Peloton Interactive, the once high-flying fitness equipment maker, showed signs of recovery as its latest quarterly report revealed better-than-expected financial results, marking a critical step in the company's ongoing turnaround. The company, which became a household name during the pandemic, has been struggling to regain its footing after demand for its products plummeted post-pandemic. However, in the fiscal fourth quarter ending June 30, Peloton managed to post its first year-over-year sales increase in nine quarters, alongside a significant reduction in losses, signaling that its efforts to refocus on profitability might be paying off.
Peloton reported a modest revenue increase of 0.2%, bringing in $643.6 million compared to $642.1 million in the same period last year. While the uptick in sales might seem slight, it marks the first time Peloton has posted year-over-year revenue growth since the holiday season of 2021. The company's strategic shift toward profitability, rather than aggressive growth, has led to meaningful cuts in sales and marketing expenses, which helped narrow its quarterly losses to $30.5 million, or 8 cents per share, from a staggering $241.8 million, or 68 cents per share, a year earlier.
Peloton's stock responded positively to the news, jumping more than 15% in early trading on Thursday. The company's performance exceeded Wall Street expectations, with analysts predicting a loss of 17 cents per share and revenue of $631 million. Peloton's adjusted EBITDA also came in stronger than anticipated at $70 million, significantly higher than the $53 million expected by analysts.
The company's CEO, Shane O'Kelly, highlighted the positive trends, stating, "Our team delivered positive comparable sales growth while navigating a challenging demand environment during the second quarter." The CEO also emphasized the company's commitment to improving its financial health and ensuring long-term sustainability.
One of the key areas of growth for Peloton has been its subscription segment, which saw a 2.3% increase in revenue, even as sales of its high-priced connected fitness hardware, like stationary bikes and treadmills, declined by 4%. The subscription segment's gross margin also improved by 1 percentage point. This growth in subscription revenue is partly attributed to the secondary market, where customers purchase used Peloton bikes at a lower cost, yet still subscribe to the company's digital services. Revenue from these secondary market subscriptions grew by 16% year over year.
Peloton's treadmill portfolio, which had faced setbacks due to a costly recall, showed a remarkable recovery with a 42% increase in sales year over year. The company also noted positive trends in its Bike rental program, which helped clear out excess inventory. Although Peloton has ceased offering its original Bike rental program, the demand for its Bike+ rental, refurbished Bike sales, and financed new Bike sales has been strong.
The company's focus on profitability was further evidenced by its substantial reduction in sales and marketing expenses. Peloton slashed these costs by $25.5 million, or 19% year over year, and indicated plans to continue cutting marketing spending throughout fiscal 2025. This shift in strategy represents a move away from the aggressive growth tactics that characterized Peloton's approach during its pandemic boom.
Looking ahead, Peloton's guidance for the upcoming fiscal year suggests a continued emphasis on financial stability. The company expects sales to range between $2.4 billion and $2.5 billion, below analysts' expectations of $2.7 billion. For the first quarter of fiscal 2025, Peloton forecasts revenue between $560 million and $580 million, again falling short of Wall Street's estimate of $609 million. However, the company is guiding to a higher adjusted EBITDA of $50 million to $60 million for the quarter, surpassing the $45 million expected by analysts.
Despite the lower sales projections, Peloton's turnaround strategy appears to be gaining traction, as the company moves towards achieving consistent profitability and generating positive free cash flow. The ongoing search for a new CEO remains a priority, with the company indicating that the process is "well underway" and that an announcement will be made in due course.
