Raphael Stevens

Carvana over the last 18 months aggressively restructured its operations and debt amid bankruptcy concerns to pivot from growth to cost-cutting.
The efforts thus far have been successful, propelling Carvana’s stock last year from less than $5 per share to more than $55 to begin 2024.
CEO and Chairman Ernie Garcia III told CNBC in a rare, wide-ranging interview that much of the company’s cost-cutting is behind it.
The company still has a daunting debt load, due later this decade.

A Carvana sign and signature vending machine in Tempe, Ariz.
Michael Wayland/CNBC

PHOENIX – As layoffs and cost cuts roil Wall Street, from retail and shipping to tech and media, embattled online used car sales giant Carvana says its own restructuring is in the rear view.
Carvana over the last 18 months aggressively restructured its operations and debt amid bankruptcy concerns to pivot from growth to cost-cutting. They were crucial moves for the company and its largest shareholders, including CEO and Chairman Ernie Garcia III and his father, Ernie Garcia II. The two control 88% of Carvana through special voting shares.

The efforts thus far have been successful, propelling Carvana’s stock last year from less than $5 per share to more than $55 to begin 2024 – marking a significant turnaround for the company, but still a far cry from the stock’s all-time high of more than $370 per share reached during the coronavirus pandemic in 2021. Shares closed Thursday at $42.53.
“We have every intention of continuing to make progress and don’t expect to return to a situation like that,” the younger Garcia told CNBC about the company’s dire circumstances. “I think the pressure of the last two years caused us to really focus on the most important things.”
The Tempe, Arizona-based company has taken $1.1 billion of annualized expenses out of the business; reduced headcounts by more than 4,000 people; and launched a new proprietary “Carli” software platform for end-to-end processing of vehicle reconditioning as well as other “AI,” or machine learning, systems for pricing and sales. The systems replaced previous processes that involved manually inputting data into separate systems or spreadsheets. 
The result, Carvana hopes, is better footing to navigate an automotive industry that’s shifting and normalizing from a supply-constrained environment to one with less favorable pricing power for dealers.

Return to growth

Carvana has been a growth story since its initial public offering in 2017. It posted growing sales every year from its 2012 founding through 2022, when restructuring began.

The business concept of Carvana is simple: buy and sell used cars. But the process behind it is extremely complicated, labor-intensive and expensive.
Carvana puts each vehicle it intends to sell through a lengthy inspection, repair and sale preparation process. It ranges from fixing scratches, dents and other imperfections to engine and powertrain components. There’s also significant logistical costs and processes for delivering vehicles to consumers’ homes and the company’s signature car vending machines across the country.

A Ford F-150 is prepped for a painting booth at Carvana’s vehicle reconditing center outside Phoenix. The vehicle is wrapped so only the spot needed to be repainted is showing.  
Michael Wayland / CNBC

In 2022, retail sales declined roughly 3%. Headed into the fourth quarter of last year, they were down a further 27%.
Carvana is currently in the “middle of step two” of a three-step restructuring that Garcia initially laid out to investors roughly a year ago.
Step 1: Drive the business to break even on an adjusted EBITDA basis. Step 2: Drive the business to significant positive unit economics, including positive free cash flow. Step 3: Return to growth.
“We’re trying to stay really focused on just building the business as best we can,” Garcia said during a rare, wide-ranging interview at a Carvana vehicle reconditioning center near Phoenix in mid-January.
The CEO, sitting under a “Don’t be a Richard” poster featuring former President Richard “Dick” Nixon (it’s one of Carvana’s six core values), says the company is largely done with taking fixed costs out of the business, but he believes there’s more room for reductions in variable costs to increase profits before returning to a growth-focused company again.
Wall Street largely agrees.

Carvana CEO and cofounder Ernie Garcia III
Screenshot

“We walked away confident that CVNA has room to further improve its cost structure and drive additional operational efficiencies. These efficiencies would come from three main areas: the further development of internal software, standardized processes, and improved training and career pathing,” said JPMorgan analyst Rajat Gupta in a December analyst note following an investor briefing and tour of a Carvana reconditioning center in Florida.
At the end of the third quarter, Carvana had $544 million in cash and cash equivalents on hand, up $228 million from the end of the previous year. The company reported total liquidity, including additional secured debt capacity and other factors, of $3.18 billion.
It recorded a record third-quarter gross profit per unit sold of $5,952, while cutting selling, general, and administrative expenses by more than $400 per unit sold compared to the prior quarter.
The company reports its fourth-quarter results on Feb. 22.

