While confirming that it is re-evaluating its organizational structure and the size of its staff, Peloton Interactive denied a new report that it was going to temporarily halt production of its stationary bikes and treadmills in response to softening demand. John Foley, co-founder and CEO of the American connected fitness company, simply said it was considering all options to make its business “more flexible” and “more focused.”
The report, which circulated by CNBC based on an internal Jan. 10 presentation, led to a 24 percent drop in Peloton’s already fledgling stock price on Jan. 20, followed by a 6 percent recovery after the new statement came out. After a decrease of 85 percent in the last few months, it has fallen below the $29 pricing of its initial public offering in September 2019.
The latest CNBC report said the company was going to pause manufacturing of its entry-level Bike product in February and March and of its Tread machine for six weeks at its two U.S. factories, starting in February. The company has also suspended production of its higher-end Bike+ model until June and decided not to make any more Tread+ treadmills in 2022, the report said, attributing these moves to falling demand and bulging inventories caused by growing price sensitivity and competition.
Many more players have embraced the connected fitness market or invested more heavily in it, particularly since the closure of gyms due to the Covid pandemic. In addition to heavyweights like iFIT (formerly Icon Health & Fitness), smaller companies are now competing against Peloton such as Echelon Fitness, Flywheel Sports, Hydrow, Tonal and Mirror, the company recently acquired by Lululemon.
McKinsey & Co., which is reportedly helping Peloton to map out its future strategy, told reporters at a press conference about market trends on Jan. 20 that the fitness market is evolving toward a “hybrid” mode whereby individuals will be training at home as well as at the gym.
The latest CNBC report was partly confirmed by The New York Post, which said that Peloton has been scaling back its production in North Carolina and Washington for months, and that it has pushed back the opening of a new $400 million plant in Ohio to 2024 instead of 2023.
Without confirming an earlier report by CNBC that Peloton was planning to drop its contested direct involvement in apparel and to close many showrooms, Foley said in his latest statement on the company’s website that it was taking “significant corrective action” to improve the profit outlook and optimize costs, including “moving to a more variable cost structure.”
Meanwhile, CNBC reported that Peloton is scaling back its expectations for apparel sales this year to about $150 million from an earlier projection of over $200 million. Its sales in this segment grew to $107 million in rhe past financial year from $41 million in the prior year. Peloton’s apparel business is run by the wife of the company’s contested CEO, John Foley, who recently commented that its private label apparel could bring much better margins than previous collaborations with Nike, Adidas and Lululemon.
In a separate statement, Peloton also released preliminary results for the second quarter ended Dec. 31, indicating that its losses for the period were slightly lower than previously forecast. The adjusted negative Ebitda for the period was in a range of $260-270 million, compared with previous guidance of a loss in the $325-350 million range. Total revenues, which were previously projected at between $1.1 billion and $1.2 billion, were around $1.14 billion during the quarter.
More details about Peloton’s strategy going forward are expected to come out in connection with the planned released of its quarterly financial report on Feb. 8.
