When Peloton Interactive Inc. (NASDAQ: PTON) brought CEO Barry McCarthy out of retirement in February 2022, the company paid him an annual salary of $1 million and a whopping $167 million in stock. His total compensation package of $168 million was 2,300 times the median company salary of $73,117. In March, his salary was raised to $1.5 million.

McCarthy, who had been an executive at both Netflix and Spotify, set a goal for Peloton to become cash-flow positive by June 2023, the end of the company’s first full fiscal year under his leadership. That did not happen. Cash flow from operations was negative $55.4 million in the June quarter, and free cash flow was negative $74 million. That is still a lot better than negative cash flow of $728.4 million in the March 2022 quarter and negative free cash flow of almost $747 million.

Peloton’s revenue from hardware sales fell 48% year over year, while subscription revenue rose by 19.7%. The company managed to shave $1 billion from costs over the year, cutting Peloton’s operating loss by 56.2%. Much of that came by way of layoffs. Although it was not all that McCarthy had aimed for, it was still not awful.

Peloton was in the apparel business before McCarthy arrived, and its performance is buried in the line item for its hardware sales (Connected Fitness Products). It is safe to say that the apparel business was not booming, primarily because Peloton was forced to (or chose to) compete with Lululemon Athletica Inc. (NASDAQ: LULU).

After markets closed Wednesday, Peloton and Lululemon announced a five-year global partnership that will let each company get rid of at least one albatross.

Peloton will get out of the apparel business, and Lululemon will become its primary apparel partner. That change will happen on October 11, when the co-branded apparel becomes available in Peloton’s stores and online in the United States, Canada and the United Kingdom.

Lululemon has agreed to dump its Studio Mirror by the end of this year, although the company said it would support existing customers indefinitely. This is not a big loss for Lululemon because the company has already written down more than $400 million of the $500 million it paid for Studio Mirror.

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What Lululemon needed to shore up was its software business. The deal calls for the company’s Studio All-Access members to have access to Peloton’s subscription classes for no increase in price. Beginning November 1, Peloton becomes the exclusive provider of digital fitness content to Lululemon’s Studio members. This is a big plus for Lululemon. Peloton will derive some revenue from the agreement, but the announcement did not go into that detail.

Since McCarthy took over, Peloton stock is down by nearly 84%, as of Wednesday’s close. Lululemon’s shares are up 18% over the same period. Peloton’s market cap topped $44 billion in 2020, the first year after its initial public offering and the beginning of the COVID-19 pandemic. At Wednesday’s closing bell, the company’s market cap was $1.66 billion.

Lululemon’s market cap reached $50.6 billion in 2021 and has dipped a little to $47.98 billion. At the end of the July quarter, the company had cash and equivalents totaling $1.15 billion and no debt. Would it be interested in acquiring Peloton? Surely that has crossed Barry McCarthy’s mind, but did Lululemon CEO Calvin McDonald consider such a move?

Peloton’s stock traded up by about 13% in Thursday’s premarket session, at $5.27 in a 52-week range of $4.31 to $17.83. Lululemon stock traded up by less than 1%, at $380.47 in a 52-week range of $277.50 to $406.94.

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