Peloton announced on Thursday that CEO Barry McCarthy would step down after slightly more than two years at the helm, succeeding founder John Foley. Concurrently, the company will lay off 15% of its workforce, about 400 employees, to align its expenses with its revenue.
The company also reported disappointing results for the fiscal third quarter, falling short of Wall Street's expectations on both the top and bottom lines. Following this news, Peloton's shares surged by more than 12% in premarket trading.
McCarthy, a former executive at Spotify and Netflix, will transition to the role of strategic advisor to Peloton until the end of the year. Karen Boone, the company's chairperson, and director Chris Bruzzo will serve as interim co-CEOs. Jay Hoag, another Peloton director, has been named the new chairperson of the board. Peloton is now actively seeking a permanent CEO.
The company's restructuring efforts aim to reduce its global headcount by 15% and cut annual expenses by over $200 million by the end of fiscal 2025. Peloton stated that these measures are necessary to achieve sustained positive free cash flow and to continue investing in software, hardware, content innovation, member support, and marketing.
Peloton's challenges include declining sales and profitability. The company has tried various strategies to boost growth, such as removing the free membership option from its fitness app, expanding corporate wellness offerings, and partnering with brands like Lululemon. However, these initiatives have not been sufficient to drive sales growth.
Peloton's fiscal outlook has been adjusted downward, with reduced expectations for paid connected fitness subscriptions, app subscriptions, and revenue. Despite these challenges, the company has raised its full-year outlook for gross margin and adjusted EBITDA, citing outperformance in Q3, lower media spend, and cost reductions from the restructuring plan.
McCarthy, who took over in February 2022, had aimed to return Peloton to revenue growth within a year, a goal that has been pushed back to June, at the end of the current fiscal year. The company achieved positive free cash flow early in its third quarter, a milestone it hadn't reached in 13 quarters.
Peloton's challenges also include late payments to vendors, which spiked in December and February, potentially inflating its balance sheet. Despite these challenges, Peloton remains optimistic about its future and is focused on delivering sustainable growth.