Peloton reported improved cash flow and a narrower net loss in the latest quarter, leading Chief Executive Officer Barry McCarthy to say that questions about the viability of the business have been “put to bed.”
Though sales continue to slide at the fitness company, it remains on track to generate positive cash flow by the end of the fiscal year in June, Peloton said Wednesday. Its revenue forecast for the current period, the fiscal third quarter, also came in ahead of analysts’ estimates.
Investors have grown more bullish on the company in recent weeks, betting it can get back on course after a dramatic rise and fall during the pandemic. Peloton had seen demand surge during Covid-19 lockdowns, only to suffer an inventory glut and stock rout after consumers returned to their old habits.
Under a turnaround plan that McCarthy kicked off a year ago, the New York-based company has slashed costs and is relying more on service revenue than sales from its signature stationary bikes.
“We were on the brink of extinction, and that’s no longer the case,” he said in an interview. “We’ve put to bed questions about the viability of the business.”
If shareholders were “wondering whether or not Peloton can make an epic comeback, this quarter’s results show the changes we’re making are working,” McCarthy said.
Peloton’s struggles are far from over, and its sales remain mired in a slump. It expects revenue to decline roughly 27% to between $690 million and $715 million in the current quarter. But the midpoint of that range is well above the average analyst estimate of about $694 million.
McCarthy also said he’s aiming to attract 1 million new members to the Peloton app for phones and TVs, and he is looking to restore international growth. In the interview, McCarthy said he plans to reboot the company’s clothing and accessories businesses and revamp its delivery network, as well as its underlying infrastructure and customer service operations. The company will also continue winding down some of its retail stores and work through excess inventory.
In the fiscal second quarter, typically the most popular for Peloton hardware, the company reported revenue of $792.7 million. That beat Peloton’s own estimate of as much as $725 million and Wall Street predictions of about $715 million – despite a 30% year-over-year sales decline. Peloton reduced its net loss to $335.4 million and said it generated about $8 million in free cash flow when excluding vendor payments for unneeded supplies.
“Stabilizing our cash flow was necessary for the survival of Peloton,” McCarthy said in a letter to shareholders. In the last 12 months, the company has improved its cash flow from negative $747 million to negative $94 million.
For the second quarter in a row, subscription revenue continues to eclipse the money Peloton gets from equipment. The company saw hardware sales fall more than 50%, but the subscription growth was 22%. Peloton said it believes that shift will improve gross margins over time.
McCarthy, a former Netflix and Spotify executive, said he now looks to get Peloton to sustained, long-term profitability within three to five years.
Over the past year, Peloton has undergone multiple rounds of layoffs, outsourced production to third-party facilities in Asia, embarked on a plan to close the majority of its retail stores, and shifted to third-party delivery and customer service providers. It has also launched partnerships with Dick’s Sporting Goods, Hilton and Amazon.com.
McCarthy overhauled the company’s executive team as well and recently hired Twitter’s former marketing chief to burnish Peloton’s image.
Investors have been skeptical of the comeback, and the stock is still down about 60% since McCarthy took the CEO role in February 2022. But the shares have begun to rebound in 2023, part of a broader resurgence for tech companies.
In the interview, McCarthy said Peloton plans to revamp its digital app this year and that the company’s hardware teams are focused on ways to reduce costs. That includes having consumers assemble more of its products on their own. Already, the company offers self-assembly for its entry-level bike.
A plan to sell off a manufacturing facility in Ohio is taking longer than expected, and the company now anticipates that it will complete the sale within six months. In a reversal, Peloton no longer plans to sell Precor, a commercial fitness business it bought in 2021 for $420 million, after it failed to fetch an attractive price.
“The clearing price was significantly lower than we think it’s worth,” McCarthy said in the letter. “We’ve decided to change course, injecting new leadership, right sizing Precor’s cost structure, with the goal of restoring its growth.”