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Peloton Quarterly Sales Top $1 Billion, But Shares Fall as Cycle Maker Steps Up Further Supply Chain Investments

Jeenah Moon | Bloomberg | Getty Images
  • Peloton's fiscal second-quarter earnings and sales trounced analysts' estimates, as the at-home fitness equipment maker continues to see robust demand for its products.
  • The company raised its full-year outlook, estimating revenue will top $4 billion, up from prior estimates for more than $3.9 billion. But it left its earnings outlook unchanged.
  • The cycle maker also warned that near-term investments in its supply chain to speed deliveries will weigh on margins.
  • It said it expects to make "slow but steady" progress for the remainder of the fiscal year.

Peloton on Thursday reported quarterly sales growth of 128%, marking its first billion-dollar quarter, as the momentum keeps climbing for the at-home fitness equipment maker.

The company also increased its full-year revenue outlook. But it warned it still faces hurdles in the near term in getting items to its customers quickly, amid the demand surge.

Peloton shares fell more than 6% in extended trading Thursday. The stock had closed up 7%, at $157.53.

Here's how Peloton did during its fiscal second quarter compared with what analysts were expecting, based on a survey by Refinitiv:

  • Earnings per share: 18 cents vs. 9 cents, expected
  • Revenue: $1.06 billion vs. $1.03 billion, expected

For the three-month period ended Dec. 31, Peloton earnings grew to $63.6 million, or 18 cents per share, from a loss of $55.4 million, or 20 cents per share, a year ago. Analysts had been calling for Peloton to earn 9 cents a share, according to Refinitiv.

Revenue skyrocketed 128% to $1.06 billion from $466.3 million a year earlier, topping expectations for $1.03 billion.

For its current fiscal third quarter, Peloton forecasts sales to reach $1.10 billion. Analysts had been calling for $1.09 billion.

Investing in the supply chain

In the wake of the higher sales, Peloton now expects full-year revenue to top $4 billion, up from a prior forecast of more than $3.9 billion. Analysts had been calling for $3.95 billion.

The company kept its earnings outlook for fiscal 2021 unchanged.

Peloton said it continues to see robust demand for its products, and that it will make additional investments in its supply chain to ease bottlenecks, which could weigh on profits.

In a letter to shareholders, the company said it will be investing more than $100 million in air freight and expedited ocean freight over the next six months to help speed deliveries.

"While this investment will dampen our near-term profitability, improving our member experience is our first priority," the company said.

Peloton said it still anticipates inventory levels to improve and delivery windows to shrink, thanks in part to its pending $420 million acquisition of exercise equipment manufacturer Precor. But, it said it expects its progress to be "slow but steady" for the rest of the year.

Chief Executive John Foley said Peloton remains "hopeful," though, that an "acceleration in vaccine distribution and the broader opening of our economy" will prove to benefit the business in the months ahead.

Retention rates remain strong

Peloton ended its latest quarter with 1.67 million connected fitness subscribers, up 134% from the prior year. Connected fitness subscribers are people who pay a monthly fee to sync the company's workout classes to their Peloton equipment, versus accessing the programs separately through a phone or tablet device and paying a smaller rate.

The company expects to have 2.28 million or more connected fitness subscriptions by the end of the fiscal year, up from a previous outlook for 2.17 million users.

Peloton's retention rates also remain strong, a good indication of its future success.

Average net monthly connected fitness churn was 0.76% during the latest quarter, which marked a slight uptick from 0.65% during the prior period. But the company said it expects its churn rate during the current quarter will be below 0.75%, and its churn rate for fiscal 2021 will be below 0.80%, better than a prior outlook of under 0.90%. The lower the churn rate, the less turnover Peloton is seeing with its user base.

And the cycle maker continues to look for ways to entice its customers to exercise more. It said total workouts during the latest period surged to more than 113 million from 26 million a year ago. It recently launched a feature where users can "stack" classes back to back, and have them play automatically one after another. It also recently added Pilates classes to its catalog.

Peloton has made these investments as competition in the at-home fitness space continues to intensify during the Covid pandemic. Companies like Mirror, which is owned by Lululemon, Hydrow and Tonal make high-end products that offer workouts to tone arms and legs, as well as cardio classes, from the convenience of a basement or bedroom.

Peloton shares are up more than 365% from a year ago. The company has a market cap of $46 billion.

Find the full earnings release from Peloton here.

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