New era, new tech

At the center of much of Carvana’s cost reductions is new tech to optimize operations.
The company introduced Carli, a host of software “solutions” or apps for each part of reconditioning a vehicle. The suite of tools records inspections and reconditioning of inbound vehicles step by step, including price checks and benchmarking costs for parts and overall expenses per vehicle. It’s followed by other systems to assess market value and sales prices for each vehicle.
The systems helped contribute to $900 in cost savings per unit in retail reconditioning and inbound transport costs over past 12 months.
“We rolled Carli out across all sites. It’s a single, consistent, much more granular inventory management system,” said Doug Guan, Carvana senior director of inventory analytics, who formerly led expansion for Instacart. “That’s what we’ve been focused on for the last year and a half.”

Each vehicle that enters Carvana’s reconditioning center has a barcode sticker to assist in tracking the vehicle through its process as it prepares to be sold.
Michael Wayland / CNBC

Guan, who started at Carvana in 2020, is among a new group of hires from a variety of backgrounds that range from Silicon Valley tech startups to more traditional vehicle operations such as CarMax, Ford Motor and Nissan Motor.
Carvana’s offices, where it shares a campus with State Farm, feel a lot like a startup. On a floor housing customer support, music blares – the likes of Coldplay to Neil Diamond. A black-and-gold gong sits nearby to celebrate when costumer service reps, internally called “advocates,” assist customers in a sale, among other milestones.
Other than Carli, Carvana has built custom tools to support its inbound and outbound logistics activities that have driven down costs by about $200 per unit. These include mapping, route optimization, driver schedule management, and pickup/drop-off window availability, including same-day delivery, which the company recently launched in certain markets.
The customer care team has also recently begun piloting generative artificial intelligence for some requests, including automatically summarizing customer calls, training AI to act as an “advocate” and incorporate the company’s values: be brave; zag forward; don’t be a Richard; your next customer may be your mom; there are no sidelines; we’re all in this together.

A black-and-gold gong sits nearby to celebrate when costumer service reps, internally called “advocates,” assist customers in a sale, among other milestones.
Michael Wayland / CNBC

“Customer experience has been No. 1 at the heart of everything that we do, which I think after being here all these years, it’s amazing to say that still very, very true statement,” said Teresa Aragon, Carvana vice president of customer experience and the company’s first employee outside of its three cofounders.
In 2023, Carvana’s customer care team under Aragon handled 1.3 million calls and another 1.3 million chats and texts, according to stats posted on a bathroom flier called “Learning on the Loo” that the company confirmed.
The generative AI pilot, which is separate from Carli, has helped Carvana to reduce headcount in the department by 1,400 people while reducing processing times.

‘Never something that we considered’

Many investors are back on the Carvana bandwagon after the company managed through the last two years, but some concerns remain.
The Garcia family and its control of the company have been a target of some investors, including a lawsuit last year brought by two large North American pension funds that invested in Carvana alleging the Garcias ran a “pump-and-dump” scheme to enrich themselves. Its one of several lawsuits that have been brought against the the father-son duo in recent years, largely involving the family’s businesses.
In general, CEO Garcia said he attempts to use criticism as motivation in his “march” to lead Carvana, invoking a phrase he has regularly ended investor calls with for several years: “The march continues.”

Family ties

Carvana went public three years after spinning off from a Garcia-owned company called DriveTime, a private company owned by the elder Garcia, who remains the controlling shareholder of Carvana. DriveTime was formerly a bankrupt rental-car business known as Ugly Duckling that Garcia II, who pled guilty to bank fraud in 1990 in connection to Charles Keating’s Lincoln Savings & Loan scandal, grew into a dealership network.
Carvana has separated itself from the company but still shares many processes with DriveTime. The close link between Caravan and other Garcia-owned or -controlled companies has given some investors pause.
The Wall Street Journal in December 2021 detailed a network of Garcia companies that do business with DriveTime, Carvana or both.
Most notably, Carvana still relies on servicing and collections on automotive vehicle financing and shares revenues generated by the loans. The businesses also, at times, sell vehicles to one another and Carvana leases several facilities from DriveTime in addition to profit-sharing agreements.
For example, during 2022, 2021, and 2020, Carvana recognized $176 million, $186 million and $94 million, respectively, of commissions earned on vehicle service contracts, or VSC, also known as warranties, sold to its customers and administered by DriveTime.
Carvana sells such warranties or other service-related protections to customers, and DriveTime takes them over, giving Carvana a commission. It’s one of several multimillion-dollar transactions between the family-controlled companies.
The younger Garcia, who started Carvana while serving as treasurer at DriveTime, says completely separating from Drivetime is not a main priority at this time, as it utilizes already established systems such as the financing and servicing that aren’t core to Carvana’s operations.

