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Peloton Cuts Apparel Growth Projections 25%: Report

Peloton has cut its apparel growth projections, CNBC reported Monday, citing internal documents.

The fitness platform’s apparel division more than doubled revenue in fiscal 2021, the 12-month period ended June 30, 2021, to $107 million. According to CNBC, Peloton now expects to make around $150 million in clothing sales in fiscal 2022, down from a prior forecast of more than $200 million. An internal presentation reportedly cited multiple “macro factors,” including supply chain issues.

Though Peloton began selling apparel in 2014, these drops were generally limited to seasonal and cultural collections designed in collaboration with brand partners, such as last year’s collab with Adidas and Beyoncé’s Ivy Park. That changed in September with the launch of the company’s private-label brand Peloton Apparel.

Less than half a year later, Peloton’s website offers an extensive lineup of activewear, with more than 200 items listed in women’s apparel and over 100 in men’s apparel. Though many brands have eschewed promotions amid the high demand environment, much of Peloton’s apparel assortment is currently marked down. In outerwear, about half of items listed are on sale. A quarter are available at a discount of 50 percent off or more.

According to NPD data, U.S. activewear sales grew 28 percent in 2021.

Although Peloton will not publish its second-quarter earnings until Feb. 8, preliminary results released last month suggest the company remained roughly on track in the final three months of 2021. Total revenue came in at approximately $1.14 billion, almost squarely in the middle of previously provided guidance of $1.1 billion to $1.2 billion. Peloton estimated its adjusted earnings before interest, taxes, depreciation and amortization will be in the range of minus $270 million to minus $260 million, well above prior guidance of minus $350 million to minus $325 million.

“As we discussed last quarter, we are taking significant corrective actions to improve our profitability outlook and optimize our costs across the company,” Peloton co-founder and CEO John Foley said in a statement. “This includes gross margin improvements, moving to a more variable cost structure, and identifying reductions in our operating expenses as we build a more focused Peloton moving forward.  This work is still underway and we expect to have more details to share when we report earnings on February 8, 2022.”

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Days before Peloton released its second-quarter preliminary earnings, CNBC reported that the company was working with the consulting group McKinsey & Co. to review its cost structure and possibly cut jobs. CNBC, which obtained a recording from a recent call with members of Peloton’s membership, said the apparel division, specifically, could be targeted. A couple days later, CNBC, again citing internal documents, reported that Peloton had paused production on treadmill and exercise bike products as demand for its products faced a “significant reduction” due to consumer price sensitivity and the rise of competitor activity.

Peloton, an early beneficiary of pandemic trends, saw its stock price soar from below $20 in March 2020 to more than $160 in December 2020. Since then, however, things have taken a turn for the worse, particularly in November, when its stock fell 53 percent. As of Tuesday, Peloton shares were trading below the company’s $29 IPO price.

Despite all this, it does not appear the fitness platform has any intention of giving up completely on its apparel venture. Faced with a cease-and-desist letter from athleisure giant Lululemon, it chose to fight back. In November, it filed a complaint in Manhattan federal court seeking a “declaratory judgment” that its apparel products do not infringe on Lululemon’s design patents and trade dress.