Stock Story -
Exercise equipment company Peloton (NASDAQ:PTON) reported results in line with analysts' expectations in Q1 CY2024, with revenue down 4.2% year on year to $717.7 million. On the other hand, the company's full-year revenue guidance of $2.69 billion at the midpoint came in slightly below analysts' estimates. It made a GAAP loss of $0.45 per share, improving from its loss of $0.79 per share in the same quarter last year.
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Peloton (PTON) Q1 CY2024 Highlights:
- CEO Barry McCarthy to step down, company initiates restructuring program that will include layoffs of 15% of workforce
- Revenue: $717.7 million vs analyst estimates of $718.6 million (small miss)
- EPS: -$0.45 vs analyst expectations of -$0.36 (24% miss)
- The company dropped its revenue guidance for the full year from $2.71 billion to $2.69 billion at the midpoint, a 0.9% decrease
- Gross Margin (GAAP): 43.2%, up from 36.1% in the same quarter last year
- Free Cash Flow of $8.6 million is up from -$37.1 million in the previous quarter
- Connected Fitness Subscribers: 3.06 million
- Market Capitalization: $1.18 billion
Leisure ProductsLeisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Peloton's annualized revenue growth rate of 27.6% over the last five years was exceptional for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Peloton's recent history shows a reversal from its five-year trend, as its revenue has shown annualized declines of 16.2% over the last two years.
This quarter, Peloton reported a rather uninspiring 4.2% year-on-year revenue decline to $717.7 million of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 2.5% over the next 12 months, an acceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
While Peloton posted positive free cash flow this quarter, the broader story hasn't been so clean. Over the last two years, Peloton's demanding reinvestments to stay relevant with consumers have drained company resources. Its free cash flow margin has been among the worst in the consumer discretionary sector, averaging negative 18%.
Peloton's free cash flow came in at $8.6 million in Q1, equivalent to a 1.2% margin. This result was great for the business as it flipped from cash flow negative in the same quarter last year to cash flow positive this quarter.
Key Takeaways from Peloton's Q1 Results The big news here isn't related to the quarter's financials. Peloton that CEO Barry McCarthy (formerly of Netflix (NASDAQ:NFLX) and Spotify) will be stepping down just over two years after he took over from founder John Foley. The company also announced a restructuring program to cut costs, and this will include laying off 15% of its workforce or roughly 400 employees. With regards to the numbers, they weren't good. EPS missed and its operating margin fell short of Wall Street's estimates. The company lowered full year revenue guidance. Overall, the results could have been better. The stock is up 13.8% after reporting and currently trades at $3.68 per share.