Evercore ISI’s Shweta Khajuria joins Emily Chang to discuss the fitness-bike maker’s worst day as a publicly-traded company and what’s ahead for Peloton as in-person gyms rebound.
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What do you think is most concerning about what Palatine has
reported.

Well I’ll point to a few things.
First thing first is that fell down really miss forecasted the

magnitude of impact from reopening economies and the resulting
reduction in consumer demand. The ongoing supply chain

constraints cost inflation and logistic challenges. They had
guided to fiscal year 20 to revenue and subscriptions and they

guided down meaningfully now with for next full year next year.
And the biggest challenge here that Belladonna is facing is

lower consumer demand. They did not expect consumer demand to
fall off as much as it did. As economies reopened. That is they

saw a decline or a moderation in Web site traffic in their
showrooms. Traffic which implied that the demand for their

products was moderating pretty meaningfully more meaningfully
than they thought. And that is why they had to lower their

guidance. The other thing I’ll add is it’s not only the lower
demand for their their products compared to what they saw last

year but it’s also the mix shift to the lower priced original
buy which is lower margins of profitability. It puts pressure on

their profits. It is also puts pressure on their top line
growth. So we call it the trifecta. It’s the lower prices higher

cost and lower demand. So how should we think about Palestine’s
opportunity from here. We know they’re breaking ground on a new

factory in the United States charging forward with expansion
plans.

Yeah I mean
the challenge with Belladonna as a stock and I’ll point to both

the opportunity and the challenge and what our opinion is the
challenge with the stock right now is that the visibility is

fairly limited. There are a lot of macro concerns around supply
chain logistics that they have to figure out. There’s also the

moderation in consumer demand. And so I think that the stock at
least in our view will likely be range bound in the near term.

But that does not mean that their long term outlook has
meaningful for it. It’s unchanged. They pointed to one hundred

and eighty million plus people globally in the markets are
they’re frozen in the US Canada UK Germany that they can

address. That’s about 75 million households that they get
penetrate. The goal for Belton really is to have a product that

is price friendly and they want to maximize household
penetration. And nothing has changed. They have six million plus

members that single digit percentage penetration of their market
opportunities. So not that has not changed in that to drive

growth over the long term. But near-term there’s cloudiness
engagement changed and the quality of the Palatine experience.

Yeah I mean. It is a function of reopening economies. I mean we
saw lockdowns and people working from home. So just as a data

point this quarter they said 16 and a half workouts per month.
Now that compares to over 20 workouts for a month last year and

this time same quarter. And a lot of it is because people are
out. People are going out and they’re ready to go up versus last

year when not only were we working from home but we had nowhere
else to go because everything was closed. That said compared to

two years ago same time still engagement is about 40 percent
above the pre corporate level. So. So those who do have a trend

or a bike they are working out more now than they did pre Covid
which is a good sign.