Carvana’s march hasn’t always been in a straight line: The company was a darling stock of the coronavirus pandemic, as it was lightyears ahead of traditional auto retailers in selling vehicles online – a process that surged during the global health crisis and, in some states, became the only way businesses could operate due to stay-at-home orders.
But it couldn’t keep up with demand, pushing Carvana to invest billions in growth opportunities, including an acquisition of used car auction business ADESA.
Then the used vehicle market shifted and Carvana’s aggressive growth plans — which included buying thousands of vehicles from auctions and consumers at hefty premiums compared to traditional auto dealers to build inventory — became a major liability when prices declined.
Carvana’s debt grew, including the debt-funded ADESA deal, and its stock became the most shorted in the country as fears of bankruptcy and a creditor fight grew. The stock lost nearly all of its value in 2022, causing some to speculate bankruptcy may be ahead.
Garcia is adamant that he never believed bankruptcy would happen, saying “absolutely not” when asked about it. His confidence was fueled by a belief that the service Carvana offers – selling and buying used vehicles online and streamlining the tedious process of car purchasing is something consumers need and want.
He also said taking the company private – which scared some stakeholders and investors – was never a viable option: “I would say it was a thought in the sense that other people thought about it. It was never something that we considered,” Garcia said.

The inside of a Carvana sign vending machine in Tempe, Ariz.
Michael Wayland / CNBC

But Carvana’s debt load is still very much a factor.
A deal between Carvana and a group of investors who collectively owned $5.2 billion of its outstanding unsecured bonds reduced the used car retailer’s total debt outstanding by more than $1.2 billion but also kicked much of the debt to later this decade, at largely higher interest rates.
Marc Spizzirri, a senior managing director of B. Riley Advisory Services, said every restructuring is unique but in general companies need to take action quickly after taking on debt to ensure they don’t land in the same circumstances that drove the debt in the first place.
“They have to be able to service that debt,” said Spizzirri, a former franchised dealer. “It’s a classic pre-bankruptcy process and in [many companies’] minds that’s not an option for them … But they can’t keep repeating what they’ve done before.”
Carvana’s new notes will mature in 2028; the old notes, which carry interest rates ranging from just under 5% to more than 10%, are due between 2025 and 2030. The old and new notes make up roughly 78% of Carvana’s nearly $6 billion total debt.
For now, the march continues for Carvana. More

Amer Sports rose 3% in its NYSE debut after pricing its IPO at a discount.
The company raised $1.37 billion in its IPO at $13 a share, down from a previous range of $16 to $18 a share.
Amer runs some of the most recognizable brands in the athletic space, but its balance sheet is saddled with $2.1 billion in debt, and it didn’t post any profits between 2020 and September 2023. 

Wilson products at the Paragon Sports store in the Chelsea neighborhood of New York on Jan. 4, 2024.
Jeenah Moon | Bloomberg | Getty Images

Amer Sports, the Finnish athletic company behind the Wilson tennis racket and Arc’teryx, made a muted debut on the public markets Thursday, as shares rose 3% after it priced its initial public offering at a discount.
The stock opened at $13.40 a share on the New York Stock Exchange under the ticker “AS” and closed at the same price. Based on the closing share price and the company’s 484 million outstanding shares, Amer Sports has a rough market capitalization of about $6.49 billion.

Amer had priced its IPO at $13 per share and raised $1.37 billion in the offering. It had originally expected to offer 100 million shares at $16 to $18 each. 
The offering valued Amer at about $6.3 billion, down from a previous valuation of up to $8.7 billion. 
When Amer debuted, only 2.5 million shares traded, which indicates little sell-side interest and is low for an offering of 105 million shares. Typically, bookrunners would try to open with around 10% of shares, which would be about 10 million shares.
Amer’s decision to discount its IPO came after Federal Reserve Chair Jerome Powell indicated the central bank isn’t ready to start cutting rates, casting a pall over market sentiment and the floundering IPO market.
Wall Street has been eager to see a resurgence in the IPO market after it grounded nearly to a halt over the past two years, but recent debuts, including from German shoemaker Birkenstock, have been muted and failed to impress. 

