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Peloton Stock Slips As Delayed Annual Report Notes Fines Linked To Tread+ Recall, Internal Control Weakness

Peloton Interactive  (PTON)  shares moved lower Wednesday after the connected fitness group said it found “material weaknesses” in its financial reporting and cautioned that it may face fines linked to last year’s recall of its Tread+ treadmill.

Peloton, which filed its annual report with the Securities and Exchange Commission Wednesday, said it had identified “material weaknesses in our internal control over financial reporting”, largely related to “reporting involving inventory” while preparing statements for the 2021 and 2022 fiscal years. 

Peloton said late last month that it needed extra time to fille its annual 10-K report in order to properly calculate impairment charges linked to its decision to exit the so-called ‘last mile’ portion of its business to JB Hunt Transport  (JBHT)  and XPO Logistics  (XPO) .

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The move, which is part of the broader turnaround plans under CEO Barry McCarthy, are forecast to cost post-production delivery costs by around 50% when fully-implemented, but form part of the $415 million in charges the group booked over the final three months of its fiscal year, which ended in July.

Peloton also said that it received a notice from the Consumer Product Safety Commission (CPSC) last month that alleged it had failed to meet statutory obligations with respect to the safety of its Tread+ treadmill which was recalled in May of last year following a tragic accident that resulted in the death of a young child. Peloton said the CPSC intends to recommend civil monetary penalties as a result. 

“The recall, the possibility that the CPSC or other regulators could assess penalties or fines against us, and the risk that the CPSC or we could determine to recall any other product now or in the future, may adversely impact our operating results, brand reputation, and business,” Peloton said in the SEC filing.  

Peloton shares were marked 1.5% lower in pre-market trading to indicate an opening bell price of $8.56 each.