Dive Brief:
- Providing a look into how its turnaround is going, Peloton’s first quarter results on Thursday showed total revenue was at $617 million, a decrease of 23% year over year and 9% compared to last quarter. $617 million. This is below the brand’s low end of the quarter’s outlook, which was expected to be at least $625 million. Net loss for the fitness company increased 9% year over year to $409 million, but improved from the $1.3 billion loss in Q4.
- Connected fitness subscriptions — meaning customers with the brand’s hardware equipment and subscribes to content — were near flat compared to last quarter, but up 19% from the same period last year to about 2.97 million. The total member count stood at 6.7 million, down 3% compared to Q4 and up 6% year over year. Connected fitness member churn was 1.1% this quarter compared to 1.4% in Q4.
- Operating expenses for the company were $591.1 million, down 5% year over year and 50% compared to the previous quarter. Peloton noted in its outlook for this holiday that with macroeconomic uncertainties, “near-term demand for Connected Fitness hardware is likely to remain challenged,” projecting total revenue will fall about 37% year over year to be between $700 and $725 million.
Dive Insight:
Peloton CEO Barry McCarthy mostly sees progress in the brand’s numbers today.
“To revisit last quarter’s analogy, and to ensure absolute clarity, the ship is turning,” McCarthy said in a letter to shareholders. “The combined effects of all of these changes, coupled with our low monthly subscriber churn of 1.1%, are the green shoots that demonstrate the turnaround in our business. Sustained success against our plan means continued, demonstrable progress against each of these measures. Our results show we’re making significant progress.”
McCarthy cited improved free cash flow throughout the last three quarters as a sign of progress for Peloton, forecasting to reach breakeven in the second half of the fiscal year. In his letter, the CEO also applauded an improved gross margin (at 35.2% from negative 4.4% in Q4) and adjusted EBITDA (at negative $33 million from negative $289 million last quarter).
Some analysts might not share that level of optimism though.
“Peloton reported another ‘miss’ quarterly result, with Revenue and Gross Profit below our/Street expectations, while Adj. EBITDA losses were ‘less worse’ than expected,” Rohit Kulkarni, Managing Director at MKM Partners, said in emailed comments. “Apart from encouraging CEO commentary and modest anticipated improvement in margins, there are very few things to cheer about in today’s press release.”
Company leadership has taken active steps to improve the brand’s numbers though, according to GlobalData Managing Director Neil Saunders.
“The Peloton team hasn’t stood still and is energetically trying to carve out a sustainable path for the beleaguered brand,” Saunders said in emailed comments. “However, it all still feels like the company is trying to completely rebuild its engine long after the race has started. That doesn’t bode well.”
Peloton cut 500 jobs last month as part of its restructuring efforts, and executives such as its head of marketing and chief commercial officer announced departures in September. McCarthy stated on a call with analysts Thursday that “we are done now, and in my humble opinion there are no more heads to be taken out of the business.”
In his letter to shareholders, McCarthy noted that one of the company milestones over the past seven months was the launch of its premium rowing machine, which sells for over $3,000. That said, McCarthy told analysts that “the good news and the bad news about Row is for this fiscal year, we expect to be inventory constrained and to have more demand than we will have units to sell. And now we're working to address those issues.”
The push to sell premium products, such as Row, through larger retail channels may not be as successful as Peloton wants it to be, according to Saunders. The company recently entered into wholesale partnerships with Dick’s Sporting Goods and Amazon, marking a huge departure for the company’s original direct-to-consumer model.
