Peloton (PTON) announces increased losses in the fourth quarter of 2022

A person walks past a Peloton store on January 20, 2022 in Coral Gables, Florida.

Joe Raedle | Getty Images

Platoon On Thursday, it reported mounting losses and a slump in sales in its fourth fiscal quarter as the maker of connected fitness equipment tried to win back investors with cost cuts and strategic changes.

The shares were down more than 15% in premarket trading, a day after the stock jumped more than 20% on news of its partnership with Amazon.

This is the sixth straight quarter of reported losses for Peloton. The company said it aims to break even in cash flow on a quarterly basis in the second half of its 2023 fiscal year.

Still, Peloton CEO Barry McCarthy said he expects the connected fitness market to remain challenging for the foreseeable future as consumer demand for home workout machines declines compared at pandemic heights.

From McCarthy took over as chief executive from Peloton founder John Foley in February, the company has pursued sweeping changes that have yet to fully bear fruit. Peloton increased membership fees, price increase on some equipmentlaid off thousands of workers, tested a rental option, left last mile delivery and transferred all production to third parties. Wednesday, Peloton too started selling part of its products on Amazon in the United States, its first such agreement with another retailer.

“Opponents will look at our [fourth quarter] financial performance and see a melting pot of declining revenue, negative gross margin and higher operating losses,” McCarthy wrote in a letter to Peloton shareholders.

“But what I see is meaningful progress that drives our return and Peloton’s long-term resilience,” he said. “We still have work to do.”

Peloton did not offer an outlook for its upcoming 2023 fiscal year. For the first quarter, it said it sees subscribers remaining flat and revenue between $625 million and $650 million. Peloton said this took into account weak near-term demand and seasonal fluctuations in the business.

There was a silver lining for the business: This was Peloton’s first reported quarter where higher-margin subscription revenue accounted for the majority of total sales.

Losses mount

Peloton’s net loss widened in the three months ended June 30 to $1.24 billion, or $3.68 per share, from a loss of $313.2 million, or $1.05 per share, a year earlier.

McCarthy said the losses stemmed from Peloton’s efforts to avoid an inventory glut, reduce fixed costs and address other supply chain issues. Earlier this year, the company embarked on a $800 million restructuring plan. Peloton ended the fourth quarter with $1.1 billion in inventory.

Revenue fell 28% to $678.7 million from $936.9 million a year earlier. That was below the $718.2 million analysts were looking for, according to Refinitiv estimates.

In this figure, connected fitness revenues which include the contribution of Peloton’s Precor Company fell 55% to $295.6 million.

Another dark spot was Peloton’s connected fitness gross margin, at less than 98.1% versus a positive 11.7% a year earlier. Peloton said it experienced higher logistics expenses per delivery, increased shipping and storage costs, and shipping costs. recall of his Tread+ treadmill.

Peloton recorded $383.1 million in subscription revenue, up 36% from a year earlier and representing 56.4% of the company’s total sales.

McCarthy, who previously worked at netflix and Spotify, made it clear that he was more interested in continuing growth on the subscription side of Peloton’s business, rather than placing such a heavy emphasis on hardware. He believes Peloton’s digital app will be central to the company’s future success.

The number of members is decreasing

Peloton ended its latest quarter with 2.97 million connected fitness subscriptions, roughly flat with previous quarter levels and up 27% from a year ago. Connected Fitness subscribers are people who own a Peloton product, such as its original bike, and also pay a monthly fee to access live and on-demand workout classes.

Its total membership, however, was down about 143,000 from the previous quarter to 6.9 million. McCarthy, following Foley’s original vision, said the company hopes to amass 100 million members one day.

Peloton’s average net monthly churn levels for connected fitness users reached 1.41% from 0.73% a year ago.

The company said this was ahead of its internal expectations, in part due to a consumer protection ruling in Canada that required all customers in the country to approve the price increases for subscriptions that came into effect in June, and about 85% of them have done so to date. Peloton said it expected some people to drop their membership after the price hike.

But investors might be wary of the jump. Lower churn would be better news for Peloton because it means people stick around and keep paying for their membership.

McCarthy said in the letter to shareholders that the fourth quarter should prove to be the “high point” for write-offs and restructuring charges related to inventory and supply chain issues. It should also mark the beginning of Peloton’s comeback story, he said.

Shares of Peloton are down about 60% year-to-date, as of Wednesday’s market close.

This story is developing. Please check for updates.

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