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Peloton hints at cuts after report on fall in demand for exercise bikes | Manufacturing sector

Peloton is considering workforce cuts and production changes as investors hammered its share price after a report said it was considering halting the manufacture of its exercise bikes because of a slump in demand.

The company’s chief executive, John Foley, said a report by CNBC claiming that it plans to temporarily halt production of its exercise bike and treadmill products was “incomplete, out of context, and not reflective of Peloton’s strategy”.

However, Foley said in the message to Peloton’s 3,200 staff that the company needed to “evaluate” the size of its workforce and indicated that production curbs are on the way as he referred to “resetting” manufacturing.

The CNBC report cites internal company documents and Foley said in a blogpost published on Thursday that “we have identified a leaker, and we are moving forward with the appropriate legal action”.

He added: “In the past, we’ve said layoffs would be the absolute last lever we would ever hope to pull. However, we now need to evaluate our organisation structure and size of our team, with the utmost care and compassion.”

Describing the halting of all production of bikes and treadmills as “false”, Foley then said the company would be “resetting” production levels, acknowledging that there had been a surge in demand for Peloton equipment when Covid lockdowns were introduced at the start of the pandemic. The easing of restrictions around the world, however, has shifted exercise habits back to gyms and outdoor activity. This week the UK prime minister, Boris Johnson, announced the lifting of work from home guidance – a big driver of demand for at-home exercise equipment – in England.

“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,” said Foley.

Peloton’s shares fell 24% on Thursday following the CNBC report, which said the company plans to pause bike production from February to March and its Tread treadmill machine for six weeks from next month. CNBC cited a 10 January presentation in which the company said it was facing a “significant reduction” in demand around the world as a result of price sensitivity – its bikes start at £1,350 in the UK – and increased competition.

Peloton had said on Thursday that it was taking “significant corrective actions” to improve its profitability and estimated second-quarter revenue to be about $1.14bn (£840m), compared with its previous forecast of $1.1bn to $1.2bn.

“During the pandemic, there was too little supply to meet the growing demand. Unfortunately, the company took those cues to bulk up supply just as demand began to falter,” said Simeon Siegel, analyst at BMO Capital Markets.

Peloton has been working with consulting firm McKinsey & Co for a review of its cost structure and could cut jobs, CNBC reported earlier this week.

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