Investor lawsuit is confronting Peloton as the company shifts its focus to wellness sector.
In a recent turn of events, Peloton, the popular fitness equipment company, is facing a revived shareholder lawsuit, which accuses the company and its former executives, including John Foley, of misleading investors about excess stock and demand.
The lawsuit covers trades between February 5, 2021, and January 19, 2022. During this period, Peloton experienced an inability to produce bikes fast enough due to the COVID-19 pandemic, resulting in warehouses filled with unsold equipment. By 2021, demand for Peloton's products sputtered, with disclosures revealing that 91% of its inventory was unsold in November 2021.
Investors allege that Peloton concealed weakening demand while warehouses held roughly three months of unsold equipment. The appeals court found three disclosures by Peloton to be potentially misleading: Foley's defense on an August 2021 earnings call, and SEC filings in August and November 2021.
Despite these challenges, Peloton posted better-than-expected Q4 results with $607 million in revenue. The company's new strategy aims to evolve into a full-scope wellness platform, expanding into categories like sleep, recovery, nutrition, and stress management.
The strategy includes AI-powered personalization, in-person activations, and a bigger retail push. Peloton also announced a round of job cuts affecting about 6% of its workforce, part of a cost-savings program expected to generate $100 million by 2026.
John Foley, co-founder and former CEO of Peloton, exited the company in early 2022. After leaving Peloton, Foley pivoted to home décor with Ernesta. The case is headed back to U.S. District Judge Andrew Carter in Manhattan for further decision.
Judge Jon Newman dissented in the shareholder lawsuit, arguing that investors had already been warned and were unlikely to prove deliberate fraud. However, the appeals court's decision has opened the door for further investigation.
It's important to note that the persons accused by the prosecutors in the stock manipulation allegations against Peloton between February 2021 and January 2022 are John Foley and other unnamed executives within the company.
As the case unfolds, Peloton continues to navigate the challenges of the fitness industry and the broader economic landscape, with its new CEO, Peter Stern, at the helm.
