Peloton, Consumer Product Safety Commission issue recalls of the Tread+ and Tread treadmills

On Wednesday, Peloton and the U.S. Consumer Product Safety Commission announced two separate recalls of the company’s Tread+ and Tread treadmills following one child’s death and 70 reported incidents.

Video Transcript

MYLES UDLAND: All right, we've got a little breaking news here on this Wednesday morning. Let's take a look at shares of Peloton. The stock is under some pressure, off about 6% right now. This is after the company coming out and recalling its Tread, along with an announcement from the US Consumer Product Safety Commission, CPSC.

Brian Sozzi, we talked about this story when Peloton essentially came out and said the CPSC was wrong in asking for a recall after the death of at least one young person, one toddler here in the US. Tell us what we know at this time, so obviously the stock under pressure.

BRIAN SOZZI: Yeah, still going through this one, but it's noted on the CPSC website that this affects about 1,050 units, in addition about 5,400 units in Canada. But the CPSC is-- is saying just that this treadmill will not be sold for right now. And I think the bottom line is here you're going to have a couple of components here, and this is why you're seeing the stock down.

One, do people cancel their subscriptions to Peloton, because they won't have a treadmill because they have turned it in and perhaps just go out and buy another treadmill? Two, is there-- what type of litigation comes off of this from anybody that may have been injured from-- from this treadmill? And then last but not least, you're starting to see some shareholder lawsuits pop up as a result of this issue.

Now, the good thing here for Peloton is that it ended the most recent quarter with about $1.25 billion in cash and virtually no debt. So the balance sheet looks like it can handle any type of recall. But again, lots to digest here.

And I think you're looking at a Peloton-- a company here that might have misjudged the response by its member base. It's a very passionate, loyal member base. But even still, when you see these images that were put out there of a young child being sucked under a treadmill, that is-- that's powerful stuff. It's disturbing stuff. So I-- I'm not surprised that they came to this decision.

JULIE HYMAN: Hey, I just want to add something on the numbers here. So there are two separate recalls of the Tread Plus and the Tread treadmills. Of the Tread Plus, there are actually 125,000. That's how many this recall affects. This is the first time, I believe, that we have learned how many treadmills are out there, how many the company has sold. They haven't revealed this previously.

So in addition to about that 6,500 of the original Treads that Brian just alluded to in the US and Canada, we're talking about a lot of these things out there. And as our Rick Newman points out, you get a car recall, you get a bike recall, you bring it into the shop, you take it back to the toy store where you bought it or whatever. What do you do with one of these things, right?

Do you have an army of Peloton repair people coming into 125,000-- or 130,000, really, is what we're talking about, homes and fixing these things? Do they come and pick them up and just you get rid of it? Is it furniture in your house now, although it's probably furniture in a lot of people's houses already, because they're not using it. But what does Peloton do just from an actual logistical standpoint to fix this? So they might have that cash on hand, how are they going to use that cash in order to fix this situation?

And also, Myles, you sent us that the statement that the Peloton CEO has now come out with where he's saying mea culpa, right? "Peloton made a mistake," he said, "in our initial response to the CPSC request that we recall the Tread Plus. We should have engaged more productively with them from the outset. For that, I apologize."

Like, this is-- I mean, that was quite a misstep, it seems, on the part of the company. And so it would seem to me the stock reaction that we're seeing here doesn't just reflect the fact that 130,000 of these things they're not going be able to use anymore and who knows when they're going to be able to sell more. It's also the handling of this whole situation.

MYLES UDLAND: Yeah, and, you know, and Sozzi made the point about the community and look, you can't be a-- you can't be selling a lifestyle or selling a brand that goes beyond your product and not be cognizant of how you are perceived. And for Peloton to-- I mean, we discussed it when they-- when this news initially crossed. And I think we all sort of agreed on the idea that, you know, maybe the best strategy for dealing with this crisis isn't to blame the regulators.

And now, what, that was a couple of months ago, I don't know time-- time is kind of a flat circle now, so let's say it was two or three months ago, whenever that news initially crossed, I think they realized in that time it probably was the wrong tactic because, again, this isn't-- I don't want to name a specific company that doesn't have quite the same cachet or loyalty aspects that Peloton does, but I think we all know that the vast majority of brands sell products, people buy them, and they move on.

That's not really the way-- that's not at all the way that Peloton relates with its customers, with its user base. And so I think to have had that initially crass response, to have clearly heard about it from members, to have maybe even seen some impact in the business, and then to come out and apologize and kind of grovel for acceptance here, from both regulators and from Peloton members, certainly an episode that I would imagine, even if the financial implications aren't so material longer term, and maybe it doesn't cost as much to fix these things as we think, so on and so forth, certainly is the kind of approach, PR, but just kind of maybe internal branding exercise that I imagine is going to shape how Peloton thinks about itself going forward here.

So all right, we're good on that one, guys. Certainly a story I know we're going to talk about as we go forward here. Again, the story, Peloton under some pressure today after coming out with a recall for its Tread Plus, also appearing to indicate for the first time that it's got at least 125,000 [? Tread Pluses ?] out there in the world.