While demand has fallen in the overall consumer discretionary sector, Amer’s finance chief Andrew Page said its target consumers have been resilient and continued to choose its brands.
“Our focus always has been to make the best products in their category in the world. Our products are steeped in innovation, our consumers appreciate quality and innovation and newness,” Page said. “That is at the core of who we are as a company, that’s at the core of what we deliver to the market.”
He said he isn’t concerned with Amer’s stock performance on any single day, and the company is more focused on executing its long-term strategy.

Executives of Amer Sports celebrate the company’s initial public offering at the New York Stock Exchange in New York City on Feb. 1, 2024.
Brendan McDermid | Reuters

Amer runs some of the most recognizable brands in the athletic space, but its balance sheet is saddled with $2.1 billion in debt, and it didn’t post any profits between 2020 and September 2023, according to a securities filing.
In the nine months ending Sept. 30, 2023, the company saw $3.05 billion in revenue, up from $2.35 billion in the same period a year ago. It posted a net loss of $113.9 million during the period, higher than the $104.4 million it lost in the year-ago period. 
In an interview with CNBC, CEO James Zheng said Amer plans to use the proceeds from the IPO to improve its balance sheet and fund growth initiatives at Wilson, Arc’teryx and Salomon. He pointed out that Arc’teryx, known for its pricy winter jackets, has very low unaided brand awareness in North America, particularly in the U.S., so there’s a lot of room to grow.
Investors also had concerns about Amer’s ties to China and its reliance on the region, according to a person familiar with the matter.
The company’s business in China has been growing at a time when tensions are rising between the U.S. and Beijing. Many companies are trying to diversify their market share so they’re not as exposed to disruptions in the region. 
In 2020, Amer did 8.3% of its business in Greater China and in 2022, that figure nearly doubled to 14.8%. In the nine months ending Sept. 30, 19.4% of sales came from the region. 
In response, Zheng said “its quite important” for sporting goods companies to build a strong footprint in China and so far, Amer has seen “a big return” on its investment in the region. He added that while the region is “important” to the company, “it’s just part of the whole.”
“Our biggest market is still in North America representing 40% of business and Europe represents 32%. China right now only represents 20%, so it’s a part of the business,” said Zheng. “We are a global company.”
— Additional reporting by CNBC’s Bob Pisani.
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Ferrari topped Wall Street’s top- and bottom-line earnings expectations for the fourth quarter to finish off a record year of profits.
Ferrari’s revenue last year increased 17% to 5.97 billion euros, or $6.46 billion, including an 11% increase in the fourth quarter.
The automaker reported a net profit of 1.26 billion euros, or $1.36 billion, for 2023, including 294 million euros, or $317.9 million, in the fourth quarter.

Car key for the Ferrari Purosangue SUV.
Adam Jeffery | CNBC

Luxury sports car manufacturer Ferrari topped Wall Street’s top- and bottom-line earnings expectations for the fourth quarter to finish off a record year of profits.
The automaker reported a net profit of 1.26 billion euros, or $1.36 billion, for 2023, including 294 million euros, or $317.9 million, during the fourth quarter. Its adjusted earnings before interest and taxes, or EBIT, was 1.62 billion euros, or $1.75 billion, for the year, including 372 million euros, or $402.3 million, in the last quarter. Both were yearly records for the company.

Ferrari’s revenue last year increased 17% to 5.97 billion euros, or $6.46 billion, including an 11% increase in the fourth quarter from 1.37 billion euros a year earlier in 2022.
Such records are expected to be short-lived, as Ferrari is forecasting to top many of those results in 2024. The company’s forecast for this year calls for revenue of more than 6.4 billion euros, or $6.9 billion, and adjusted per share profit of at least 7.50 euros, with an adjusted EBIT margin of at least 38%. Its adjusted profit margins are expected to be in line or slightly lower than 2023.
Shares of Ferrari reached a new 52-week high Thursday, gaining roughly 12% to nearly $390 a share on the New York Stock Exchange. The company’s previous 52-week high of $372.42 occurred on Dec. 11.
Here’s how the company performed in the fourth quarter, compared to average estimates compiled by LSEG, formerly known as Refinitiv:

Earnings per share: 1.62 euros adjusted vs. 1.50 euros expected
Revenue: 1.523 billion euros vs. 1.506 billion expected

Ferrari shipments were up 3% last year to 13,663 vehicles in 2023, including 3,245 units in the fourth quarter.

