Turning around an exercise bike is hard. Turning around an exercise bike and fitness company is even harder. Peloton's stock fell 20% after reporting a dismal $757 million net loss on Tuesday.
Barry McCarthy, CEO of the embattled company, said in a letter to shareholders that it was "thinly capitalized." The company had just $879 million in cash at the end of the first quarter. This forced Peloton to borrow $750 million in five-year term debt from JPMorgan and Goldman Sachs. The company's sales slid 15% in the quarter, down to $964.3 million from $1.26 billion last year. Peloton losses come as pandemic restrictions ease, and more people head back to the gym rather than continuing to work out at home.
"Turnarounds are hard work," McCarthy said. "It’s intellectually challenging, emotionally draining, physically exhausting and all-consuming. It’s a full-contact sport."
The company has made several changes in recent months to both product and personnel as it tries to climb back to its former glory. McCarthy took the helm as CEO in February, moving former CEO John Foley to executive chairman. Peloton also brought on Andrew Rendich in March as its chief supply chain officer to fix its long mismanaged supply of equipment.
After temporarily halting production of its bikes in January and laying off 41% of its sales and marketing staff in February, the company cut prices for its equipment to try to draw in more sales. It's also planning to increase the cost of its membership starting June 1, and is launching a subscription service called One Peloton Club, which will let customers pay for bikes and classes with one monthly fee.
McCarthy said Peloton is seeing good returns from these changes. The cut in hardware prices increased daily unit sales by 69%, while the incoming increase in subscription prices has "so far driven only a modest increase in churn."
"The strategy wasn’t flawed, but our execution was," McCarthy said of the company. "Better systems. Better decision-making. Better execution. We’re working on it."
Still, the company has around 7 million subscribers, which is a far cry from McCarthy's lofty long-term goal of gaining 100 million subscribers. With the debt financing, though, the company's climb got a little steeper.
Correction: An earlier version of this story misstated the month in which layoffs took place. This story was updated on May 10, 2022.