Peloton sales rise in latest quarter, but will the turnaround plan continue?

High-end fitness company Peloton seems to be making progress with its turnaround plan, as it reported its first sales increase in nine quarters on Thursday. 

The company reported that sales rose 0.2% year over year in the fourth quarter. This marked the first year-on-year growth since fiscal year 2022. It is seen as a positive sign for the company, which faced a post-pandemic slump and struggled to navigate after the death of a child involving one of its treadmills.

While shares jumped over 30%, AllianceBernstein analyst Aneesha Sherman told FOX Business that the real question is whether the brand can continue to grow.

Over the past two years, the company, which ousted CEO Barry McCarthy in May, has battled to remain relevant as people have returned to traditional gym workouts by deploying various efforts to cut costs and expand its customer base. 

Sherman acknowledged that its turnaround plan is working, albeit in the short term. 

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"The priorities laid out by the interim management team were to stabilize the balance sheet and cut costs, which they’ve done," she said, adding that margins look stronger, debt is refinanced, inventory is lower and cash flow is better. 

However, in terms of brand growth, "they haven’t addressed this topic at all and have pushed out growth targets further out," Sherman said, adding that its guidance implies negative growth again for a year. 

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This will ultimately fall onto the incoming CEO to address. During the Thursday earnings call, board members hinted that they had found a candidate, saying they expect the new CEO to be leading the next earnings call.

Sherman said the company is still "fairly valued today as a shrinking, but cash flow-positive company." However, "to get further upside it needs to show that it can stabilize the revenue base and then start growing again." 

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While she doesn't anticipate a "huge comeback in the sense of a surge in growth," Sherman believes the company should be able to grow at the rate of real gross domestic product. 

"The bar is really low, even guiding for modest low single-digit growth will drive some upside for the stock," she said. 

Peloton shares have lost over 37% during the past 12 months and are well off the highs of over $160 per share reached in December 2020.