Shares of beleaguered exercise equipment company Peloton rallied sharply on Thursday after it reported its first rise in sales in more than two years.
The home fitness company brought in $644 million in sales, up 0.2% from the year before, and its shares surged more than 35%.
That might not sound like a huge gain in sales, but after posting years of losses, analysts said it could show a glimmer of turnaround efforts paying off. The company saw sales jump at the start of the pandemic but then taper off as people went back to the office and abandoned their new home exercise gear.
Peloton unveiled restructuring plans aimed at reducing costs in May, including laying off 15% of its workforce and the exit of former CEO Barry McCarthy.
Chief Financial Officer Liz Coddington told investors during the company’s Thursday earnings call that Peloton would reduce spending on promotions and marketing, indicating a shift in focus from growth to profitability.
Analysts say that game plan is the best course of action for Peloton to take.
“Peloton has almost three million subscribers that pay $44 a month to get on a piece of machinery in their own home at a very healthy profit, and that’s incredibly impressive,” said Simeon Siegel, managing director and senior retail analyst at BMO Capital Markets. “The best thing the company can do is focus on making more money as opposed to making more noise and chasing new customers.”
The past nine quarters have been a bumpy ride for Peloton, which was once one of the biggest stars of the pandemic, when lockdown forced gyms to close and kept everyone at home. The stock shot up nearly 400% in the 12 months leading up to its all-time high of $167.42 in January 2021 but has slid from there.
Widespread recalls and failed ventures, which included selling bikes in college colors and redesigning its fitness app with a free tier, have hurt the company’s image and turned off investors. Earlier this year, stock prices plunged to an all-time low of just $3.
Still, even as the company reports a decline in paid subscriptions for the first time (down from just a little over 3 million last quarter to around 2.98 million), Siegel says he still sees a way ahead for Peloton.
“Peloton’s best offense is a very strong and compelling defense. They need to protect the existing users because the existing users make them a lot of money, but that means giving up this focus on chasing new,” he said. “If they do that, I think today’s rally will look like just the beginning. If they don’t, then we’re looking at a head fake.”