“We now have a very important year ahead of us in the execution of our business plan, which continues on schedule along its carefully planned path,” Ferrari CEO Benedetto Vigna said in a release. “The record 2023 results, the ambitions that we have on 2024, together with the exceptional visibility on our order book allow us to look at the high-end of 2026 targets with stronger confidence.”
Separately, in other Ferrari news, multiple media outlets reported that Formula 1 star Lewis Hamilton is on the brink of making a surprising move from Mercedes over to the Ferrari racing team for the 2025 season. More

Small business owners are more optimistic about their operations and the overall economy at the start of 2024, according to a survey by Goldman Sachs 10,000 Small Business Voices.
The survey adds to a recent string of data showing consumers and businesses have started to grow more confident about the economy.
Small business owners are still worried about inflation and their ability to access capital.

U.S. President Joe Biden speaks during a Rose Garden event at the White House to mark National Small Business Week on May 1, 2023 in Washington, DC.
Alex Wong | Getty Images

Small business owners are more optimistic to start the year, even as they face persistent inflation and lending concerns, a new poll released Thursday found.
Seventy-five percent of small business owners are optimistic about their financial trajectory in 2024, up from 68% a year earlier, according to a survey by Goldman Sachs 10,000 Small Business Voices, a policy advocate for small business owners.

Meanwhile, 28% of respondents rated the economy as good or excellent, up 9% from a quarter ago.
More than half of small business owners surveyed said they expect to create jobs this year, and 62% reported they anticipate profits will increase.
The survey adds to a recent string of data showing consumers and businesses have started to grow more confident about the economy after a stretch where inflation was stubborn and borrowing became tougher.
“The fact that 75% of small business owners are optimistic is a remarkably high number, considering inflation continues to plague them, they continue to face access to capital challenges and workforce-related issues … all of those challenges have been very sticky for the last few years with no real progress,” Joe Wall, managing director of government affairs at Goldman Sachs, told CNBC.
The survey was conducted nationally in mid-January among more than 1,400 small business owners.

‘Growth opportunities’ despite challenges

Jill Bommarito, CEO of Detroit-based Ethel’s Baking Company, said she has seen solid consumer spending, and noted that supply-chain issues and inflation are easing. The wholesale baking company, which launched in 2011 and now has 26 employees, specializes in dessert bars and sells in Whole Foods, Target and Costco.
“There’s growth opportunities. It doesn’t mean we’re not up against headwinds … there’s no question about that. However, the demand for real, authentic brands and services is there, and more so than ever,” said Bommarito, a graduate of the Goldman Sachs 10,000 Small Businesses program, which provides business education and support services.
The survey also asked respondents to rank the difficulty of the last four years. Interestingly, small business owners found 2023 nearly as hard as 2020 — the peak of the pandemic and a time when many companies could not operate. Thirty-five percent of respondents said 2020 was their most challenging year, while 33% picked 2023.
“I don’t think most people appreciate the fact that last year was, for a third of small businesses, they would say that was the toughest year they’ve had,” Wall said, citing the inflation and supply-chain issues owners faced.
Inflation is still a major concern for business owners, even as the rate of price increases falls. Seventy-one percent of those surveyed reported inflationary pressures had increased over the last three months.
Rising prices jumped to the top of the list of small business concerns in the National Federation of Independent Business’ monthly read on sentiment in December, outpacing labor woes and regulations.
Some of the economic optimism in Goldman’s data could be due to expected rate cuts from the Federal Reserve in the year to come, Wall said. On Wednesday, the Fed left interest rates unchanged and signaled it would not start trimming rates yet.

