Peloton cuts 15% of workforce “to bring spending in line with revenue” – as CEO steps down despite “optimism” beleaguered brand is “on the right path”

Peloton’s CEO Barry McCarthy has stepped down from his role at the American fitness company, as the beleaguered brand announced yet more job cuts and a plan to cut back its retail presence, amid the mounting losses that have besieged the company during its prolonged post-pandemic slump.

15 per cent of Peloton’s workforce has been let go in this latest round of cuts, a cull which outgoing CEO McCarthy claims is necessary to bring the New York-based brand’s spending in line with its revenue, following three years of continuous losses thanks to sales of connected indoor fitness equipment plummeting as Covid-era restrictions eased.

Today, Peloton announced its ninth consecutive quarter of falling revenues, losing $167.3m for the three months ending 31 March, down from $275.9m for the same quarter last year. Once valued at over $50bn as sales boomed during lockdown (and the closing of gyms) across most of the world, the company is now worth $1.1bn.

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According to the Guardian, McCarthy’s resignation this week also coincides with Peloton’s plans to cut back its retail presence – two years after teaming up with online retail giant Amazon for the first time – due to weak demand, with the company’s shares rising by eight per cent before the markets opened today.

McCarthy, a former Netflix and Spotify executive who joined Peloton in February 2022, replacing co-founder John Foley, was responsible – almost immediately – for making 2,800 staff (20 per cent of the total workforce) redundant that same month.

McCarthy’s other tactics for halting the company’s falling sales and revamping its business model included ending its app’s free membership option, expanding into corporate wellness, outsourcing its manufacturing process from the US to Taiwan, and securing deals with Lululemon, Hyatt hotels, and Amazon, the first time Peloton had partnered with a third-party retailer to reach consumers.

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However, despite his efforts, Peloton has not made a net profit since December 2020, and in his public resignation letter today, McCarthy said a “lot of blood, sweat, and tear have been shed” to ensure the company’s turnaround – and that, despite the mounting losses, he remains optimistic about its future.

“Hard as the decision has been to make additional headcount cuts, Peloton simply had no other way to bring its spending in line with its revenue,” McCarthy said.

“The company had to do that in order to generate sustainable positive free cash flow [FCF]. Achieving positive FCF makes Peloton a more attractive borrower, which is important as the company turns its attention to the necessary task of successfully refinancing its debt.

“In my very first shareholder letter as Peloton’s CEO in May 2022 I outlined three priorities for the business: 1. stabilising the cash flow 2. getting the right people in the right roles, and 3. growing again. Together we’ve achieved the first two of these goals.

“This morning Peloton announced that it finally achieved the first goal, a remarkable accomplishment and a significant milestone. Last quarter the business produced positive free cash flow for the first time in three years. That’s a lifetime removed from where the business was two years ago.”

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He continued: “The headcount cuts announced today were made to ensure that Peloton is able to continue to produce FCF while continuing to invest in software, hardware and content innovations, even if revenues continue to shrink Y/Y.

“Investing in hardware, software and content innovation is the lifeblood of the business, and the key to reversing the decline in revenues and restoring the company’s growth. I’ve never been more optimistic that Peloton is on the right path to achieve this objective.

“There have never been more green shoots or more talent in the building than we have today to complete the turnaround successfully.

“You have a great lead team, and although the stock market hasn’t recognized this yet, they will. It’s simply a matter of time.”

Following McCarthy’s resignation, Karen Boone, Peloton’s chairperson, and Chris Bruzzo, the company’s director, will serve as interim co-CEOs. The brand has also named director Jay Hoag as the chairperson of the board, as it begins a search process to identify Peloton’s next CEO.