Dive Brief:
- Peloton’s first quarter total revenue dropped 3% year over year to $595.5 million, according to a Thursday company filing. On a call with analysts Thursday, CFO Liz Coddington said Peloton expects roughly $10 million in revenue from its new subscription agreement with Lululemon for the second quarter.
- The fitness company’s net loss during the quarter improved 61% to $159.3 million while its gross margin increased from 35.2% to 47.9%. Peloton reported its ending connected fitness subscribers during the period increased by 2% to 2.96 million.
- Peloton reinstated providing full-year guidance, projecting fiscal 2024 to generate between $2.7 billion and $2.8 billion in total revenue (a 2% year-over-year decline at the midpoint), ending paid app subscriptions to decrease 6% at the midpoint and ending paid connected fitness subscriptions to be flat at the midpoint compared to last year. For the holiday quarter, Peloton expects a decline in total revenue compared to the year prior, with $750 million at the high-end range.
Dive Insight:
Peloton’s latest earnings follow a year of strategic changes and new initiatives for the brand.
“With the distractions of the past few months solidly behind us, Q1 was focused on preparing for the all-important holiday selling season,” Coddington said in a statement. “With the early performance of our brand refresh, new partnerships, improved features and functionality in our connected fitness platform and our App, and continued investments in our hardware products, we remain optimistic about our ability to accelerate subscriber growth in Q2 and the remainder of fiscal year 2024.”
The company in May released a free tier of its fitness content membership as part of Peloton’s overall brand relaunch. In a letter to shareholders Thursday, CEO Barry McCarthy noted that while Peloton has seen more than 1 million consumers download the free version of its app, the company was “less successful at engaging and retaining free users and converting them to paying memberships than we expected.”
During the first quarter, Peloton saw average net monthly paid connected fitness subscription churn increase slightly from 1.2% to 1.5%. The company also began reporting average monthly paid app subscription churn as a new metric, which was 6.3% for the period.
“Continued weakness in big-ticket discretionary spending and a shift toward services presents a challenge for Peloton's turnaround in the near-term,” analysts led by Dana Telsey at Telsey Advisory Group said in emailed comments. “Its newer revenue streams primarily rental and refurbished products, hospitality, and wholesale partnerships with Amazon and Dick's are showing some potential, but are not yet large enough. It is also early days in the shift of the company toward software from hardware, and we would like to see more member acquisition through the expanded digital subscription tiers.”
Total operating expenses for Peloton dropped 29% to $417.6 million, with $41.9 million in impairment and restructuring expenses, of which $31.2 million was non-cash. The non-cash charges were related to write-downs and write-offs from Peloton Output Park — which was the company’s first factory in the U.S. — as well as the closure of retail showrooms and more.
Looking ahead to the upcoming holiday season, Coddington told analysts on the call that Peloton’s Q2 outlook takes into account larger economic conditions.
“Our Q2 guidance reflects what I believe to be a balanced view based on the macroeconomic outlook ... there is some uncertainty around the performance in the health of the holiday season,” the executive said.
