According to internal documents obtained by CNBC, the company is looking to control costs and temporarily halt production of its connected fitness products.
The documents show that the company plans to stop bike production for two months in February and March. The production of the more expensive Bike+ will be stopped until June. The machine will not be made for six weeks. According to the documents, it doesn't expect to make any Tread+ machines in fiscal 2022. After a safety recall last year, Peloton halted production of Tread+.
Demand for its connected fitness equipment has faced a significant reduction due to shoppers' price sensitivity and amplified competitor activity according to a confidential presentation.
After so much demand for its products was pulled forward during the coronaviruses epidemic, Peloton guessed wrong about how many people would buy its products. It needs to reset its inventory levels because it is left with thousands of cycles and treadmills sitting in warehouses or on cargo ships.
Over the past year, the market cap of the company has been shaved off as a result of the planned production halt. Its market value reached a high of nearly $50 billion in January. Its shares fell to a low of $29.11 on Tuesday, which was close to the price of its initial public offering.
The stock fell more than 20% on the news and hit a low of $23.25 before trading was halted.
The presentation shows that the expectations for demand and deliveries in the third and fourth quarters were far too high. According to the presentation, the forecasts were reexamined on December 14.
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.
Email capture rates for the upcoming debut of its $495 strength training product, Peloton Guide, have been low, according to internal documents viewed by CNBC. Email capture rates keep track of the number of people who enter their email addresses on the website. The company said this is a sign of a more challenging demand environment.
The official launch of Guide in the U.S. was pushed back from last October to next month and could happen as late as April, according to a presentation dated earlier this month. The company dropped the price of the bundle after initially charging $595 for it.
A person declined to speak.
After the market closes, the company will report its fiscal second-quarter results.
The exact opposite issue was facing Peloton a year ago. It didn't have enough supply and had too much demand. The acquisition of Precor gave it more than 625,000 square feet of production space. The deal closed early last year.
In May of last year, the company said it would be spending $400 million to build a factory in the United States. The facility in Ohio is expected to be up and running in three years.
Gyms have reopened and consumers don't seem to be throwing as much money into at- home fitness equipment. At the end of the most recent quarter, there were over two million connected fitness subscribers. It added 161,000 net new members in the period, its lowest growth in two years.
The stock price shows the reversal. In 2020, Pelton shares rose more than 440%, but fell in 2021.
In an internal presentation dated October 2021, which was obtained by CNBC, Peloton said that it was expecting overall fitness spending to grow year over year, but instead it was flat after the summer months.
Analysts have reduced their expectations for the second quarter as well as their price targets for the stock because they think that the holiday will be weak.
The presentation noted that the share of the total connected fitness market had increased for Peloton.
According to a report from M Science, the market share of Peloton might be on the decline. M Science said that in November, the share of connected fitness products priced at a minimum of $1,400 was slightly below levels observed in 2019. Black Friday and Cyber Monday were some of the key holiday shopping days.
According to M Science, the leading player in the market for products priced at more than $1,400 is Peloton. Other at- home fitness products that are tracked by M Science include Echelon, Hydrow, and NordicTrack.
M Science said that there was no evidence of another wave of at- home fitness demand as a result of recent Covid-19 developments.
According to CNBC, Peloton is working with McKinsey to find ways to cut costs, which could mean job cuts and store closings. A person familiar with the matter said that the sales division has begun layoffs. The person was not authorized to speak for the company.
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