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Peloton Still Seeking a Buyer for Its $400 Million Factory in Ohio

Posted By: CoStar on February 1, 2023.  For more information, please click here to read the source article.

Exercise equipment provider Peloton Interactive is still hunting for a buyer for the 1.2 million-square-foot factory that it built in Ohio, but never used, as the industrial market faces headwinds.

The New York-based company, which has been trying to bounce back from a devastating drop in business since the peak of the pandemic, offered the update on its manufacturing facility during a second-quarter fiscal 2023 earnings call Wednesday. The property — called Peloton Output Park, or POP — is located at 10 Eastwood Drive in Luckey, Ohio, near Toledo.

The project, slated to cost $400 million and announced with much fanfare in 2021, was put on the block a year ago. That move, and the announcement that the company was going to close some of its brick-and-mortar stores, were all part of then-newly named Peloton CEO Barry McCarthy’s strategy to cut costs at the financially ailing company, where revenue had plummeted and losses had risen. The CEO also did a series of layoffs.

While demand in the U.S. industrial market for several years has been running strong, at record-low vacancy rates in states such as New Jersey, the sector has faced macroeconomic challenges of late. And that’s been having an impact on investment in industrial properties, according to one analyst.

“The Federal Reserve threw the industrial market plenty of curveballs during the second half of 2022, including commercial mortgage rates hitting a more than 10-year high, at the same time that industrial leasing began to moderate from its pandemic peak,” Adrian Ponsen, CoStar’s director of U.S. industrial analytics, said in an email. “This has made industrial property sales harder to execute than they were during the first half of 2022.”

Maybe This Year

In a letter to shareholders Wednesday, his first anniversary at Peloton, McCarthy said he had reduced headcount, outsourced manufacturing and last-mile delivery, and launched the sale of Peloton equipment through Amazon and Dick’s Sporting Goods.

“This past quarter we expected to complete the restructuring of our manufacturing strategy by selling our Ohio manufacturing facility, but that closing has been delayed by up to six months,” McCarthy said in his letter.

Selling the factory is now on McCarthy’s list of goals for his second year at Peloton.

Several Wall Street analysts asked about the Ohio POP facility during the call. Peloton Chief Finance Officer Liz Coddington said the company had expected to sell it by the end of the firm’s fiscal year.

“Unfortunately, that process got delayed, but we are hopeful that we will be able to sell it by the end of the fiscal year,” she said. “And we are confident that we will be able to sell it. It’s literally just taking us longer. Now (selling by the) end of the fiscal year is not guaranteed, but that is our goal.”

Questioned about the exact reason for the delay, Coddington said, “The POP facility is a large facility, it’s in Ohio. It’s a great facility for the right use case for it, but we just have to find the right buyer for that facility, and so we’re taking the time to be able to do that.”

Michael Mullady, a CBRE executive vice president handling the sale of the Peloton property, didn’t immediately respond to an email seeking comment.

For the quarter, Peloton’s overall revenue dropped 30% to $792.7 million but was above the company’s expectations. And its net loss was $335.4 million, down from a $439.4 million loss in the prior-year period.

Trying for ‘Epic Comeback’

“If you’ve been wondering whether or not Peloton can make an epic comeback, this quarter’s results show the changes we’re making are working,” McCarthy said in his letter.

But Neil Saunders, managing director of GlobalData, in a note on Wednesday said Peloton still faces many hurdles. The company’s subscription growth is slowing down, according to Saunders.

And “there is no doubt that a more constrained consumer and a pullback on distribution have taken their toll,” he said.

“All of this leaves Peloton in a state of flux,” Saunders said. “We recognize the work management has done to stabilize things. However, the business model still has a lot to prove, and further time is needed to assess whether it is viable or on a path to further decline.”

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