Peloton Tread+ Recall Refusal Causes Stocks to Fall
Peloton CEO John Foley is insisting that the Tread+ is safe if its protocols are met. The market does not seem convinced all is well.
Peloton stocks are taking a beating, after a federal agency urged parents of small children to stop using its Tread+ machine, attributing 39 injuries and one child death to the treadmill and the company resisted pressure to recall the device.
At the close of the market on Friday, Peloton stocks were selling at a healthy $116 per share. After the Consumer Product Safety Commission made its announcement, prices fell to $109 at the opening on Monday and have diminished to $105 as Peloton has resisted calls to take immediate action on the Tread+.
U.S. Rep. Jan Schakowsky, a Democrat from Illinois who chairs the Consumer Protection and Commerce Subcommittee, urged Peloton to recall the Tread+ and also asked the CPSC to launch a wider probe into the safety of Peloton products.
Longtime CEO John Foley responded in an email to investors, claiming that the CPSC’s warning is “inaccurate and misleading” and insisting the machine is safe to use if all of the company’s protocols are followed.
The stock decline and the negative publicity are rare instances of bad news for the maker of internet-connected, high-end exercise equipment, best known for its stationary bicycles. At the start of March of 2020, Peloton stocks sold for $25 each. But the COVID-19 pandemic made working out from home desirable, even fashionable, and Peloton, founded in 2012, became a cult brand, its instructors micro-celebrities.
Earnings in 2020 more than doubled over corresponding quarters from 2019; the company took in $1.06 billion in the final quarter, up 128 percent from the final quarter of the previous year. Peloton and its investors rode a wave as the company’s most pressing issue seemed to be increasing manufacturing capacity to meet rampant demand.
Peloton introduced the $4,295 Tread+ earlier this year, hoping to transfer some of the appeal and buzz of its stationary bikes to a running experience.
Based on at least 39 incidents, the CPSC said it “believes the Peloton Tread+ poses serious risks to children for abrasions, fractures, and death” and in light of “reports of children becoming entrapped, pinned, and pulled under the rear roller of the product,” the agency urged “consumers with children at home to stop using [it] immediately.” The announcement came with a brutal surveillance video showing two (apparently unsupervised) children playing around the treadmill in a home and one getting pulled beneath it.
In a defiant email to investors, Foley said that Peloton has complied with CPSC investigations, except over an apparent issue in which the company was asked to provide identifying information about a customer. He also wrote, “You may also have read news reports suggesting that CPSC believes that we should stop selling or recall the Tread+. I want to assure you that we have no intention of doing so. The Tread+ is safe when our warnings and safety instructions are followed.”
