Dive Brief:
- Peloton is struggling to sell some of its manufacturing assets, throwing a wrench into the connected fitness company’s plan to slash costs and simplify operations.
- CEO Barry McCarthy said in an earnings call last Wednesday that the company walked away from a deal to sell its fitness equipment subsidiary Precor after deeming the offering price too low.
- Peloton bought Precor in 2020 for $420 million to build out production capacity for its exercise bikes and treadmills. McCarthy said the company has decided to grow Precor as a free-standing business to make it more attractive for a potential buyer down the line.
Dive Insight:
As Peloton saw revenue plummet throughout 2022, the at-home gym company announced last summer it would cease producing its own equipment — moving instead to outsource more of its supply chain and rely more on contract manufacturers. But the fitness company is finding it more difficult than initially expected to shrink its operating footprint.
The company not only scrapped the Precor deal, but it has also delayed the sale of its Ohio manufacturing facility by up to six months, according to its 8-K. Peloton invested $400 million to build its first U.S. factory in Wood County, Ohio, and the facility includes around one million square feet of manufacturing, office and amenities space.
“It's a great facility for the right use case for it, but we just have to find the right buyer for that facility,” CFO Liz Coddington said on the earnings call. “And so we're taking the time to be able to do that.”
In addition to the Ohio factory, Peloton owns about 625,000 square feet of U.S. manufacturing capacity from the Precor acquisition. The company already halted production at its manufacturing facility in Taiwan, which it acquired as part of a $47.4 million purchase of manufacturing partner Tonic in 2019.
A potential deal to sell Precor collapsed after “the price that the buyer was willing to pay dramatically dropped,” McCarthy said. The CEO acknowledged that “we've done nothing to invest in the performance of the business to its own detriment.”
The company will shift its approach and invest further in Precor while running it as a standalone subsidiary, McCarthy said.
“The overarching strategy would be run Precor for the benefit of Precor, and to not dilute those efforts for the benefit of our own operating business,” he said.
Snags in offloading its manufacturing assets come as Peloton grapples with high storage costs to hold its excess inventory. McCarthy said the company is focused on slashing inventory levels and looking for “significant opportunities for additional expense reduction” within operations.
“We still have a lot of inventory, and we pay a lot of money in storage costs,” he said.
