Earnings Results: Peloton stock tanks on weak holiday forecast, CFO admits ‘we underestimated the reopening impact on our company’
Peloton Interactive Inc. executives provided a weaker-than-expected holiday forecast Thursday and reduced expectations for the full year, sending shares on a steep decline.
executives said Thursday that they expect holiday sales of $1.1 billion to $1.2 billion, while analysts on average had been predicting revenue of $1.49 billion, according to FactSet. With supply-chain issues concerning investors and executives ahead of the holiday shopping season, Peloton executives told shareholders in a letter that “a softer-than-anticipated start to Q2 and challenged visibility into our near-term operating performance is leading us to recalibrate our fiscal-year outlook.”
“It is clear that we underestimated the reopening impact on our company and the overall industry,” Chief Financial Officer Jill Woodworth bluntly stated in a conference call Thursday.
Just three months ago, Peloton told investors that it expected annual revenue of $5.4 billion, but executives pulled that down Thursday to a range of $4.4 billion to $4.8 billion and suggested they will make cuts to find better margins in response.
“In conjunction with our revised demand forecasts, we will be taking concrete steps to re-examine our expense base and adjust our operating costs to better align our investments with our revised growth expectations,” executives wrote in the letter.
In the conference call later Thursday afternoon, Chief Executive John Foley said, “The swift timing of these changes since giving our initial guidance in August is not lost on us.”
“As we prepared our previous guidance, we had to make assumptions about consumer behavior coming out of COVID, the impact of our original Bike price reduction and the cost structure within our Connected Fitness segment, all against the backdrop of a global supply-chain crisis,” he said. “While we have had to manage carefully around many issues such as component shortages, elevated freight costs and increased transportation costs, I’m proud of our team who has moved mountains to ensure that we have ample inventory across our portfolio head of the holiday season.”
For the fiscal first quarter, Peloton disclosed a loss of $376 million, or $1.25 a share, a massive decline from earnings of 20 cents a share a year ago, when the company was flying high amid a spike in at-home fitness-equipment sales during the COVID-19 pandemic. Revenue of $805.3 million was an increase from $758 million in the year-ago quarter, and missed analysts’ average estimate.
Analysts on average expected a loss of $1.10 a share on sales of $809 million, according to FactSet. Shares dove more than 30%, to $60.11 in after-hours trading, levels Peloton hasn’t seen in a regular session since August 2020; the stock closed with a 4.3% decline at $86.06.
Peloton stock has struggled in the past year after huge gains earlier in the COVID-19 pandemic, as the company has recalled its treadmill product and cut the price on its core exercise bike while introducing a higher-priced version. Shares have declined 28.5% since its last earnings report three months ago, as the S&P 500 index
has grown by 5.9%, with concerns multiplying about the reopening of gyms and increased competition in the at-home fitness space.
“Peloton continues to face uncertain end-market demand (reopening headwinds, for instance) and growing list of competitive offerings (Apple Fitness+, Beachbody’s MYX bike, iFit’s canceled IPO … and emerging startups in fitness modalities, e.g., Tonal and Hydrow),” MKM Partners Managing Director Rohit Kulkarni wrote in a preview of Thursday’s report, while maintaining a buy rating and $130 price target. “Recent developments … imply that the company has stacked up several incremental layers of growth for FY22 vs. FY21, and thus could have a sustainable growth rate despite macro/micro headwinds.”