Peloton Interactive has issued a concerning warning of expected cash burn in the coming two quarters, attributed to expenses linked to a massive bike recall and other financial obligations.

This announcement has caused Peloton’s shares to plummet to an all-time low.

The company recently reported financial results that failed to dispel the cloud of uncertainty surrounding its future. Peloton has been grappling with declining demand for its fitness equipment as consumers return to traditional gyms and prioritize spending on travel and experiences.

Last year, Peloton implemented cost-cutting measures to cope with the slump in demand and had initially aimed for a positive free cash flow by the end of fiscal 2023, which concluded on June 30.

However, this goal was later scaled back to break-even cash flow due to the recall of 2.2 million exercise bikes due to a seat-related safety issue and a $75 million settlement with DISH Technologies.

Higher costs

Peloton’s CEO, Barry McCarthy, explained that the costs associated with the recall far exceeded their initial estimates, resulting in an additional accrual of $40 million in the fourth quarter, covering actual and anticipated future recall-related expenses.

Furthermore, McCarthy disclosed that the company intends to increase marketing spending ahead of the crucial holiday season later this year, further straining its cash flows.

Peloton now anticipates achieving positive cash flow in the second half of fiscal 2024, a stark contrast to its last reported positive cash flow in the second quarter of fiscal 2021.

In terms of its fourth-quarter performance, Peloton reported a 5% drop in revenue to $642.1 million compared to the previous year, slightly exceeding Refinitiv’s expectations of $639.9 million. However, the company’s loss per share was 68 cents, far surpassing the anticipated 38 cents. Despite these challenges, Peloton’s cash burn was $74 million, significantly lower than the $411.9 million from previous periods.

Peloton’s stock experienced a sharp decline of 22%, closing at $5.44 per share.