Dive Brief:

• Upstream supply chain constraints — not delivery capacity — is the primary bottleneck today, and going into the holiday season, for at-home fitness company Peloton, the company's CFO Jill Woodworth ​said on an earnings call Wednesday.
• The coronavirus pandemic has brought a spike in demand for at-home fitness options, as virus mitigation efforts keep people in their homes. Peloton's revenue in the quarter ending March 31 was up 66% year over year. "The unexpected sharp increase in sales has created an imbalance of supply and demand, unfortunately, causing elongated order-to-delivery windows for our customers. While we are working to accelerate the supply of bikes and incurring higher costs in order to expedite shipments, we do not expect to materially improve order to delivery windows in [the present quarter]," Woodworth said.
• Peloton acquired one of its major manufacturers in Taiwan in October, in an effort to mitigate supply issues. The at-home fitness juggernaut has more than doubled output across manufacturers since early March, said President William Lynch, but the acquisition will not be fully online until December.

Dive Insight:

Peloton is a "growth company," said CEO John Foley. But the growth he expected to accrue over the course of 2020 came early and all at once due to the pandemic, stressing the supply chain.

Delivery has historically been Peloton's public challenge, which is why the company has its own delivery team to supplement 3PLs. But supply is also a top concern. Peloton has listed the loss of "any one of our third-party suppliers, manufacturers," as a risk in its shareholder letters, alongside delivery concerns, since going public last year.

However, less traffic and social-distancing guidelines requiring service providers to leave deliveries at the threshold have resulted in more efficient deliveries of Peloton bikes. While the delivery of bikes continues, the company stopped delivering its treadmill product altogether on March 19, citing the inability to safely enter customers' homes.

Peloton's experience delivering during a global pandemic and demand surge demonstrates that the costs of operating in extraordinary circumstances can eat into any financial benefit sales can bring. Faster deliveries saved operational cost, but hazard pay for warehouse and delivery staff, along with additional costs to expedite orders from manufacturers, took a bite out of those savings. Gross profit was up 106% for the quarter, but the company still posted a net loss of $55.6 million, and operating expense was flat year over year.

To keeping product flowing, the company touted its redundancies, with two main manufacturers for bikes and its own delivery team in addition to contracts with XPO Logistics and J.B. Hunt. But upstream issues are still not quickly fixed and though the manufacturer acquisition was intended to give the company "greater control over our supply chain," capacity constraints persist amid a major shift in consumer behavior. Still, Peloton raised its subscriber revenue and margin guidance for the current quarter.