Peloton headwinds stiffen as people break pandemic routines

Peloton’s uphill struggle to generate sales as more people break from health routines forced during the pandemic continued in the third quarter and the company’s revenue outlook sent shares tumbling more than 20% before the opening bell.

The maker of high-end exercise bikes and treadmills thrived during COVID-19 outbreaks and sales growth for the New York City company doubled in 2020 and surged 120% in its last fiscal year.

The availability of vaccines and easing of COVID-19 restrictions, however, have opened up more workout options and Peloton has suffered. In February the company announced a major restructuring and abandoned plans to open its first U.S. factory, which would have employed 2,000 workers in Ohio. Co-founder John Foley stepped down as CEO and the company said it would cut nearly 3,000 jobs.

Today the company announced a binding commitment letter with JP Morgan and Goldman Sachs to borrow $750 million, but new CEO Barry McCarthy said in a letter to shareholders Peloton ended the quarter with $879 million in cash, “which leaves us thinly capitalized for a business of our scale.”

Peloton ramped up fast during the pandemic, increasing its subscriber base from 700,000 to 3 million. That led it to overestimate product demand and loaded the company up with a substantial inventory of unsold bikes and treadmills.

McCarthy said the company to rethink its capital structure at the same time that it pushes to expand its subscriber base to 100 million.

“Turnarounds are hard work,” McCarthy said in a letter to shareholders. “It’s intellectually challenging, emotionally draining, physically exhausting, and all consuming. It’s a full contact sport.”

Peloton Interactive Inc. lost $757.1 million, or $2.27 per share, for the three months ended March 31. Stripping out non-recurring items, it lost 98 cents per share, outpacing projections of a per-share loss of 85 cents, according to a survey by Zacks Investment Research.

The loss was far greater than last year when Peloton was $8.6 million in the red.

Revenue slid 15% to $964.3 million, which was also short of analyst projections.

Peloton said it’s looking at revenue this quarter to come in between $675 million and $700 million. That too soured investors in early trading. Industry analysts had been projecting fourth-quarter revenue of $820.3 million, according to FactSet.

Shares fell $3 to $11.13 about an hour before markets opened. Shares have already fallen more than 60% this year. At their peak, shares of Peloton cost as much as $171.