Peloton Tumbles on Treadmill Recall, Sales Halt on Safety
(Bloomberg) -- Peloton Interactive Inc. recalled its treadmill products and will stop selling them in the U.S. after a child died and more than 70 safety incidents were reported, walking back an earlier position that the devices were safe if used properly. The shares fell the most in about six months.
The recalls involve two Peloton treadmill models: Tread and Tread+, the company and the U.S. Consumer Product Safety Commission said in a joint statement Wednesday. Consumers who have purchased either treadmill should immediately stop using it and contact Peloton for a full refund, according to the statement.
The Tread+ machine, which costs more than $4,200, had been involved in a series of accidents, prompting a warning from U.S. regulators last month and an investigation by the safety commission. Initially, Peloton called the commission’s warning “misleading and inaccurate.” The company said then that there was no reason to stop using the Tread+ as long as all warnings and safety instructions are followed.
On Wednesday, Peloton Chief Executive Officer John Foley said it was an error to not take earlier warnings more seriously.
“Peloton made a mistake in our initial response to the Consumer Product Safety Commission’s request that we recall the Tread+,” Foley said. “We should have engaged more productively with them from the outset. For that, I apologize.”
The treadmill first launched in 2018 and was renamed the Tread+ last year when the cheaper Tread was announced. Peloton hasn’t said how much revenue it generates from the treadmills, though its Bike products are believed to generate the bulk of income. Peloton has become synonymous with the pandemic era, attracting a legion of fans with its technology-infused stationary bikes and treadmills and subscription-based exercise program.
“The voluntary recall of Peloton’s Tread and Tread+ is a clear negative,” analysts at Keybanc Capital Markets wrote. “This may have other unquantifiable impacts to long-term demand.” Peloton reports third-quarter earnings on Thursday. The company’s shares fell as much as 16% on the news. Peloton declined to comment on the financial impact of the recalls ahead of the earnings report.
For customers who don’t want refunds, Peloton is offering remedies and hardware fixes. For the Tread+, the device which was involved in the death of a child, Peloton said it will help consumers move it to a room inaccessible to kids and pets. The company said it’s also working on a software update that will require a pass code to be entered to use the machine.
Peloton is recalling the Tread because the device’s screen could become loose, detach, and fall, potentially harming a user. The company said it will soon offer a repair program for that problem for people who don’t want a refund.
“The agreement between CPSC and Peloton is the result of weeks of intense negotiation and effort, culminating in a cooperative agreement that I believe serves the best interests of Peloton and of consumers,” Robert Adler, acting chairman of the CPSC, said in the statement.
Filings from the safety commission show that about 125,000 Tread+ models have been sold to date, while the Tread, which costs about $2,500, only has about 1,050 units on the market. That cheaper treadmill launched recently in the U.S. via limited sales channels. It was due for an expanded U.S. launch on May 27.
Peloton generated about $1.5 billion in revenue from hardware products in fiscal 2020. If the company did indeed sell 125,000 Tread+ units, that suggests it brought in more than $500 million from the product in its lifetime, or a small slice of total annual revenue. The company was forced to pause deliveries of the Tread+ for several months last year due to the pandemic.
In earnings conference calls with analysts over the past several months, Peloton executives said that the Tread beat sales expectations in the U.K. and that it could eventually be a “rocket ship” for the company. New York-based Peloton had also said it expects the Tread to have a larger impact in fiscal 2022 and that the treadmill opportunity is potentially larger than bikes.
The safety commission said the recall of the Tread+ followed 72 reports of adults, children, pets, and objects being pulled under the rear of the treadmill, the same flaw that led to the death of the child. Of those reports, 29 involved significant injuries to children, the CPSC said.
For the Tread, the commission said that it received 18 reports of the touch screen becoming loose and 6 reports of the screen actually detaching and falling. It received no reports of injury in the U.S., but has seen reports of minor injuries in the U.K. and Canada.
The treadmill recalls aren’t the first for Peloton. Last October, the company recalled pedals sold between 2013 and 2016 for about 27,000 bikes due to potential leg injuries from the parts breaking off. For that recall, Peloton provided replacement parts.
“We believe strongly in the future of at-home connected fitness and are committed to work with the CPSC to set new industry safety standards for treadmills,” Foley added in a statement posted on Peloton’s website. “We have a desire and a responsibility to be an industry leader in product safety.”
(Updates with Peloton revenue, details on previous recall.)
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