platoon is temporarily halting production of its connected fitness products as consumer demand declines and the company seeks to rein in costs, according to internal documents obtained by CNBC.
Peloton plans to pause bike production for two months, from February to March, documents show. It has already stopped production of its most expensive Bike+ in December and will do so until June. You won’t be making your Tread treadmill for six weeks, starting next month. And it does not anticipate producing any Tread+ machines in fiscal 2022, according to the documents. Peloton had previously halted production of Tread+ after a security recall last year.
The company said in a confidential filing dated Jan. 10 that demand for its connected fitness equipment has faced a “significant reduction” around the world due to price sensitivity from buyers and amplified retail activity. competence.
Peloton has essentially misguessed how many people would buy their products, after so much demand spiked for the coronavirus pandemic. Now you have thousands of bikes and treadmills left in warehouses or on cargo ships, and you need to reset your inventory levels.
The planned production outage comes as nearly $40 billion has been cut from Peloton’s market capitalization over the past year. Its market value peaked at nearly $50 billion last January. But on Tuesday, its shares fell to a 52-week low of $29.11, nearly falling below the $29 mark where it priced from its September 2019 initial public offering.
Peloton shares fell more than 20% on the news, taking the stock’s market value to $8.3 billion and hitting a 52-week low of $23.25 before trading was halted.
The company filing shows Peloton had initially set expectations on Oct. 31 for demand and deliveries in its fiscal third and fourth quarters that ended up being too high. He reassessed those forecasts on Dec. 14, according to the filing, and Peloton’s expectations dropped significantly for his Bike, Bike+ and Tread.
However, Peloton said, the latest forecast does not take into account any demand impact the company may see when begins charging customers an additional $250 in delivery and setup fees for his bike and another $350 for his tread, starting later this month.
Peloton also said it has seen low email capture rates for the upcoming debut of its $495 strength training product, Platoon Guide, codenamed “Project Tiger” in internal documents seen by CNBC. Email capture rates track the number of people who enter their email addresses on the Peloton website to receive product information. The company said this is a sign of “a more challenging post-Covid demand environment”.
Guide’s official launch in the US has been pushed back from last October to next month and could now go as late as April, according to the filing dated earlier this month. The company also said it initially planned to charge $595 for the bundle that includes one of Peloton’s heart rate bracelets, and later reduced the price by $100.
A Peloton spokesman declined to comment.
The company plans will report its fiscal second quarter results on February 8 after the market close.
Too much supply as spending flat lines
Just over a year ago, Peloton faced the exact opposite problem. It had too much demand and too little supply. In December 2020, he announced a $420 million acquisition of exercise equipment manufacturer Precor, giving you more than 625,000 square feet of production space. That deal closed early last year.
Then last May, Peloton said it would spend another $400 million to build its first factory in the United States to speed up the production of its bikes and treadmills. That Ohio facility isn’t expected to be operational until 2023.
However, in recent months, gyms have reopened and consumers don’t seem to be spending as much money on home fitness equipment. At the end of its latest quarter, Peloton had 2.49 million connected fitness subscribers. It only added about 161,000 net new members in the period ending September 30, its lowest growth in two years.
The reversal is seen in its share price. Pelton shares are up more than 440% in 2020, but down 76% in 2021.
In a separate internal Peloton filing dated October 2021, obtained by CNBC, Peloton said it expected overall fitness spending to continue to grow year-over-year, but instead overall spending was flat after the summer months. .
Analysts in recent weeks have been cutting his expectations for the second quarter of Peloton, as well as his price targets for the shares, projecting that Peloton had a lazy holiday.
Peloton’s market share could be falling
One bright spot highlighted by the presentation was that Peloton’s share of the total connected fitness market had been increasing.
But a report from research firm M Science shows that Peloton’s overall market share could be declining. In November, Peloton’s share of all connected fitness products with a minimum price of $1,400 was slightly below levels seen in 2019 and 2020, M Science said. That’s despite the surge Platoon saw on key holiday shopping days, including Black Friday and Cyber Monday, he said.
M Science pegs Peloton’s market share for products priced over $1,400 at just over 65%, making it the leading player. Other home fitness products that M Science tracks include Echelon, Hydrow, Lululemon‘s Mirror, NordicTrack and Tonal.
M Science also said it was yet to see “any evidence of another wave of demand for home exercise as a result of recent Covid-19 developments”.
CNBC reported Tuesday that Peloton is working with consulting firm McKinsey & Co. to look for ways to cut costs, which could mean job cuts and store closings. A person familiar with the matter said Peloton has already initiated layoffs in its sales division. The person requested anonymity because they were not authorized to speak on behalf of the company.
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