Main Street is also focused on the lending environment amid high interest rates. About three-fourths, or 77%, of respondents to Goldman’s survey said they are concerned about their ability to access capital.
The poll also asked about Basel III Endgame plans, which will increase capital holding requirements for larger and regional banks. The survey found that 86% of respondents said their growth forecast would take a hit if it continues to get harder to access capital.
Goldman Sachs has come out against the Basel III Endgame proposal.
In addition, just about one-third of owners polled said they believe they can afford to take out a loan. Of the 35% of those surveyed who applied for a loan in the last year, nearly 80% found it difficult to access affordable capital. And 40% received all of the funding they requested.
In addition, 28% of respondents who applied for loans said they’d taken out a loan or line of credit with payment terms they found to be predatory.
The NFIB’s recent polling also found business owners were paying high interest rates, as the average rate paid on short-term loans hit 9.8% in December, up from 7.6% in January 2023.
Bommarito said access to working capital is her top issue for 2024.
“We’re the foundation of this economy,” she said of small businesses like hers. “In general, we are just considered the riskier bet.”
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Lululemon will debut its first men’s footwear line and will soon offer a new casual and performance sneaker designed specifically for men.
The athletic apparel retailer, best known for its “belt bags” and yoga pants, is looking to double its men’s business and grow revenue to $12.5 billion by 2026.
The launch comes as Lululemon grows at a slower rate than it has in the past, and competition from both legacy players and newer entrants heats up.

Canadian sportswear clothing band, Lululemon store in Hong Kong.
Budrul Chukrut | Lightrocket | Getty Images

Lululemon is launching its first men’s footwear line and casual sneaker as the retailer looks for new avenues of growth in the increasingly crowded athletic apparel space, the company announced Thursday. 
The retailer is debuting its first casual sneaker, dubbed “cityverse,” along with two new running shoes that will all come in both men’s and women’s styles for the first time. Cityverse will launch Feb. 13, while the new running models will debut in March and May. 

Lululemon’s foray into men’s footwear is part of a larger strategy the company announced in April 2022 to double its men’s business and grow revenue to $12.5 billion by 2026.
“Doubling the men’s business is absolutely a key growth pillar for us, and while footwear is a relatively small category for us and we’re early in our footwear journey, we’re excited by the prospect of just the role it plays in offering him more choice,” Lululemon’s chief brand officer, Nikki Neuburger, told CNBC in an interview.
Still, the launch is just “icing on the cake and a bonus” for Lululemon because the company’s growth strategy “isn’t reliant on footwear,” said Neuburger.

Lululemon’s expanded footwear collection
Courtesy: Lululemon

The launch comes as Lululemon grows at a slower rate than it has in the past, and competition from both legacy players like Nike and newer entrants such as On Running heats up. In the three months ended Oct. 29, Lululemon posted a 19% jump in sales, down from a 28% spike in the year-ago quarter.
Most of Wall Street still considers Lululemon a best-in-class retailer, but some firms are expecting its growth to moderate more as the company matures and demand across the sector slows. Last week, HSBC downgraded Lululemon to hold from a previous buy rating, because it expects its strong performance compared with other retailers to narrow as demand slows. 

Neuburger said apparel will still be the “juggernaut” and “core” of Lululemon’s overall business. However, its expansion into men’s footwear will give the retailer an edge when competing with the likes of Nike, Adidas, Hoka and On Running, which have all made men’s footwear central to their core offering. 
In December, Lululemon CEO Calvin McDonald told analysts on the company’s third-quarter earnings call that its brand awareness among men remains low, at about 13% in the U.S.,12% in Australia and single digits everywhere else outside of North America. He said the figures show it has room to grow in the category.  
In order to stand out from the competition, Lululemon aims to set itself apart with innovation and a strong brand name, Neuberger said.
“The innovative approach we take into design and our proprietary technologies … that is not something that other brands are offering across all of their models in their assortment,” said Neuberger. More

Nearly two years into Barry McCarthy’s tenure as Peloton’s CEO, the company has made some progress in its turnaround plan, but still hasn’t managed to return to growth.
The fitness company, best known for its Bike, Tread and online fitness classes, delivered mixed results for its holiday quarter.
Peloton now expects sales growth by the end of the current fiscal year in June.

A Peloton Bike inside a showroom in New York, US, on Wednesday, Nov. 1, 2023. Peloton Interactive Inc. is scheduled to release earnings figures on November 2.
Michael Nagle | Bloomberg | Getty Images

Peloton managed to turn a gross profit off of its pricey connected fitness products for a second quarter in a row, but the company said Thursday it expects more challenges ahead after it failed to reach a number of goals CEO Barry McCarthy outlined a year ago. 
The retailer delivered mixed results for its holiday quarter, as it lost slightly more money per share than Wall Street expected but beat sales estimates.

