Shares of fitness equipment maker Peloton (NASDAQ:PTON) jumped nearly 16% in Wednesday’s extended trading session on news of a strategic deal, under which it will be the exclusive digital fitness content provider for athletic apparel maker Lululemon (NASDAQ:LULU) from early 2024. The five-year global partnership will also make Lululemon the primary athletic apparel partner of Peloton. LULU shares were up 0.62% in yesterday’s after-hours trading.
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Details on Peloton-Lululemon Deal
Starting November 1, Lululemon Studio members will gain access to Peloton’s digital fitness content, which will be updated weekly on LULU’s Studio device and companion app. Additionally, customers enrolling for Lululemon’s free Essential membership program will be provided exclusive Peloton content.
Further, co-branded apparel will be sold at Peloton’s retail stores and online in the U.S., U.K., and Canada from October 11, 2023. The two companies expect to offer co-branded apparel to all five of Peloton’s global markets by March 2024. Financial details about revenue-sharing aspects of the deal were not disclosed.
To ensure that they don’t cross paths, Lululemon intends to discontinue the sale of its Lululemon Studio Mirror product before the end of this year. It will also eliminate its app-only membership tier. However, the company will continue to provide service and support for existing Mirror devices.
The deal comes at a crucial time for Peloton, as the company is struggling with dismal demand for its bikes and other home fitness equipment following a pandemic-induced surge. Coming to Lululemon, while the company is enjoying solid demand for its athletic apparel, its 2020 acquisition of at-home fitness company Mirror did not achieve the desired results. In the fourth quarter of 2022, LULU recorded a $443 million impairment charge related to Mirror.
It is interesting to note that last year, Peloton settled a lawsuit with Lululemon, which accused the former of infringing design patents by selling “copycat” bra and legging products. Under the settlement, Peloton agreed to phase out some designs that LULU had objected to.
Is Peloton a Buy, Sell, or Hold?
Peloton stock has declined 41% so far this year (as of the closing of Wednesday’s regular trading session) due to its weak financials.
On Monday, UBS analyst Arpine Kocharyan lowered her price target for PTON stock to $4 from $8 and reiterated a Sell rating. The analyst said that the favorable trend in total interactive visits on Peloton’s website in May and June turned negative in July, with further weakness noted in August.
As per TipRanks’ Website Traffic Tool, visits on onepeloton.com are down 27.1% on a quarter-to-date basis (July to August) in Q1 FY24.
With six Buys, 13 Holds, and two Sells, Wall Street has a Hold consensus rating on Peloton stock. The average price target of $7.79 implies 67.5% upside potential.
