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Peloton supply chain issues will ‘absolutely’ hurt holiday sales: Analyst

Yahoo Finance’s Alexis Christoforous and Landon Luxembourg, Third Bridge senior analyst, discuss Peloton earnings.

Video Transcript

ALEXIS CHRISTOFOROUS: Another company thriving during the pandemic is Peloton. It beat on both the top and bottom line. Sales more than tripled last quarter as people flocked to its premium bikes and treadmills. But supply chain issues threaten to trip up the Peloton party.

Here to talk about it is Landon Luxembourg, Senior Analyst at Third Bridge. Good to have you here, Landon. So look, if you look at the earnings call, the CEO, John Foley, admitted these supply chain issues. He said, quote, “there were unacceptably long wait times for bikes.” How do they plan to solve that problem?

LANDON LUXEMBOURG: Absolutely, Alexis. Thanks for having me on. So yeah, definitely he highlighted that these supply chain woes are definitely top-of-mind for them. And one of the key pieces that he brought into the conversation was that they’re planning to leverage other modes of transportation to bring their products faster to market, one of them leveraging air freight, you know, aside from sea freight, obviously, land freight as well.

So they’re definitely getting– you know, they’re definitely pulling all these other levers to bring up their delivery times to normal, which was typically two weeks. Currently, I believe, they’re averaging four-to-six-week delays. But hopefully, this is something that maybe resolves maybe in the next two to three quarters.

ALEXIS CHRISTOFOROUS: Yeah, which also lands during the holiday quarter. I mean, Pelotons might be on people’s holiday wish lists. Are these supply chain issues, you think, going to hurt their holiday sales?

LANDON LUXEMBOURG: Absolutely. That is something that, from talking to experts in the industry, it’s definitely top-of-mind as well. You know, right now the supply demand equation is not working in their favor in terms of them being able to provide the supply. So yes, people will likely look for alternatives while they’re not getting it during the holidays.

And there are other offerings out there. We’re still waiting to see what Lululemon can achieve with their recent Mirror acquisition. There’s other players like Tonal, for example. And of course, you can’t forget SoulCycle, who came out with Variis, who are showing much shorter wait times. I believe one to three weeks is the max that they’re showing on their end.

ALEXIS CHRISTOFOROUS: You know, actually, Seana Smith, my colleague here at Yahoo Finance, had this very issue. She’s waiting for her Peloton Bike. So talk to me about how crucial content, investment in content, is going to be for Peloton, especially when you look at all the other people in this space, even Lululemon, right. I thought that they were just an athletic wear company, not so much anymore. You’ve also got Tonal in this space. So how important is that investment for Peloton?

LANDON LUXEMBOURG: It is absolutely crucial. Content is another thing that did come up in the earnings call, where they are also investing significantly in. Again, right now Peloton caters to a crowd that is typically in the spin segment of the industry.

And one gap for Peloton has always been the strength fitness part of the equation, so more of the weightlifting component, which they are looking to address as well. But it is still currently a gap that is missing. So content to be able to maintain the product stickiness that they’ve been able to garner in such a short amount of time is definitely going to be crucial. And looking ahead, that’s something we’ll be following.

ALEXIS CHRISTOFOROUS: Yeah, I know they are trying to ramp up their operations internationally. I also know they have this white-glove service where somebody will come in and actually set up your Peloton. What are some of the pain points they’re going to have to work out as they expand internationally?

LANDON LUXEMBOURG: Absolutely. So the white-glove service and delivery part of the equation here, definitely not easy to replicate based on experts we’ve talked in the industry. This is something that, of course, they’ve been able to figure out in the US and, even during the pandemic, is something that they weren’t able to provide.

I myself was not able to get the white-glove delivery that I was expecting, given that we were at the height of COVID. However, as they invest in getting exposure to their UK and German markets, it’s something that may potentially face hiccups. Again, it does require a sophisticated operate– it is a sophisticated operation that, again, may be hard to replicate abroad, so that’s something else we’ll be following.

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