Peloton CEO apologizes for Tread+ issues as company will temporarily halt treadmill sales

Peloton issuing recall on treadmills may impact demand: BMO managing director

BMO Capital Markets managing director Simeon Siegel discusses the impact of Peloton’s treadmill recall.

Peloton CEO John Foley kicked off the fitness company's third-quarter earnings call with an apology for the reported issues with its Tread+ machine.

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"As a company, we believe strongly in the future of at-home connected fitness and we know we know we have a responsibility to be an industry leader in product safety. We are a members' first organization, And that means for all of us at Peloton, the safety of our member community comes first," Foley told analysts. "I want to be clear, though. Peloton made a mistake in our initial response to Consumer Product Safety Commission request that we recall our Tread+ product. We should have been more open to a productive dialogue with them from the outset. As a members' first organization, promptly stopping the sales of our product while we cooperated more closely with the CPSC IS something we should have considered sooner. For that, I apologize."

Going forward, the company will halt all Tread+ sales while the CPSC conducts its review of the product. 

As part of its work with the CPSC, Peloton will add an extra layer of safety features to the Tread+, including a digital passcode that will further protect against unauthorized use that will be deployed via an over-the-air software update in the coming days. 

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Meanwhile, the new lower-cost Tread product, originally set to launch in the U.S. later this month, will halt sales in Canada and the U.K. and be delayed in the United States. 

Tread sales will continue following the conclusion of the CPSC's review. In the meantime, Peloton will continue to produce Tread workout content in anticipation of its launch. The digital passcode will roll out on the Tread beginning in the fourth quarter of 2021. 

"While this process typically takes six to eight weeks, it could take longer," Foley added. "So we can't offer an on sale or revise launch date at this time."

The Tread has so far been "well received" by select U.S. customers who have been able to test the product and offer feedback ahead of its official U.S. launch. However, Foley noted that there were minor console issues related to the Tread's tablet console.

"The console or touch screen attached to the Tread with screws," Foley said. "In a handful of cases, we have had reports of the screws loosening, causing the console to detach from the units."

The CPSC and regulators in the U.K. and Canada have been notified about the issue and the company is working on a fix.

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Peloton's Tread and Tread+ users can return their machines for a full refund. 

The revenue impact from the Tread and Tread+ recall is expected to be approximately $165 million, and the pause in Tread and Tread+ deliveries will negatively impact Peloton's revenue by approximately $105 million, according to chief financial officer Jill Woodworth.

Peloton will also be waiving monthly all-access subscriptions for its Tread and Tread+ members for three months, resulting in an estimated subscription revenue impact of approximately $10 million in the fourth quarter.

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