Here’s how Peloton did in its second fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:

Loss per share: 54 cents vs. 53 cents expected  
Revenue: $743.6 million vs. $733.5 million expected 

The company reported a net loss for the three-month period that ended December 31 of $194.9 million, or 54 cents per share, compared with a loss of $335.4 million, or 98 cents per share, a year earlier. 
Sales dropped to $743.6 million, down from $792.7 million a year earlier. 
The company issued dismal guidance for the current quarter and a tepid full-year sales outlook. 
For its fiscal third quarter, Peloton expects sales to be between $700 million and $725 million, compared to a Wall Street estimate of $754 million, according to LSEG. The company expects its adjusted EBITDA loss to be between $20 million and $30 million, compared to analyst estimates of a loss of $2 million, according to StreetAccount. 

“Our outlook is tempered by uncertainty surrounding our ability to efficiently grow Paid App subscribers and the performance of other new initiatives, as well as an uncertain macroeconomic outlook,” finance chief Liz Coddington wrote in a letter to shareholders. 
Peloton’s connected fitness subscription guidance came in higher than expected. The company also said it saw strong sales at retail partners like Dick’s Sporting Goods and Amazon, and demand for its Tread+ came in “significantly stronger” than expected. 
For the second quarter in a row, Peloton managed to eke out a gross profit on its connected fitness products, which have long been a money losing business. Peloton’s gross margin for its connected fitness products came in at 4.3%, compared with a Wall Street estimate of 3.4%, according to StreetAccount. 
Nearly two years into McCarthy’s tenure as CEO, Peloton is showing some signs of progress, but is still falling short on his key targets.
In a letter to shareholders last February, McCarthy set a goal of returning the company to revenue growth within a year but Peloton fell short of that. The company now expects to reach that milestone in June at the end of the current fiscal year. 
McCarthy also set a goal of reaching sustained positive adjusted EBITDA within a year, which also failed to happen. He now expects that Peloton will generate positive free cash flow during its fiscal fourth quarter, which concludes at the end of June. 
However, Peloton reached a number of other goals that McCarthy set for it, including expanding its corporate wellness and commercial partnerships, selling its Ohio manufacturing facility and restructuring its retail store footprint.
In a letter to shareholders, McCarthy outlined a series of initiatives he spearheaded since taking the helm and explained which ones were working, and which ones weren’t. 
On the positive side, McCarthy said Peloton’s retail partnerships with companies like Dick’s Sporting Goods and Amazon were performing well. 
“We saw exceptionally strong sales growth through these channels this holiday season, with Y/Y unit growth of 74% in Q2,” McCarthy said. “Our key learning from these holiday results is that we can better optimize our sales and marketing tactics going forward so that sales from these partners are even more incremental, yielding a better margin mix for Peloton.” 
The top executive said Peloton’s Bike rental program was also performing well, and the company is forecasting 100% year-over-year revenue growth for it in fiscal 2024.
“The underlying economics continue to be attractive, given the current churn and buyout rates for Bike and Bike+. The Bike rental program is attracting a more diverse, more female, and younger customer than it was 6 months ago,” McCarthy said. “Bike rental is growing quickly with attractive economics, and we are leaning into new opportunities aggressively to drive that growth.” 
Demand has also been strong for its Tread+, which was recalled in 2021. Sales for the entry level Tread have also outperformed the company’s expectations. 
“The overall treadmill market is about 2x larger than the stationary bike market. So our newly found momentum in the treadmill category, and the diversification of our hardware sales beyond Bike/Bike+, is good news for Peloton’s future growth, provided we sustain our momentum,” McCarthy said. 
McCarthy added that if the company isn’t failing on some projects, “we’re not being aggressive enough testing new initiatives.” 
Over the summer, Peloton announced a partnership with the University of Michigan that included selling co-branded Bikes in the school’s colors, but sales to alumni and boosters came in far lower than expected. Peloton had planned to roll out similar initiatives with other universities, but now expects to end the program.
Peloton also came up short on improving customer service, another goal that McCarthy had set for the company last year. 
“This past holiday season was particularly taxing for Members. The Member Support experience has tarnished our brand, and we simply must do better,” McCarthy wrote. “The team is currently in the middle of a reboot. New leadership. New systems. New third party vendors. New training. New staff. I’m confident we’re on the right path this time. I’m confident in the new leadership, and I’m confident that in the next few months our Members will be receiving the level of service they deserve and expect and that we can be proud of.”
Read the full earnings release here. More