Ahead of today’s Peloton earnings report, John Foley announced that he is stepping down as CEO. The longtime chief executive will remain on as executive chair, with former Spotify CFO Barry McCarthy stepping into his old role.
“Barry is an incredible leader who has held senior executive roles at Spotify and Netflix and is a longtime advisor and board member at public and private technology companies,” Foley said in an open letter. “This appointment is the culmination of a months-long succession plan that I’ve been working on with our Board of Directors, and we are thrilled to have found in Barry the perfect leader for the next chapter of Peloton. I look forward to working with him and invite you to welcome him with open arms.”
The firm is also cutting 2,800 jobs globally, around 20% of its corporate workforce. Cuts will come “at every level of the organization.” Such moves arrive at the tail end of a roller-coaster couple of years for the connected fitness brand, culminating with a drop in demand. In addition to Foley, Peloton’s president of five years, William Lynch, will be transitioning to a nonexecutive director role on the company’s board.
Foley also notes that his wife, Jill Foley — who has served as VP of Apparel at the brand — will be transitioning away from the role. “She founded and built our incredible Apparel business from the ground up,” Foley wrote. “We are all very proud and grateful to Jill and the team that has helped her develop that sector of our business into what it is today.”
Shareholders were convinced some dramatic changes were necessary for the company, which was riding high not long ago amid a surge of pandemic-fueled demand. The brand had a good deal of wind in its sails prior to COVID-related shutdowns, amassing an almost cult-like following, but the widespread closure of gyms proved a massive accelerator.
After an initial bottleneck in supply, the company invested $400 million in U.S. production back in May 2021. This year, meanwhile, has thus far been marked by reports of slowed demand and corrective action. Peloton hired consulting firm McKinsey as its examined layoffs. Soon after, the company reportedly halted all production of its treadmill and bike products.
Foley broke from pre-earning silence to confirm the former and deny the latter, stating at the time:
[W]e’ve found ourselves in the middle of a once-in-a-hundred year event with the COVID-19 pandemic, and what we anticipated would happen over the course of three years happened in months during 2020, and into 2021. We worked quickly and diligently to meet the demand head-on at a time when the world really needed us, in large part thanks to how hard you worked every day. We feel good about right-sizing our production, and, as we evolve to more seasonal demand curves, we are resetting our production levels for sustainable growth.
In January, investment firm Blackwells Capital called on the board to terminate Foley and investigate a Peloton sale, noting: “Remarkably, the Company is on worse footing today than it was prior to the pandemic, with high fixed costs, excessive inventory, a listless strategy, dispirited employees and thousands of disgruntled shareholders. And no wonder, the latter, given that Peloton underperformed every other company in the Nasdaq 100 over the last twelve months.”
More recently, Peloton has reportedly been courting potential acquisitions from companies including Amazon. “We are open to exploring any opportunity that could create value for Peloton shareholders,” Foley said at the time, addressing those rumors. As The Wall Street Journal noted, the rapid appointment of a new CEO could point to a company not quite ready to sell — at least not in its current state.
In his letter today, Foley addressed the ongoing changes and challenges in the wake of the pandemic.
For many of us, the last two years have been a whirlwind of a learning experience. We navigated COVID-19 together, did our best to meet unprecedented demand, increased the size of our team, and grew our product portfolio. But with this growth, we have also faced our fair share of challenges / pivots / the unexpected.
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.
Along with the layoffs, Peloton is also abandoning the U.S. manufacturing plans Lynch announced last May, instead relying on third parties, as well as Tonic, a bike manufacturer it acquired in 2019. The company will also be significantly reducing its first-party warehouse and delivery operations.
“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 wrote. “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 company has also announced plans to establish profitability and sustainable free cash flow, according to a press release:
Once these actions are fully implemented, the company expects to achieve at least $800 million of annual run-rate cost savings through operating expense efficiencies and significant margin improvement in its Connected Fitness category. The company will also reduce its planned capital expenditures in 2022 by approximately $150 million. The restructuring program is expected to result in approximately $130 million in cash charges related to severance as well as other exit and restructuring activities and $80 million in non-cash charges. The majority of the charges will be recorded in fiscal year 2022.
Foley and the company promised to answer more questions during today’s earnings call.