Peloton will add digital pass codes to treadmills, take Q4 hit on recall, added safety features
Peloton said it will be adding new safety features to its treadmills following a recall of its Tread and Tread Plus products including a digital pass code that will be deployed via a software update.
On an earnings conference call, Peloton CEO John Foley said the company made a mistake by not collaborating with the Consumer Product Safety Commission right away. Peloton is postponing the launch of Tread in the US and stopping sales of Tread and Tread Plus where they were available.
Foley said:
With regard to the Tread Plus, our work with the CPSC involves building an extra layer of safety features for that product. This will include a digital pass code that will further protect against unauthorized use, a feature that we expect to deploy via an over-the-air software update in the coming days. We will be working hard in the coming weeks and months to develop additional physical hardware to further enhance the safety of Tread Plus.
We will, of course, share details as we develop a plan and a timeline for these additional safety features, but bear in mind that hardware features take time to develop, test and manufacture, and in this case, the CPSC will need to approve our proposed enhancements. With regard to the Tread, which is our new lower-priced treadmill product that features a low-profile traditional belt design, we are also temporarily stopping sales. As a reminder, this product was only available in Canada and the U.K. and as we have stated previously, we have been pleased with the reception and reviews. In addition, a small number of Tread units were made available to select U.S. members over the past few months in a controlled rollout to gain additional insights and feedback on the product ahead of launch.
Foley added that the new Tread has had some quality issues with how the tablet console is attached to the treadmill and screws loosening.
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Peloton said that the CPSC's full review of enhancements to its treadmills typically takes 6 to 8 weeks, but it could take longer. The company had no revised launch day. Foley did say that it will continue to develop content for treadmills.
Tread Plus treadmills are alreaday sold in the US and the software fix with a digital code is designed to prevent misuse. Customers can return it or stop using it. The Tread Plus will ultimately get a hardware fix to keep objects from going under the Tread.
The lower priced Tread hasn't been introduced beyond the UK and Canada. Foley said he thought the Tread will be coming back to market "much sooner than the Tread Plus."
The treadmill issue overshadowed a strong quarter for Peloton. Peloton said wait times for its original bike are back to pre-COVID-19 levels as it invested in supply chain and delivery.
Foley outlined the Precor purchase and plans to sell into hotels, corporate campuses, apartment buildings and other commercial areas.
In addition, Peloton said the integration of Precor is underway with mapping of commercial products and go-to-market strategies. Precor's North Carolina facility will begin limited manufacturing of Peloton gear by the end of 2021 and ramp into 2022.
Peloton reported third quarter revenue of $1.26 billion, up 141% from $524.6 million a year ago. The company lost $8.6 million, or 3 cents a share. Wall Street was expecting a loss of 12 cents a share on revenue of $1.11 billion.
The company said third quarter connected fitness subscription workouts were up 239% from a year ago to 149.5 million. Subscribers averaged 26 monthly workouts per subscription, up from 17.7 a year ago.
Peloton also outlined expansion in Australia with three retail locations in Sidney and Melbourne.
As for the outlook, Peloton projected fourth quarter revenue of $915 million. That guidance includes a $165 million revenue hit due to the Tread and Tread Plus recall. Wall Street was expecting sales of $1.17 billion. The outlook for the fourth quarter also includes:
- About $60 million in revenue from Precor.
- Tapering global Bike and Bike Plus sales from COVID-19 highs.
- A level of bike sales in the fourth quarter that are 3x higher than they were from 2019 levels.
- Subscription refunds and logistics costs to return Tread and Tread Plus.
Total revenue for fiscal 2021 will be about $4 billion.