Peloton vows to slash expenses as demand wanes

The company said it expects to generate revenue of $4.4bn to $4.8bn during fiscal 2022, which ends in June, which is a reduction from earlier company projections of $5.4bn

A Peloton showroom displays bikes and treadmills. The company's shares tumbled on Thursday, January 20, after a media report said the exercise and treadmill company was temporarily halting production of its connected fitness products amid waning consumer demand. Getty Images / AFPShow less

Peloton vowed to slash expenses at the struggling fitness company, including labour and production costs, but disputed reports it had idled its factories to save money.

In a memo to staff, chief executive John 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.”

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 job cuts to get itself back on track, Mr 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 organisation 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, Mr Foley said 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 December 31. Analysts estimated $1.16bn. The company ended the period with 2.77 million connected fitness subscribers, just below the 2.81 million prediction.

Peloton has had to adjust it's revenue targets because of waning demand as people go back to gyms as they emerge from lockdowns. AFP

In that report, Mr Foley said Peloton was taking “significant corrective actions to improve our profitability outlook and optimise 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.”

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

The early earnings release follows a report from CNBC on Thursday that the company was temporarily halting the 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 the memo to staff, Mr Foley disputed the report, saying that “rumours that we are halting all production of bikes and Treads are false.”

The CNBC story sent the shares down 24 per cent to $24.22 in regular trading Thursday. Mr Foley’s remarks after the close boosted the stock, with it gaining 9.2 per cent as of 8pm in New York.

Mr Foley said on Thursday the company’s churn rate was 0.79 per cent, signalling that “members are sticking with us.”

Peloton’s chief executive 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 fulfil pandemic-fuelled demand, only for interest to sputter as economies began to reopen.

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

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 re-examine our expense base and adjust our operating costs.”