Peloton took $182 million impairment charge last quarter as inventories piled up

Peloton‘s goodwill took a $182 million hit in its previous fiscal quarter as inventory levels ballooned and consumer demand for its bikes and treadmills waned.

During the three-month period ended March 31, Peloton identified various factors that indicated a “triggering event” for an impairment charge, the company said in a Tuesday 10-Q filing with the Securities and Exchange Commission. The charge was entirely related to its connected fitness products.

Those factors were softening demand, higher costs of inventory and logistics and a sustained decrease in the company’s stock price, Peloton said in the filing. The company’s market cap has fallen to about $4.5 billion from a high of about $50 billion early last year.

Peloton’s losses in the latest quarter mounted to $757.1 million, compared with a loss of $8.6 million a year earlier, the company reported on Tuesday morning.

Sales tumbled 24% to $964.3 million, marking Peloton’s first year-over-year revenue decline since it went public in 2019.

Peloton, which is now run by Chief Executive Officer Barry McCarthy, offered up a weaker-than-anticipated outlook for its current quarter that ends on June 1, saying that demand could continue to be soft in the near term.

As demand dropped off from a pandemic peak, Peloton’s inventories grew sizably during the latest period to total $1.4 billion on the company’s balance sheet, compared with $937.1 million a year earlier. That was almost entirely made up of finished products that are either sitting in warehouses or in transit to be received by the company, Peloton said in it 10-Q filing.

CNBC reported in late January that Peloton was planning to temporarily halt production of some of its equipment in order to reset inventory levels. Then-CEO and co-founder John Foley responded by saying Peloton needed to “right-size” production levels.

McCarthy, the new CEO, said Tuesday that Peloton hasn’t made “quite as much progress in right-sizing production” as it needs to.

He said the company’s supply chain team, now led by Andrew Rendich, had been working closely with partners on ordering parts that have longer lead times.

Peloton has been able to cut its commitments to third-party suppliers from about $550 million as of Dec. 31, to between $120 million and $280 million, the company said in its 10-Q filing.