Peloton's (PTON 2.62%) turnaround effort since CEO Barry McCarthy took over earlier this year has been erratic at best. Cost-cutting has been a central theme, and for good reason, but some decisions have been downright bizarre.

The recent launch of a $3,200 rowing machine was weird. Peloton is overloaded with inventory as demand for its pricey connected fitness products craters. Bringing a new product to market that's triple the price of the competition and requires an expensive $44 monthly subscription doesn't seem like a good idea to me.

The decision to sell its products at DICK'S Sporting Goods also falls into the "what were they thinking?" category. Any successful turnaround for Peloton will require that the company maintain the cachet associated with its brand. Turning to a big-box sporting goods store is not going to help.

Another round of layoffs

Given the state of the economy, it may not really matter what Peloton does or doesn't do. During the height of the pandemic, when people were staying home and flush with stimulus cash, splurging on home exercise equipment didn't seem unreasonable. Today, with sky-high inflation, rapidly rising interest rates, and the odds of a recession seemingly approaching 100%, the number of potential customers for Peloton's products is dwindling.

Had Peloton stayed lean and nimble during the pandemic, recognizing that the bonanza probably wouldn't last forever, I'd be writing a very different article today. But the company instead rapidly expanded. Headcount ballooned, the $420 million acquisition of Precor gave the company a bunch of manufacturing capacity that it no longer needs, and costs exploded.

Undoing all of this takes time, probably more time than Peloton has. Peloton has already gone through multiple rounds of layoffs this year in an effort to cut costs, but demand has tumbled so quickly that it really hasn't made much of a difference. Impairment charges, supplier settlements, and inventory write-offs led to a whopping $1.2 billion net loss in the second quarter, and free cash flow was a loss of $400 million.

With a new round of layoffs, reported by The Wall Street Journal on Thursday, McCarthy says most of the restructuring is now complete. Peloton will shed another 500 jobs, or 12% of its remaining workforce, on top of around 600 jobs that were already eliminated beyond what was previously disclosed. Peloton's headcount will be less than half its peak once all is said and done.

McCarthy reportedly said in an announcement to employees that these layoffs, which will hit the marketing department hardest, are the last major move to cut the company's costs. He's giving the company six months to turn things around, saying that if a turnaround fails to materialize in that time, Peloton likely is not viable as a stand-alone company.

The most likely outcome

A turnaround will require Peloton to grow revenue enough to move the bottom line closer to profitability. That will be difficult, especially with a gutted marketing department. I don't see any reason to believe that demand for Peloton's products will meaningfully improve over the next six months.

Elevated inflation appears to be sticking around for now, and getting inflation under control seems likely to throw the U.S. into a recession. In other words, this is not a good environment to be selling a $1,000+ stationary bike or a $3,000+ rowing machine that requires a monthly subscription on par with a typical gym membership.

I think the most likely outcome is that Peloton tries to sell itself early next year after it fails to reignite growth. That's very much not a reason to buy the stock today -- Peloton is still valued at around $3 billion, but that valuation is far too optimistic. Even if the turnaround succeeds, there's practically no chance the company's financial results will resemble those of its pandemic heyday anytime soon.

Turning Peloton around was always going to be an uphill battle. With McCarthy putting the company on the clock, the turnaround story looks like it will reach some sort of conclusion next year. For investors at today's price, I don't think the story is likely to end all that well.