Peloton Interactive (NASDAQ:PTON), the leading maker of connected home-exercise equipment, earlier this month reported powerful fiscal second-quarter 2021 results (for the period ended Dec. 31, 3020).
Its revenue soared 128% year over year to $1.065 billion. Bottom-line performance was also robust with net income landing at $63.6 million, or $0.18 per share, versus a net loss of $55.4 million, or $0.20 per share, in the year-ago period.
Both results beat Wall Street’s expectations, which were for earnings per share of $0.09 on revenue of $1.03 billion.
But shares fell 5.9% on the day following the release. The market’s reaction can probably be largely attributable to management’s statement that measures to improve its ongoing inventory and supply chain issues will hurt profits in the near term.
Since the Feb. 4 earnings release, Peloton stock has dropped nearly 24%, as of Feb. 26. This decline is likely due in part to some continued fallout from the earnings release as well as general market dynamics. Many growth stocks with nosebleed valuations have recently pulled back sharply. Nonetheless, Peloton shares are still up a whopping 313% over the last year, compared with the S&P 500‘s 25% return over this period.
Earnings releases only tell part of the story. Below are three key things management discussed on the fiscal Q2 2021 earnings call that investors should know.
Two key benefits from the Precor acquisition
From CEO John Foley’s remarks:
Our acquisition of Precor will allow us to produce Peloton products here in the U.S. and fast track our ability to build a large domestic manufacturing footprint over time. …
Precor’s product portfolio and sales team will also accelerate our commercial business where we see a significant opportunity to grow Precor’s franchise while introducing the Peloton platform to an even greater number of fitness enthusiasts and channels such as hospitality, multi-unit residential buildings, corporate campuses, and colleges and universities.
In late December, Peloton announced plans to acquire Precor, a large global provider of fitness equipment to commercial occupancies. The company expects the approximately $420 million deal — its biggest to date — to close early this calendar year.
The Precor acquisition will enable Peloton to much more quickly begin to manufacture its own products in the U.S. Its lack of domestic manufacturing capabilities has been a key reason for its ongoing supply chain issues, which have resulted in delays in getting its products to customers.
As to timing, Foley said the company “expects to be producing Peloton equipment in the U.S. by the end of this calendar year at Precor’s North Carolina facility.” Precor also has a manufacturing facility in Washington State, so it has both coasts covered.
The second main benefit of this acquisition, including enabling Peloton to more easily introduce its platform to commercial customers, doesn’t need additional comment.
Management’s target dates to get delivery times for Bike and Bike+ back to normal levels
From President William Lynch’s remarks:
We are planning to get back to normal order-to-delivery [time] on our Bike product line way before the end of this calendar year. I would say by mid to late spring we should be in the below four-week order-to-delivery timeframe.
Don’t put too much stock in management’s timeline comment here. On last quarter’s earnings call, Lynch said:
… we feel good about continuing to draw down our core Bike OTDs [order-to-delivery times] back to where we want them to be, which is inside of two weeks, as we get through [fiscal] Q2. And then Bike+, we’re quickly reacting with all the actions we mentioned to get that product line into that same two-week window, but that’s going to take a while into [fiscal] Q3.
U.S. launch of new Tread pushed back nearly two months
From Foley’s remarks:
U.K. Tread sales have exceeded our expectations … The success of this launch … has forced us to reconsider our schedule for our new Tread rollout in North America.
Our launch plan originally called for a limited market launch in the U.S. on February 9, in conjunction with a launch in Canada. In the U.S., we had plans to start delivering nationally in April. To adjust to current market dynamics … , we’ve decided to allocate additional resources to those markets [U.K. and Canada] and adjust our U.S. rollout schedule.
Peloton’s new Tread launched in the U.K. on Dec. 26. Given that market’s stronger-than-expected demand, management pushed back the date of its full rollout in the continental U.S. nearly two months to May 27.
The company, however, will “begin selling a limited number of new Peloton Treads in the U.S. starting on February 9,” Foley said. These machines will go to folks in select zip codes who expressed early interest.
Why did Peloton first launch the new Tread (priced at $2,495, or $1,800 less than the Tread+) in the U.K.? Two main reasons: First, Tread+ hasn’t been available in this market. Second, the U.K. market isn’t as large as the U.S. market, so it’s a better market to work out any kinks in the rollout process.
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