By Kannaki Deka
(Reuters) - Peloton (NASDAQ:PTON) Inc's efforts to get its operations back in shape should help it slow cash burn and post a smaller loss on Thursday, but the road to financial fitness could be rocky as it deals with a saturating market and a possible recession.
Since taking over the top job in February, Chief Executive Officer Barry McCarthy has embarked on a cost-cutting mission to steer the fitness equipment maker toward profitability and has set a target of returning to breakeven cash flow in the second half of fiscal 2023.
"From a cost standpoint, the restructuring initiatives and recent pricing changes (higher hardware and subscription prices) give more confidence in the company's ability to improve its gross margin and free cash flow," Telsey Advisory Group analysts said.
But some of his measures such as launching a nationwide equipment rental program may end up weighing on the New York-based company's results, at least temporarily.
"(Renting) inherently attracts less committed and less engaged customer that can materially change lifetime value of Peloton customer," UBS analysts Arpiné Kocharyan said.
THE CONTEXT
After posting six straight quarters of losses, Peloton is trying to drum up demand for its fitness equipment by tapping third-party retailers and introducing newer products such as Peloton Row.
Once a pandemic darling, the company has struggled to cope with a sudden change in trend as fitness-conscious people move back to gyms instead of working out from homes.
That has in turn led to a buildup in inventory and excess staffing, prompting four rounds of job cuts this year.
GRAPHIC - Peloton's heavy losses
https://graphics.reuters.com/PELOTON-PREVIEW/lgpdkmqdbvo/chart.png
McCarthy, however, remains optimistic about the company's future.
"The business is fundamentally more sound than ever and on the right path," he said last month. Some analysts, however, are less optimistic.
"When you talk about the second-half of 2023 for a company going through such dramatic changes that's a lifetime away," CFRA analyst Ken Leon said.
GRAPHIC - Peloton shares performance versus Planet Fitness (NYSE:PLNT)
https://fingfx.thomsonreuters.com/gfx/mkt/zjvqjqmqxpx/Peloton%20graphic.png
THE FUNDAMENTALS
** Peloton is expected to report Q1 revenue of $650.1 million, down 19% from a year earlier, as per Refinitiv data.
** Adjusted loss per share is estimated at 69 cents. Last year, Peloton reported an adjusted loss of $1.25 cents per share.
WALL STREET SENTIMENT
** 15 of 30 brokerages rate the stock "buy" or higher, 13 "hold" and 2 "sell"
** The median price target is $15; PT on stock as of Oct.2 was $16.50
** Peloton closed down 75% YTD
QUARTER ENDING REFINITIV IBES PROFIT ACTUAL BEAT, MET, MISSED
ESTIMATE PROFIT
PER
SHARE
March 2022 -0.83 -1.25 MISSED
Dec. 2022 -1.20 -1.36 MISSED
Sept. 2021 -1.07 -1.21 MISSED
June 2021 -0.45 -0.71 MISSED
March 2021 -0.12 -0.03 BEAT
Dec. 2020 0.09 0.18 BEAT
Sept. 2020 0.11 0.20 BEAT
June 2020 0.10 0.27 BEAT