Securities Case Claims Peloton Misled Investors Regarding Consumer Demand, Inventory Amid COVID
by Erin Shaak
City of Hialeah Employees’ Retirement System v. Peloton Interactive, Inc. et al.
Filed: November 18, 2021 ◆§ 1:21-cv-09582
A lawsuit claims Peloton investors were financially injured when alleged misrepresentations regarding its growth and inventory reporting were shown to be false.
A proposed class action filed against Peloton Interactive, Inc. and its top executives claims investors were misled by representations regarding Peloton’s growth and inventory reporting that, when allegedly shown to be false, triggered “precipitous declines” in the company’s stock price.
According to the case, Peloton and its CEO, president and CFO assured investors that the fitness company’s spike in growth and financial results amid the COVID-19 pandemic would continue even when consumers began going back to gyms instead of exercising at home. Moreover, the defendants allegedly represented that Peloton had a tight grip on inventory level reporting, which the case says is viewed by investors as an indication of present and future demand.
The lawsuit alleges, however, that Peloton revealed in August 2021 that it had identified a “material weakness” in its internal controls over financial reporting with regard to inventory levels and ultimately stated in November that it had revised its full year revenue guidance down to a range that fell roughly $1 billion below its previous guidance.
These revelations triggered a significant decline in the price of Peloton’s common stock, financially injuring investors, the case alleges.
The timeframe outlined in the lawsuit begins in December 2020, when the defendants allegedly represented in an annual shareholder meeting that the “unprecedented demand” for Peloton’s internet-connected stationary bikes and treadmills and subscription products amid the pandemic “ha[d] nothing to do with COVID.” Per the suit, the defendants continued to assure investors over the following months that demand would continue to build beyond the end of the pandemic and that Peloton was “a trend that’s here to stay.”
Moreover, the lawsuit claims Peloton and its top executives misled investors regarding the company’s inventory and its reflection on demand. Per the suit, while the defendants touted Peloton’s ability to align supply with demand, investors were not told that a weakness in Peloton’s internal financial reporting controls left the company unable to accurately keep track of its inventory levels and led to “a massive growth in inventory that far exceeded customer demand.”
The lawsuit alleges that the truth began to emerge in August 2021, when Peloton filed a Form 8-K with the SEC and attached a letter to shareholders that indicated its failure to accurately report inventory levels. As a result, the price of the company’s common stock declined 8.5 percent, according to the case.
Despite this revelation, the defendants continued to “misrepresent and conceal” over the following months that Peloton’s financial results and growth were unsustainable post-COVID, the suit says. Finally, on November 4, Peloton revealed that it had revised its full year revenue guidance to a range of $4.4 billion to $4.8 billion from its previously stated guidance of $5.4 billion due to declining demand as consumers began exercising outside their homes, according to the filing. Moreover, the case relays, the company stated that its inventory levels had “skyrocketed” to 35 percent more than the prior quarter, 91 percent of which consisted of finished products that Peloton still held.
Per the suit, Peloton’s stock prices declined over 35 percent following this news.
The lawsuit looks to represent anyone who purchased or otherwise acquired Peloton common stock between December 9, 2020 and November 4, 2021.
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