Peloton has put the brakes on bike and treadmill production for the next two months after a sharp decrease in demand, CNBC reports. This news sent the fitness company's stock in a downward spiral yesterday, the price falling by roughly 25% from opening to close. 

Following the CNBC article, Peloton CEO John Foley released a public letter to the "Peloton Team" alleging that the information in the report was taken out of context, saying "rumors" the company was halting all production was false. The letter also said Peloton was "right-sizing" and "resetting our production levels for sustainable growth."

"This week, we’ve experienced leaks containing confidential information that have led to a flurry of speculative articles in the press," Foley wrote. "The information the media has obtained is incomplete, out of context, and not reflective of Peloton’s strategy. It has saddened me to know you read these things without the clarity and context that you deserve. Before I go on, I want all of you to know that we have identified a leaker, and we are moving forward with the appropriate legal action."

In response to the article, the company also released preliminary second quarter fiscal results, indicating the company's total revenue of approximately $1.14 billion, compared with the previous guidance of $1.1 billion to $1.2 billion. Following this report, the stock has rebounded more than 16% as of 2:30 p.m. today.

"As we discussed last quarter, we are taking significant corrective actions to improve our profitability outlook and optimize our costs across the company. This includes gross margin improvements, moving to a more variable cost structure, and identifying reductions in our operating expenses as we build a more focused Peloton moving forward. This work is still underway, and we expect to have more details to share when we report earnings on February 8, 2022," Foley wrote in the preliminary earnings release. 

WHY IT MATTERS 

It's no secret that the Peloton's stock has taken a sharp downward turn since its peak in December 2020. 

The company could be heading toward layoffs. Just days before this news broke, CNBC reported that Peloton is working with management-consulting firm McKinsey on cost structure and staffing. Downsizing was also discussed in Foley's public letter. 

"In the past, we’ve said layoffs would be the absolute last lever we would ever hope to pull. However, we now need to evaluate our organization structure and size of our team, with the utmost care and compassion. And we are still in the process of considering all options as part of our efforts to make our business more flexible."

THE LARGER TREND 

Peloton went public in 2019 through a $1.16 billion IPO. Stock prices rose during the COVID-19 pandemic, with the stock reaching over $162 per share.

After increasing pressure from the U.S. Consumer Product Safety Commission, the company recalled its treadmills, following reports of 70 injuries and one child death while people were using the treadmill. In August, the company released a new treadmill with updated safety features.