Heading into the seasonally slowest and most challenging quarter of its fiscal year, Peloton Interactive’s two-year transformation continues down a bumpy path. The connected fitness company has initiated another restructuring effort resulting in annualized savings of more than $200 million and more job cuts – its third round in 26 months. Additionally, the group’s CEO Barry McCarthy, the former Netflix executive who took over for company founder John Foley in February 2022, is departing.
These actions, including the company’s need to refinance its debt load, were revealed simultaneously with Q3 results that included positive free cash flow for the first time in over three years. Peloton improved its adjusted Ebitda to $5.8 million from a loss of $18.7 million in the period ended March 31. The quarterly net loss, meanwhile, shrunk to $167.3 million from a loss of $275.9 million and included $56.6 million in impairment and restructuring costs. Total revenues fell by 4 percent to $717.7 million from $748.9 million as connected fitness sales declined by 14 percent to $279.9 million, and subscription revenues rose by 3 percent to $437.8 million. The gross margin of 43.1 percent exceeded the guidance of 42.5 percent.
In its quarterly letter to shareholders, Peloton said its actions included continuing to shrink its retail showroom footprint and making its international strategy “more targeted and efficient,” are necessary to align its cost structure with the current size of its business and to position it “to generate sustained and meaningful positive free cash flow.”
More workforce cuts, interim co-CEOs
An estimated 15 percent of the group’s current workforce, or 400 people, will be cut during the restructuring when it’s completed over the next year. Earlier, Peloton began eliminating 2,800 staffers in June 2021 and cut another 500 posts in the Fall of 2022. McCarthy, who was often blunt in denouncing the company’s shortcomings during his tenure as CEO, will remain at Peloton’s side as a strategic advisor until the end of 2024. The company has named Chairperson Karen Boone and Director Chris Bruzzo as interim Co-CEOS as it commences a search for a new permanent CEO. Director Jay Hoag has been promoted to Chairperson of the Board.
While Peloton has lowered its full-year revenue guidance by $25 million, or 1 percent, to approximately $2.69 billion, it is forecasting annual improvement in gross margin by 50 basis points to 44.5 percent and adjusted Ebitda by $37 million to a negative $13 million. Both those gains are fueled by the stronger Q3 results, lower media spending, and cost savings from the new restructuring effort. But the company has dropped its paid application subscription outlook by 19 percent, or 150,000, to approximately 605,000.
