Shares of Peloton Interactive Inc (NASDAQ: PTON) tanked 25% on Thursday after reports it was suspending production of its exercise equipment due to fading consumer demand.
Production halt to affect all of Peloton’s flagship products
According to the CNBC report, Peloton Bike will go out of production for two months and Tread for six weeks. The production halt will kick off in February. The news comes a month after the fitness products company withdrew from manufacturing Bike+ until June.
Commenting further on the news that she broke out, CNBC’s Lauren Thomas said on “The Exchange”:
Peloton failed to determine the demand it will see coming out of the pandemic. It continues to reduce its forecast for demand and is in a position now where it has so much inventory on hand, but the demand just isn’t there. So, it’s temporarily halting production to reset its inventory levels.
The exercise equipment company will also not produce Tread+ in fiscal 2022. Earlier this week, Peloton hired McKinsey to devise a cost-cutting scheme that might include store closures and layoffs.
Peloton delayed the launch of its strength training product
Peloton noted a massive surge in demand due to the pandemic in 2020 and made millions of dollars worth of investments, including the acquisition of Precor, to keep up with it. The waning demand, however, now raises a question if it will need the beefed-up capacity in the first place.
The Nasdaq-listed firm blamed supply constraints and inflation as it raised prices for its products earlier this week. Thomas further added:
Peloton’s strength training product was expected to go on sale last year, but it’s actually been pushed out now to as late as April. The company is saying it hasn’t quite seen the interest from consumers online that it was expecting when it made a media splash with that product recently.
At $24 a share, PTON is now trading below its IPO price.
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