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Nike, Amazon Reportedly Eyeing Peloton

Peloton replaced its CEO and laid off 2,800 employees Tuesday, days after rumors emerged that Nike and Amazon are considering purchasing the beleaguered fitness platform.

The Wall Street Journal reported Friday that Amazon has spoken with advisors about potentially purchasing Peloton. The article, which cited “people familiar with the matter,” noted that there is no guarantee the e-commerce titan would follow through on its offer or that Peloton would be receptive.

That same day, the Financial Times released its own report claiming Nike was also looking into a bid. Nike, which is just a couple months out from its purchase of the virtual fashion firm RTFKT, has yet to speak with Peloton and may not end up making an offer.

Amazon declined to comment and neither Nike nor Peloton responded to a request for comment.

With these rumors still swirling, Peloton unveiled a swath of changes Tuesday morning, including the resignation of co-founder John Foley as CEO; the appointment of Barry McCarthy, previously the chief financial officer at Spotify and Netflix, as the new CEO; and the elimination of approximately 2,800 positions globally.

“For many of us, the last two years have been a whirlwind of a learning experience,” Foley wrote in a letter announcing the changes. “We often had to act quickly, with limited visibility. For example, in the face of supply chain disruptions and delivery delays, we invested heavily in near-term capacity, inventories, and logistics to protect our member experience. However, as our post-Covid demand picture looks different than anticipated, these investments no longer align with how we intend to operate our business going forward.”

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Foley, who had faced criticism by certain activist investors, will remain with the company as executive chair. In a call with investors Tuesday morning, he confirmed that he will retain his supermajority of shares.

McCarthy, Foley’s replacement, will step into his new roles as president and CEO effective Wednesday. He will also join the company’s board of directors. He has previously served as a member of the boards of Rent the Runway, Chegg, Eventbrite, Pandora and MSD Acquisition Corp. The appointment was “the culmination of a months-long succession plan,” Foley said.

“[McCarthy] is a visionary [in the] media, software subscription business,” Foley said. “He might be number one in the world with understanding subscription businesses, with his helping rebuild Netflix and helping [Spotify co-founder and CEO Daniel Ek] build Spotify…. He’s kind of an embarrassment of riches as it relates to the Peloton story.”

Foley said there also will be “a number of other senior-level departures across various areas of the business that you’ll learn of in the coming days.” This will include the former CEO’s wife, Jill Foley, who will transition from her position as vice president of apparel “in the coming months.”

Though Peloton did not break out its apparel revenue in its latest earnings, CNBC reported late last month that the company had lowered its expected clothing sales forecast for fiscal 2022, the 12-month period ending June 30, from more than $200 million to around $150 million. An internal presentation reportedly cited multiple “macro factors,” including supply chain issues. The difficulties come as the company works to get its private-label brand Peloton Apparel, launched in September, off the ground.

The company’s board of directors will welcome two new members in addition to McCarthy, including Angel Mendez, the executive chairman of LevaData, a privately held, artificial intelligence company focused on supply chain management. Touted by Peloton as “a proven supply chain leader,” Mendez served as a senior executive at Cisco Systems from 2005 to 2015, during which time he led the company’s corporate transformation program as well as its global supply chain.

Peloton lowers forecast, unveils cost-cutting measures

Peloton’s second-quarter shareholder letter, also published Tuesday, saw the company significantly downgrade its full-year guidance. The company’s total revenue forecast fell from a range of between $4.4 billion and $4.8 billion to a range of $3.7 billion to $3.8 billion. Rather than hitting 3.35 million to 3.45 million Connected Fitness Subscriptions, it now expects to reach approximately 3 million. As of Dec. 31, it had 2.77 million subscriptions. The company’s projected gross profit margin fell from 32 percent to 28 percent.

Alongside its other announcements, Peloton revealed a series of steps that it said would “position the business for long-term growth while establishing a clear path to consistent profitability and sustainable free cash flow.” Once implemented, it expects these actions will lead to annual run-rate cost savings of at least $800 million. The company also plans to reduce capital expenditures in 2022 by approximately $150 million. The restructuring program will result in approximately $130 million in cash charges related to severance and other exit and restructuring activities, as well as $80 million in non-cash charges, Peloton said.

Most notably, Peloton is eliminating 2,800 global positions, including 20 percent of its corporate head count. In North America, those “separation conversations” were scheduled to take place Tuesday, according to Foley. Additionally, Peloton will reduce its owned and operated warehouses and delivery teams and expand agreements with third-party logistics providers. The company has also nixed development of an Ohio factory that broke ground in August, resulting in $60 million in restructuring capital expenditures. The factory was expected to employ 2,200.

“We’re also taking a clear-eyed look at our culture and, if we’re honest with ourselves, we see some things that need to change,” Foley said. “One of these things is optimizing processes for making decisions—which includes creating more space for debate to get to the right decisions, empowering the right folks to be decision makers, and supporting decisions once made so we can enhance our execution. You can expect this to be a priority for Barry and our leadership team in the coming year.”

The flurry of changes at Peloton were not enough to assuage all doubters. Blackwells Capital, an activist investor with a less than 5 percent stake in Peloton, had previously pushed for Foley’s ouster and has urged the company’s board to put it up for a sale “immediately.” Blackwells’ presentation arguing for the sale names numerous potential buyers, including Adidas—a current Peloton partner—Berkshire Hathaway, Lululemon, Nike and Amazon.

“Peloton CEO John Foley naming himself executive chairman and hiring a new CFO does not address any of Peloton investors’ concerns,” Jason Aintabi, Blackwells’ chief investment officer, said Tuesday. “Mr. Foley has proven he is not suited to lead Peloton, whether as CEO or executive chair, and he should not be hand-picking directors, as he appears to have done today.”