partnerships, selling its Ohio manufacturing facility, and restructuring its retail store footprint.

In a letter to shareholders, McCarthy outlined a series of initiatives he has led since taking office and explained which ones have been successful and which have not.

On the positive side, McCarthy said Peloton's retail partnerships with companies like Dick's Sporting Goods and Amazon have been performing well.

“We saw exceptionally strong growth in sales through these channels this holiday season, with year-over-year unit growth of 74% in the second quarter,” McCarthy said. “Our key learning from these holiday results is that we can better optimize our sales and marketing tactics going forward so that sales from these partners are more incremental, resulting in a better margin mix for Peloton.”

Peloton's bike rental program has also performed well, and the company expects its revenue to grow 100% year-over-year in fiscal 2024, the senior executive said.

“Fundamental economics remain attractive, given Bike and Bike+'s current decline and acquisition rates. The bike rental program is attracting a more diverse, more female and younger clientele than it did 6 months ago,” McCarthy said. “Bike rental is growing rapidly thanks to attractive economics, and we are aggressively leaning into new opportunities to drive this growth.”

Demand was also strong for the Tread+, which was recalled in 2021. Sales of the entry-level Tread also exceeded the company's expectations.

“The overall treadmill market is about 2x larger than the stationary bike market. So our newfound momentum in the treadmill category, and the diversification of our device sales beyond Bike/Bike+, is good news for Peloton's future growth, provided we maintain our momentum.” McCarthy said.

But during a call with analysts, McCarthy said he's unsure what demand for Treads will look like in the coming quarters, and whether the company will be able to meet that demand. Peloton has “limited” experience selling products Even less has a track record of selling them at full price without discounts or promotions, he said.

In his letter to shareholders, McCarthy said that if the company does not fail in some projects, “we are not being aggressive enough to test new initiatives.”

Over the summer, Peloton announced a partnership with the University of Michigan that included the sale of co-branded bikes in the school's colors, but sales to alumni and boosters came in much lower than expected. Peloton had planned similar initiatives with other universities, but now expects to end the program.

Peloton also failed to improve customer service, another goal McCarthy set for the company last year.

“This past holiday season was particularly stressful for members. The member support experience has tarnished our brand, and we simply must do better,” McCarthy wrote. “The team is currently in the middle of a reboot. New leadership. New systems. New third-party vendors. New training. New employees. I'm confident we're on the right track this time. I'm confident in the new leadership, and I'm confident that in a few months Next, our members will receive the level of service they deserve and expect and of which we can be proud.

Read the full earnings release here.

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