Peloton has been in rough waters this past month, with investors wondering how to right the ship after Lauren Thomas at CNBC broke the news that the firm planned to pause production on all its bikes and treadmills.
In a letter sent January 20 to Peloton employees and later posted on its corporate site, CEO and founder John Foley was unequivocal: "Rumors that we are halting all production of bikes and Treads are false."
"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," he wrote.
Internal documents dated January 10, first reported on by CNBC and later obtained by Insider, show that days before Foley sent his all-hands memo sent days before Foley's letter, Peloton was planning for at least a six-week pause in all production of bikes and treadmills.
The above plan outlines pausing Bike production for two months, beginning in February. Per the presentation, Peloton has already halted production on the more expensive Bike+ in December and will continue the pause until June. Similarly, the Tread treadmill will pause for six weeks starting in February, while the Tread+ machine has been paused for all of fiscal year 2022 following a safety recall. And Peloton's upcoming weightlifting product, Guide, will have a nine-month production pause from February to November.
It's unclear if Peloton's strategy changed between the presentation and Foley's memo.
Former employees told Insider there was a glut of excess inventory in Peloton warehouses. When demand for its bikes and treadmills softened, its warehouses were left overstuffed with excess bikes. One employee said warehouses resembled "jigsaw puzzles" with employees trying to figure out where to stuff another bike.
That excess inventory can be seen in the slides below. The orange line represents Days of Inventory on Hand, or DOH, while the dotted green line shows Peloton's target amount of inventory on hand.
The significant gap between the orange and green lines demonstrates that Peloton faces a severe oversupply problem with its bikes — hence, the plan to cut production steeply.
("V1" is Peloton's internal name for its Bike product, while "Titan" is its code name for its Bike+ product, according to sources familiar with the matter.)
The below slide indicates that Peloton faces the same oversupply problem with its Tread products, codenamed "Prism."
However, it appears the inventory problem for Tread is much smaller than its Bike and Bike+ products, which explains why Tread, as of January 10, had the shortest production pause planned.
Peloton's stock, which skyrocketed by 440% in 2020, has fallen on hard times, sinking more than 80% off its highs of $166 per share. On Sunday, the Wall Street Journal reported that an activist investor group is calling for the ouster of CEO John Foley.
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