Peloton Gains After CEO Vows to Cut Costs at Ailing Company

·3 min read
Peloton Gains After CEO Vows to Cut Costs at Ailing Company

(Bloomberg) -- Peloton Interactive Inc. shares rebounded Friday after Chief Executive Officer John Foley vowed to slash expenses at the struggling fitness company, though he disputed reports that it had idled its factories to save money.

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In a memo to staff, Foley said Peloton was “right-sizing our production, and, as we evolve to more seasonal demand curves, we are resetting our production levels for sustainable growth.”

The shares gained 12% to $27.06 at the close Friday, marking the biggest one-day increase since November. Still, they failed to recoup the losses from Thursday, when the stock plunged 24%.

Peloton is reeling from a slowdown triggered by consumers emerging from pandemic lockdowns and returning to traditional gyms. It had been a Wall Street darling when customers were stuck at home and demand outstripped supply.

Now the company is considering jobs cuts to get itself back on track, Foley said.

“In the past, we’ve said layoffs would be the absolute last lever we would ever hope to pull,” he said. “However, we now need to evaluate our organization structure and size of our team, with the utmost care and compassion. And we are still in the process of considering all options as part of our efforts to make our business more flexible.”

Referring to reports that Peloton had temporarily shut down production, Foley said that leaks of confidential information “have led to a flurry of speculative articles in the press. The information the media has obtained is incomplete, out of context, and not reflective of Peloton’s strategy.”

He said the company had identified a leaker and was “moving forward with the appropriate legal action.”

Peloton also released a preliminary report of $1.14 billion in sales during the fiscal second quarter, which ended on Dec. 31. Analysts had estimated $1.16 billion. The company ended the period with 2.77 million connected fitness subscribers, just below the 2.81 million prediction.

In that report, Foley said Peloton was taking “significant corrective actions to improve our profitability outlook and optimize our costs across the company.” The effort “includes gross margin improvements, moving to a more variable cost structure, and identifying reductions in our operating expenses as we build a more focused Peloton moving forward.”

Foley said he would share more information on the cost-cutting plan when Peloton gives its formal earnings report on Feb. 8. “This work is still underway,” he said.

CNBC said Thursday that the company was temporarily halting manufacturing of bikes and Tread-branded treadmills. Production of Peloton’s main stationary bikes will be paused for two months, CNBC reported, citing internal documents. And the company will stop making its treadmill machine for six weeks, starting in February.

In disputing the report, Foley said that “rumors that we are halting all production of bikes and Treads are false.” He also said Thursday that the company’s churn rate was 0.79%, signaling that “members are sticking with us.”

Peloton’s CEO said on the last earnings call that the company would be working to identify ways to cut costs. Peloton had spent millions of dollars on building up supply of its products to fulfill pandemic-fueled demand, only for interest to sputter as economies began to reopen.

The company didn’t provide updated fiscal-year guidance on Thursday. Peloton had said the previous quarter that it expects to generate revenue of $4.4 billion to $4.8 billion during fiscal 2022, which ends in June. That range was a reduction from earlier company projections of $5.4 billion.

When Peloton slashed its 2022 guidance in November, the shares suffered their biggest decline ever. The company also said that month that the second quarter was off to a “softer-than-anticipated start.”

“We anticipated fiscal 2022 would be a very challenging year to forecast,” management said in a letter to shareholders at the time. “We will be taking concrete steps to reexamine our expense base and adjust our operating costs.”

(Updates shares in third paragraph.)

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