(Bloomberg) -- Peloton Interactive Inc. is laying off a significant number of employees for the fourth time this year as part of an effort to save the struggling business, Chief Executive Officer Barry McCarthy told staff on Thursday.
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The fitness technology company is cutting its workforce by roughly 500 globally, or 12%, leaving it with about 3,825 employees. McCarthy said the company is making the move, along with other reductions in operating expenses, in order to reach the break-even point on cash flow by the end of fiscal 2023.
“I know many of you will feel angry, frustrated and emotionally drained by today’s news, but please know this is a necessary step if we are going to save Peloton, and we are,” McCarthy said in a memo. “Our goal is to control our own destiny and assure the future viability of the business.”
Investors applauded the belt-tightening move, sending Peloton shares up 4% to $8.83 in New York.
Peloton told staff that the latest round of job reductions marks the “bulk of our restructuring work” being complete. The company let about 2,800 employees go in February, part of a shake-up that included McCarthy coming aboard as CEO. Peloton eliminated roughly 570 jobs in July as part of a move to outsource hardware manufacturing, and then dismissed an additional 800 people in August to further lower expenses.
And the cuts aren’t entirely over. The company plans to begin closing the majority of its retail stores in North America next year.
“We lost more than $100 million on retail last year, which is why we must restructure this segment of the business,” McCarthy told staff. “Our commitment is to provide updates on which retail operations will be impacted by this decision in the coming months as our analysis and negotiations with landlords progress.”
Later on Thursday, McCarthy sent a follow-up memo to employees in an attempt to clarify comments made to the Wall Street Journal. The CEO implied in an interview that the company had six months to improve or it may need to be sold.
“In the past you’ve heard me say we’re all held accountable for our performance. Me included,” the CEO wrote. “But to be unequivocally clear, there is no ticking clock on our performance and, even if there was, the business is performing well and making steady progress toward our year-end goal of break-even cash flow.”
He added that the idea of Peloton needing to be sold in six months if the company doesn’t show improvement “is at odds with the story we told and the state of the business. That’s on me and I apologize.”
McCarthy released a public statement later in the afternoon. “To be clear, there is no time clock nipping at our heels. If my comments to the WSJ suggested otherwise, then I misspoke, as that is simply not true,” he said.
“We are in the business of driving performance, and the business is indeed performing,” McCarthy said. “By any measure, we have made remarkable progress in record time.”
Still, Peloton’s turnaround effort has been slow to resonate with investors, who have sent the shares down almost 90% in the past year. The company had been a highflier in the early days of the pandemic, when cooped-up customers sought out its exercise bikes and fitness classes.
Growth sputtered after consumers began returning to offices and gyms, and Peloton found itself with a glut of inventory. The company has attempted to juice sales by offering its equipment through Amazon.com Inc., Dick’s Sporting Goods Inc. and Hilton Worldwide Holdings Inc. It also hiked prices on some machines and unveiled a new rowing device.
McCarthy is counting on partnerships, sales of digital app subscriptions and a shift to pushing content to third-party devices to bring in more revenue.
“I know we can make Peloton a great comeback story if we continue to fight for it,” he told staff. “As I have said, this is not easy, but I’ve never been more confident in Peloton and where we are going.”
Here is the memo in full:
This will be a difficult day for approximately 500 global team members whose positions are being eliminated. I want to start by acknowledging them and thanking them for their many contributions to our company.
We are eliminating these positions and reducing other operating expenses, in order to reach break even cash flow by year-end FY23. Our goal is to control our own destiny and assure the future viability of the business.
I am acutely aware many of those impacted by these changes aren’t just colleagues but are also close friends. I know many of you will feel angry, frustrated and emotionally drained by today’s news, but please know this is a necessary step if we are going to save Peloton, and we are.
With today’s announcement, the bulk of our restructuring work is complete.
The final building block, which I have previously outlined, is the right-sizing of our retail footprint. We lost more than $100 million on retail last year, which is why we must restructure this segment of the business. Our commitment is to provide updates on which retail operations will be impacted by this decision in the coming months as our analysis and negotiations with landlords progress.
While today’s news is difficult to hear, let’s remind ourselves of the significant and purposeful changes we have made since the beginning of the year.
Together, we have:
• implemented a restructuring plan to variablize our cost structure and generate significant annual cost savings,
• secured $750 million in financing as well as maintained a liquid cash balance of more than one billion dollars,
• simplified our operations by exiting owned-manufacturing in Taiwan,
• shifted our last mile delivery by expanding relationships with our third party partners,
• affirmed our pricing and premium brand positioning,
• entered into new partnerships with iconic retailers Amazon and Dick’s Sporting Goods, and
• introduced the Peloton Row, forever changing the rowing category.
Together, we have dramatically restructured Peloton’s business. You should be incredibly proud of what we have accomplished. This has not been easy. And, I want to reiterate how grateful I am to each of you for your hard work, contributions, and commitment to this company, our mission and our Members.
In closing, I want to offer my deepest gratitude to those who are directly impacted by today’s actions. Twice in my career I’ve found myself in a similar situation. The first time was brutally hard. The second time I’d learned from the first. Resilience is a conscious choice. Sooner or later, we all get knocked down in life. But we all deal with setbacks in our own way. However you deal with it, don’t ever lose faith in yourself, and don’t ever stop getting up off the ground when you get knocked down.
I know we can make Peloton a great comeback story if we continue to fight for it. As I have said, this is not easy, but I’ve never been more confident in Peloton and where we are going.
Me to you. You to me. You to each other. And all of us to our Members.
(Updates with new internal memo from McCarthy in 11th paragraph.)
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