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Peloton CEO says it’s taking ‘significant corrective actions,’ puts 2Q revenue in forecasted range

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John Foley, co-founder and chief executive officer of Peloton Interactive Inc., stands for a photograph during the company’s initial public offering (IPO) in front of the Nasdaq MarketSite in New York, U.S., on Thursday, Sept. 26, 2019.
Michael Nagle | Bloomberg | Getty Images

Peloton said Thursday that its fiscal second-quarter revenue will be within its previously forecasted range, as it takes actions to slash costs and improve profitability.

However, the company added fewer subscribers in the latest period, which ended Dec. 31, than it had expected.

In a press release preannouncing its financial results, Peloton said it projects it will end the quarter with 2.77 million connected fitness subscribers, versus a forecasted range of 2.8 million to 2.85 million. Connected fitness subscribers are people who own a Peloton product and also pay a monthly fee to access the company’s digital workout content.

Average net monthly churn for the quarter is expected to be 0.79%. That’s lower than the 0.82% it reported in the first quarter and slightly above the 0.76% it saw in the year-ago period. The lower the churn rate, the less turnover Peloton is seeing with its user base.

It said it sees total second-quarter revenue of $1.14 billion, which is within the guidance of $1.1 billion to $1.2 billion that it previously provided.

And Peloton said adjusted losses — before interest, taxes, depreciation and amortization — will be in a range of $270 million to $260 million, versus prior guidance for a loss of $350 million to $325 million.

The company’s announcement on Thursday evening follow a CNBC report that the connected fitness maker is temporarily halting production of its products.

Peloton shares were rising 2.5% in after-hours trading, after closing the day down 23.9%, at $24.22. About $2.5 billion was wiped from Peloton’s market cap on Thursday, as the stock fell below a $29 IPO price.

“As we discussed last quarter, we are taking significant corrective actions to improve our profitability outlook and optimize our costs across the company,” said Chief Executive Officer John Foley, in a statement. “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.”

Foley added that Peloton will have more to share when it reports its fiscal second-quarter earnings on Feb. 8.

On Tuesday, CNBC reported that Peloton is now working with consulting firm McKinsey & Co. to look for opportunities to cut costs, which could include layoffs and store closures.

At the end of this month, it will also start to tack on shipping and setup fees for its Bike and Tread products, in part because of historic inflation. The price of its Bike will go to $1,745 from $1,495. Its less costly treadmill will rise to $2,845 from $2,495. The Bike+ will remain $2,495, according to Peloton’s website.

Baird analyst Jonathan Komp said in a note to clients that after chasing growth for years, Peloton has developed “a bloated corporate expense waistline.” He estimates that Peloton has added potentially $500 million to $600 million of annual spending on stores and employees that could be targeted and cut out of the business.

“We suspect there are significant opportunities to re-evaluate the workforce … amid more moderate post-Covid, near-term consumer demand expectations,” said Komp.

Baird said that the right cost-cutting measures could help the company return to profitability sooner than expected.

Peloton has said it doesn’t expect to be profitable – before interest, taxes, depreciation and amortization – until fiscal 2023.

Find the full press release from Peloton here.

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