Peloton Interactive Inc. (PTON, Financial) announced on Tuesday that it plans to lay off 2,800 employees as part of a strategy to get its financial house in order. It also announced a board room shakeup, including a new CEO.
Peloton said that the series of steps it is taking should position the business for long-term growth while establishing “a clear path to consistent profitability and sustainable free cash flow.” Once these actions are fully implemented, the company expects to achieve at least $800 million of annual run-rate cost savings through operating expense efficiencies and significant margin improvement in its Connected Fitness category.
These changes are all part of what Peloton terms its “comprehensive program to reduce costs and drive growth, profitability, and free cash flow.” One of the facets of that is “right-sizing” the organization. “The workforce reduction will occur across nearly all business operations to streamline reporting structures and create clearer lines of accountability. This will result in the reduction of approximately 2,800 global positions.”
Corporate positions will be reduced by approximately 20%. As for operations in the field, the company is reducing its owned and operated warehouses and delivery teams and expanding its commercial agreements with third party logistics providers. The company’s roster of instructors “and breadth and depth of its content will not be impacted by the initiatives announced today,” according to the announcement.
The 2,800 job cuts will affect 20% of the company’s corporate positions. Peloton co-founder John Foley said in a statement, "These decisions, particularly those related to our impacted Peloton team members, were not taken lightly. We greatly value the contributions of our talented colleagues and are committed to supporting impacted team members in their transitions. We thank our global team members for their focus and dedication through this process."
The company said it will reduce its planned capital expenditures in 2022 by approximately $150 million. The restructuring program is expected to result in approximately $130 million in cash charges related to severance as well as other exit and restructuring activities and $80 million in non-cash charges, the release noted. The majority of the charges will be recorded in fiscal year 2022.
Peloton shares dropped by 7.5% to $27.51 in premarket trading on Tuesday after rising almost 21% on Monday, fueled by word that Amazon.com (AMZN, Financial) and Nike (NKE, Financial) might be potential suitors. Apple (AAPL, Financial) also was mentioned as a potential buyer by Wedbush analyst Dan Ives.
Peloton stock “soared to above $160 in 2020 amid surging demand for Peloton’s bikes during Covid-related lockdowns,” noted Barron's. “But the shares have tumbled as gyms reopened. It has declined 16.8% year to date. Last month, activist investor Blackwells Capital said it sent a letter to Peloton’s board suggesting the company fire CEO Foley and explore a sale.”
As for the boardroom changes, Barry McCarthy has been named the company's new CEO and President, effective Wednesday, Feb. 9. John Foley is stepping down as CEO, and has been named Executive Chair. William Lynch will transition from President to a non-executive director on the Board.
McCarthy has held senior leadership roles at Spotify (SPOT, Financial) and Netflix (NFLX, Financial), and is a longtime advisor and board member at several public and private technology companies. He will also join Peloton's Board of Directors.
Karen Boone, Lead Independent Director, said in a statement, "Today's leadership changes are the culmination of a succession planning process that the board and John (Foley) have worked on together over the last several months.”
In addition, the company has appointed two new directors to its board: Angel L. Mendez, “a proven supply chain leader at the intersection of software, technology, and industrial operations,” and Jonathan Mildenhall, a “globally recognized creative leader in marketing and advertising.” Erik Blachford, who has served as a director since 2015, will step down from his role on the board.
With these changes, Peloton's Board will comprise nine directors, four of whom will have been appointed in the past three years. Nearly half of Peloton's board seats, executives said, will now be held by members who are female, people of color and/or LGBTQIA+, adding diversity to the team.
