Peloton Interactive (PTON 3.06%) is on its last legs. The connected fitness equipment maker is launching its third round of layoffs, letting nearly 800 people go. In addition, it's closing its in-house delivery program, shuttering many of its retail locations, outsourcing customer service, and reversing the price cuts it made just four months ago.
The company might not be running out of cash just yet, but it still needs to cut expenses to the bone. Or, as CEO Barry McCarthy told employees in a memo:
Cash is oxygen. Oxygen is life. We simply must become self-sustaining on a cash flow basis.
Peloton is not running in place, but rather running itself into the ground.
Sweating a turnaround situation
The days of Peloton's pandemic-era glory are a distant memory now as it hunkers down to remain afloat. Revenue is drying up, losses are widening, and shares of the connected fitness guru are down 92% from the all-time high hit in January 2021.
McCarthy seems to think that hiking prices above what they were before he cut them back in April will lead to a renaissance in the business. Peloton will raise the high-end Bike+ connected stationary bike by $500 to $2,495, the same price as at the time of the price cut. At the same time, the Tread treadmill will rise $800 to $3,495, or 40% higher than the pre-cut price.
Peloton's even higher-cost Tread+ was the subject of a massive recall last year and needs government approval to relaunch.
Whereas McCarthy said at the time Peloton was scaling up the business and bidding for more market share by cutting prices, in a recent interview with Bloomberg, he says the price cuts "cheapened at least the perception of the brand." He also needed to unload a lot of inventory.
It seems unlikely he's helping Peloton by doing this.
The problem is not that Peloton wasn't leaning hard enough into being a luxury fitness brand, but that indoor connected fitness was likely little more than a niche market for upscale customers. It got a major boost because of the lockdowns of the pandemic, but once that was over, people preferred exercising outdoors or soaking in the communal atmosphere of the gym.
Moreover, it's not alone in seeing its business dry up. Nautilus (NLS 14.85%) recently reported a 70% collapse in sales in the fiscal first quarter, though up 11% versus 2020. Still, it experienced significant losses of $60.2 million compared to a profit of $13.9 million last year and a loss of $5.1 million two years ago.
NordicTrack parent iFit Health & Fitness withdrew its IPO earlier this year after delaying it in October while Amazon-backed connected fitness start-up Tonal, which has several dozen mini stores inside Nordstrom stores, cut more than a third of its workforce last month.
And showing just how strong of a pull working out in a natural setting still holds, privately held SoulCycle announced it will be closing 19 of its 82 studios because it overestimated how much people wanted to workout indoors after the pandemic.
Hoping less is more
At the end of its fiscal third quarter in March, Peloton Interactive had $879 million in cash, but $1.6 billion in debt, lease obligations, and other long-term liabilities.
It has $130 million in lease payments due this year and almost $250 million more due over the next three years, but McCarthy wants Peloton to undertake a "significant and aggressive reduction" of its store count. The connected fitness equipment maker has 86 stores in North America, and just how many of the stores it closes will be based on the negotiations that can be hammered out with landlords.
In the meantime, Peloton is firing 532 warehouse and distribution workers along with 252 support team members. It follows the announcement last month that Peloton was shedding 570 workers in Taiwan as it abandoned its effort to make its equipment in-house, and the report earlier this year that it had fired 2,800 employees to cut costs.
It is also considering several new initiatives to cut costs or boost sales. In an interview with Bloomberg, McCarthy said Peloton might offer a build-it-yourself option so customers could assemble their own equipment instead of having sending out a team to set it up, though it would require design changes to the equipment.
Peloton is also "rethinking" its digital offerings and is mulling adopting a "freemium" model that could see consumers who own connected workout equipment from competitors being able to download Peloton's workout classes to their devices for a fee.
Hop off this treadmill
Peloton Interactive's maneuvers will make it a much smaller player in a niche market, perhaps the best it can hope for at this point, but investors shouldn't go along for the ride.
Maybe some larger company could eventually acquire the connected fitness equipment company, and that was the hope earlier this year, but right now Peloton is just spinning its wheels and there is little chance that making its products even more expensive will help it grow sales.