January 24, 2022
Peloton plans to pause Bike production for two months, from February to March, the documents show. It already has halted production of its more expensive Bike+ in December and will do so until June. It won’t manufacture its Tread treadmill machine for six weeks, beginning next month. And it doesn’t anticipate producing any Tread+ machines in fiscal 2022, according to the documents. Peloton had previously halted Tread+ production after a safety recall last year.
The company said in a confidential presentation dated January 10 that demand for its connected fitness equipment has faced a “significant reduction” around the world due to shoppers’ price sensitivity and amplified competitor activity.
Indeed, according to CNBC, Peloton essentially has guessed wrong about how many people would be buying its products, after so much demand was pulled forward during the coronavirus pandemic. The company now finds itself left with thousands of cycles and treadmills sitting in warehouses or on cargo ships, and it needs to reset its inventory levels.
The planned production halt comes as close to $40 billion has been shaved off of Peloton’s market cap over the past year. Its market value hit a high of nearly $50 billion last January.
However, Peloton said, the latest forecast doesn’t take into account any impact to demand the company might see when it begins to charge customers an extra $250 in delivery and setup fees for its Bike, and another $350 for its Tread, beginning at the end of this month.
Peloton also said it has seen low email capture rates for the upcoming debut of its $495 strength training product, Peloton Guide, which is codenamed “Project Tiger” in internal documents viewed by CNBC. Email capture rates keep track of the number of people who enter their email addresses on Peloton’s website to receive information on the product. The company said this is a signal of “a more challenging post-COVID demand environment.”
The official U.S. launch of Guide has been pushed from last October to next month and now could come as late as April, the presentation dated earlier this month said. The company also said it initially planned to charge $595 for the bundle that includes one of Peloton’s heart rate arm bands and later dropped the price by $100.
Late Thursday, CEO John Foley said in a statement, “As we discussed last quarter, we are taking significant corrective actions to improve our profitability outlook and optimize our costs across the company. 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 moving forward.”
Research contact: @CNBC