Peloton stock’s slump continues after gains make “very few things cheer.”

Peloton Interactive Inc.’s shares continued their slide on Tuesday after the connected fitness equipment maker issued a gloomy forecast that indicated continued demand problems for the one-time pandemic star.

main field PTON,
expects June quarter revenue of $675 million to $700 million, well below the FactSet consensus of $820 million. The company noted that it was experiencing “weaker demand,” only partially offset by recent price cuts for its hardware.

Shares fell 12% in Tuesday’s trading and were on course for a record low. They are down 86% on a 12-month basis, compared to a 16% decline in the S&P 500 index. SPX,

The company’s most recent report points to inventory on Peloton’s balance sheet at $1.41 billion. While Peloton believes it will eventually be able to sell its excess inventory, its newly installed CEO, Barry McCarthy, admitted inventory management has been a “challenge” for the balance sheet.

“We have too much for the company’s current run rate, and this inventory has consumed a tremendous amount of cash, more than we anticipated, prompting us to reconsider our capital structure,” he wrote in a letter to shareholders.

Peloton announced earlier this week that it signed a commitment to borrow $750 million in five-year debt from JP Morgan Chase & Co. JPM.
and Goldman Sachs Group Inc. GS,

Additionally, the company believes its “current cash flow headwinds should turn into tailwinds in FY23” as the company destockes, and Peloton expects to “return the business to positive free cash flow in FY23,” according to McCarthy’s letter to shareholders. . .

He added that recent price changes seem to be paying off.

“The hardware price cuts have increased our daily unit sales by 69% and our revenue by more than $25 million per month,” he wrote. “And the price increase for our all-access monthly subscription, which doesn’t take effect until June 1, has resulted in only a modest increase in churn so far. That’s about a $14 million monthly increase in revenue if churn stays near current levels.”

The comment followed lower-than-expected financial results for Peloton’s March quarter. The company posted a net loss of $2.27 per share on revenue of $964.3 million, while analysts had forecast a loss of 83 cents per share and revenue of $970 million.

Peloton ended its third quarter with 2.96 million connected fitness subscriptions, ahead of the FactSet consensus of 2.93 million.

“Apart from the benefits to subscribers, there are very few things to be excited about in today’s news release,” wrote Rohit Kulkarni, analyst at MKM Partners, in a note to clients. “Given the amount of cash, inventory and cash burn, we view the existential threats to Peloton as increasing, particularly in an environment of reopening headwinds, rising interest rates, rising commodity prices (inflation) and potentially weakening consumer spending patterns as we prepare for the make way in 2H22.” Peloton stock’s slump continues after gains make “very few things cheer.”

Brian Lowry

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