Video source: YouTube, CNBC Television
By Sanjana Shivdas and Uday Kumar
Peloton announced a recall of its treadmills on Wednesday, reversing course just weeks after saying there was “no reason” to stop using the exercise machines despite reports of multiple injuries and the death of a child in an accident.
Chief Executive Officer John Foley also apologized for the company's initial reaction to a report from the U.S. Consumer Product Safety Commission (CPSC) in April, which warned consumers about the dangers of Peloton's Tread+ treadmills. The company had called the report "inaccurate and misleading."
“I want to be clear, Peloton made a mistake in our initial response to the CPSC’s request that we recall the Tread+,” Foley said. “We should have engaged more productively with them from the outset. For that, I apologize.”
Peloton's shares fell as much as 15.8% to $81.41 on the recall, which applies to both the Tread+ and Tread treadmills.
Reports of dozens of incidents involving children, and one of a child being pulled under its machines, have been a shadow over Peloton in the last few months, eating away at some of the stock's gains spurred by a surge in popularity of its exercise bikes among people staying at home during the COVID-19 pandemic.
"This recall will likely result in significant near-term one-time financial costs and operational disruption, with potential reputational damage," Truist Securities analyst Youssef Squali said, adding that there may be some legal costs too.
The company generates most of its revenue from exercise bikes and subscription services, and analysts estimate that only 6% of Peloton's connected fitness subscribers own a Tread+.
"A recall of the product at this point is the right thing to do … but, as CEO Foley indicated, the recall probably should have been done earlier," said Walter Thompson, president, American College of Sports Medicine.
The company did not immediately respond to a Reuters request for additional comment.
Peloton's Tread+ is a "slat-belt" treadmill, which needs a higher torque motor and ground clearance than a typical home treadmill, making them a risk for children and pets.
The company could introduce a digital pin along with the existing physical safety key for added security, according to ???????Oppenheimer analyst Jason Helfstein.
Peloton, which previously warned to keep children and pets away from the treadmills at all times, said it was working with the regulator to resolve the problem.
The company is scheduled to report quarterly results on Thursday.