Peloton continues to rack up wins.
Two months after posting its first sales increase since 2022, the fitness equipment company won dismissal of a lawsuit brought by investors claiming it defrauded shareholders by making misleading statements about demand for its product as the country began to reopen after the COVID-19 pandemic.
The case ended Monday night in Manhattan by U.S. District Judge Andrew Carter, who said several of Peloton’s statements about the company’s future came with a “very detailed warning” about possible lockdowns ending and consumers resuming their pre-pandemic routines. The lawsuit, which was filed in March 2023 by Netherlands-based investment company Robeco Capital Growth Funds SICAV, was originally filed in November 2021. It covers those who bought Peloton stock between Feb. 5, 2021 and Nov. 4, 2021.
Peloton saw a significant sales bump during the pandemic as consumers stayed home as gyms closed. Consumers sought ways to work out without having to leave the house, leading to a surge in sales of its stationary treadmills and bicycles. In September 2020, the company posted a 172% surge in sales and saw its shares increase over 200% in the calendar year despite the pandemic’s negative impact on the overall economy.
The company has struggled to regain its momentum. Peloton’s stock peaked in December 2020 at around $162 per share; now it’s under $5—a 97% drop.
According to the lawsuit, Peloton ramped up production of its equipment after seeing a spike in demand during the pandemic in 2020. It told investors it would be making investments into its supply chain to keep up with the soaring demand. But by 2021 the plaintiffs allege demand dropped off, and they say the company “hid the true nature of the declining demand to investors and publicly stressed that its investment into its supply chain was necessary and appropriate given the sustained demand for its products.” The lawsuit argues that by early 2021 Peloton’s management knew demand for its products had begun to fall.
One of the challenged statements was former CEO John Foley’s comments from November 2021 that the company was “well-equipped” for the holiday season despite cutting Peloton’s revenue forecast and combating 91% of unsold inventory. The comments led to a 35% stock drop the following day, but Judge Carter said Peloton still met its quarterly sales quotas, and anecdotes of employees missing sales goals “do not support an inference of falsity.”
In his conclusion, Carter did not say whether Peloton intended to defraud shareholders, calling the alleged false statements “entirely consistent” with the company’s finances.
