Peloton (PTON) Plunges After Recalling All Treadmills, Analyst Says Will Negatively Impact Broader Tread Rollout

May 5, 2021 12:13 PM EDT
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Shares of Peloton (NASDAQ: PTON) are down 13.5% in today’s trading session after the company, and the U.S. Consumer Product Safety Commission (CPSC), made two separate voluntary recalls of Peloton’s Tread+ and Tread treadmills.

The company instructed owners of these products to “stop using it” immediately and “contact Peloton for a full refund or other qualified remedy.” Peloton admitted it made a mistake in the initial response to CPSC.

“I am pleased that the U.S. Consumer Product Safety Commission and Peloton have come to an agreement to protect users of the Peloton Tread+ and Tread products. The agreement, which the Commission voted this morning to accept, requires Peloton to immediately stop selling and distributing both the Tread+ and Tread products in the United States and refund the full purchase price to consumers who wish to return their treadmills,” Robert Adler, Acting Chairman of the CPSC, said in a statement.

“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. I would like to thank the CPSC technical staff who have worked tirelessly to protect consumers and to warn the public. Today we have taken steps to prevent further harm from these two products.”

John Foley, CEO of Peloton, apologized for ignoring initial recommendations from CPSC.

“Today’s announcement reflects our recognition that, by working closely with the CPSC, we can increase safety awareness for our Members. 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. We have a desire and a responsibility to be an industry leader in product safety.”

Edward Yruma, an analyst at KeyBanc, said the latest developments will weigh on Peloton going forward.

“We think that the solution on Tread may be simpler (perhaps some kind of guard + software lockout) while the high running surface of the Tread+ may require a more substantive fix. We believe this will negatively impact the timing of the broader rollout of Tread (previously scheduled for May 27). Moreover, this may have other unquantifiable impacts to long-term demand. Our estimates are under review pending the 3Q21 earnings call tomorrow,” the analyst said in a memo sent to clients shortly after Peloton’s announcement.

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