Peloton CEO says company is taking ‘significant corrective action’

Peloton Interactive Inc. co-founder and CEO John Foley stands for a photograph during the company’s initial public offering (IPO) outside the Nasdaq MarketSite in New York, U.S., Thursday, September 26, 2019.

Michael Nagle | Bloomberg | Getty Images

Peloton said Thursday that its fiscal second-quarter revenue would be within the previously expected range as it takes steps to reduce costs and improve profitability.

However, the company added fewer subscribers in the latest period, which ended on December 31, than it had expected.

In A press release Pre-announcing its financial results, Peloton said it expects to end the quarter with 2.77 million connected fitness subscribers, compared to an expected range of 2.8 million to 2.85 million. Connected Fitness subscribers are people who own a Peloton product and also pay a monthly fee to access the company’s digital workout content.

Average net monthly churn for the quarter is expected to be 0.79%. That’s lower than the 0.82% it reported in the first quarter and slightly above the 0.76% it saw a year ago. The lower the churn rate, the less turnover Peloton sees with its user base.

He said he expects total second-quarter revenue of $1.14 billion, which is within the $1.1 billion to $1.2 billion forecast he previously provided.

And Peloton said adjusted losses — before interest, tax, depreciation and amortization — will be between $270 million and $260 million, compared to earlier guidance for a loss of $350 million to $325 million.

The company’s Thursday night announcement follows a CNBC report that the connected fitness maker is temporarily halting production of its products.

Shares of Peloton rose 2.5% in after-hours trading, after closing the day down 23.9%, at $24.22. About $2.5 billion was wiped from Peloton’s market capitalization on Thursday as the stock fell below an IPO price of $29.

“As we discussed last quarter, we are taking significant corrective action to improve our profitability outlook and optimize our costs across the business,” chief executive John Foley said in a statement. “This 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 going forward.”

Foley added that Peloton will have more to share when it releases its fiscal second quarter results on Feb. 8.

On Tuesday, CNBC reported that Peloton is now working with consulting firm McKinsey & Co. to seek cost-cutting opportunities, which could include layoffs and store closures.

At the end of this month, it will also begin to reduce shipping and installation costs for its Bike and Tread products, in part due to historical inflation. The price of his bike will drop from $1,495 to $1,745. Its less expensive treadmill will drop from $2,495 to $2,845. The Bike+ will remain at $2,495, according to Peloton’s website.

Baird analyst Jonathan Komp said in a note to clients that after pursuing growth for years, Peloton has developed “an inflated corporate spending waistline.” He estimates that Peloton added potentially $500 million to $600 million in annual expenses for stores and employees who could be targeted and excluded from the business.

“We suspect there are significant opportunities to reassess the workforce … amid more subdued near-term consumer demand expectations post-Covid,” Komp said.

Baird said the right cost-cutting measures could help the company return to profitability sooner than expected.

Peloton said it does not expect to be profitable – before interest, taxes, depreciation and amortization – until fiscal 2023.

Find the full Peloton press release here.

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