Greenlight Capital’s David Einhorn thinks Peloton could trade as high as $31.50 a share if the company slashes costs, which could double its current adjusted EBITDA projections, CNBC has learned. 

That’s about five times the current price of its shares, which were trading around $6.20 midday on Friday.

In a pitch deck Einhorn presented at the Robin Hood Investors Conference on Wednesday, Einhorn pedaled on a Peloton bike as he explained the company’s many missteps over the years and the wide runway it has to turn its business around, according to a copy of the presentation obtained by CNBC.

If it can generate $450 million in EBITDA, about double its current projections, Peloton could trade between $7.50 and $31.50 a share, based on a benchmark study of comparable companies, said Einhorn. 

Notably, Greenlight’s analysis doesn’t assume “any growth in subscription revenues from new customers or price increases or other new initiatives, such as activation fees from the growing used bike market and international expansion,” Einhorn said. 

“Facing bankruptcy can force change,” he said during the pitch. “Peloton has started to right-size and cash burn has stopped. It refinanced its debt to push out maturities. And with a loyal customer base that pays $44 per month, it’s a valuable subscription business.”

Einhorn structured the presentation as if he was an instructor giving a workout class, occasionally shouting out investors in the room. The first page of the deck was titled “15 minute ‘Stock Pitch Ride'” and shows an image of Einhorn on a Peloton bike.

“Let’s start with some shoutouts,” Einhorn said at the beginning of the pitch, calling out a number of investors and sponsors, similar to the way a Peloton instructor would call out class attendees.

Each page of the deck shows a leaderboard of other apparent riders — including investor Bill Ackman and Robin Hood CEO Richard Buery — along with Einhorn’s speed, cadence and resistance, mimicking what users see while taking a Peloton bike class.

Greenlight and Peloton declined comment to CNBC.

Greenlight, which had a $6.8 million stake in the company as of June 30, conducted a benchmark study analyzing Peloton’s cost structure. The firm compared Peloton to three sets of peer companies: fitness businesses like Planet Fitness, consumer subscription companies like Chewy, and consumer online subscription businesses like Spotify and Netflix. 

The study found that even though Peloton has already cut costs to curb its cash burn, it’s seeing “basically zero adjusted EBITDA versus the peer median of $406 million,” Einhorn stated in the pitch. 

“For peers, over a third of gross profit flows through to EBITDA. Part of the problem is that Peloton spends too much on research and development,” said Einhorn. “Just as one example, Peloton spends about twice the R&D that Adidas spends … in dollar terms. And Adidas has 8 times more sales than Peloton and an order of magnitude more product lines.” 

Peloton’s stock-based compensation expense of $305 million in fiscal 2024 is also double the peer median and comparable to far larger companies like Spotify and Netflix – which are 30 times and 140 times larger, respectively, Einhorn said. 

At the heart of the thesis is Peloton’s high-margin subscription business, which generated $1.71 billion in revenue in fiscal 2024 with a gross margin of about 68%. If Peloton can make deep cost cuts, the company could generate far more free cash flow and EBITDA without needing to sell more bikes and treadmills, and without needing to grow its subscriber base. 

Earlier this year, Peloton announced plans to lay off 15% of its staff, close retail showrooms, and adjust its international sales plans, among other cost savings initiatives. It expects those cuts could reduce annual run rate expenses by more than $200 million by the end of fiscal 2025.

In August, Peloton said it expects it can post adjusted EBITDA of between $200 million and $250 million in fiscal 2025. But Einhorn said if the company gets its cost structure more in line with the benchmark, “there should be $400 – $500 million of EBITDA from the current subscription revenue base.” 

Companies that generate that range of EBITDA tend to trade at nine to 32 times that amount, implying a potential Peloton share price of between $7.50 on the low end and $31.50 on the high end, if it reaches $450 million in EBITDA, he said. 

To get there, Einhorn said the company needs new management. In August, Peloton’s interim co-CEO Karen Boone said she believes the new top executive will be in place by the time the company next reports earnings, which are now scheduled for Thursday. 

“The nice part of our thesis is that we don’t have to convince Peloton this is the right approach,” said Einhorn. “Peloton’s interim co-CEOs are telling the same story of a recurring, high-margin subscription revenue stream business. They have also implemented an initial cost-cutting plan, which still leaves plenty of room for the new CEO.” 

He said the company continues to garner top reviews among consumers and fitness publications and has a rabidly loyal customer base. He added that even though fitness buffs are returning to the gym, home workouts are here to stay.

“Working out in the comfort of your own home is not a fad,” said Einhorn. “And a trend towards healthier lifestyles should all drive underlying subscriber growth over time.”

Nike and Kohl’s may not be winning on Wall Street, but a wide set of consumers still consider them to be the best in their categories, according to a consumer sentiment survey released Thursday. 

The Consumer Sentiment Index from consulting firm AlixPartners asked 9,000 fashion shoppers from Gen Z to boomers about the factors that drive their purchasing decisions and how retailers stack up against their competitors. 

Nike was ranked the No. 1 active footwear retailer among all four generational cohorts polled for the survey: Gen Z, millennials, Gen X and boomers. The legacy sneaker giant beat out Adidas and Foot Locker, which tied for second place, while upstart competitor On Running came in last among Gen Z and millennials. 

Kohl’s was the No. 1 department store choice among Gen Z and boomers, while millennials chose Nordstrom and Gen X chose Macy’s. 

The survey’s findings stand in contrast to Nike and Kohl’s recent performance. Nike is expecting sales to fall between 8% and 10% this quarter. As of Wednesday’s close, its stock is down 26% this year as investors brace for a long path to recovery under new CEO Elliott Hill.

Meanwhile, Kohl’s is expecting sales to fall between 4% and 6% this fiscal year as it grapples with the larger, existential issues facing department stores trying to remain relevant. Its stock is down 32% so far this year, as of Wednesday’s close. 

Sonia Lapinsky, head of AlixPartners’ global fashion practice and the report’s author, told CNBC the survey’s findings – juxtaposed with the companies’ recent performance – indicate Nike and Kohl’s are at critical junctures. The results signal that consumers are still firmly behind the retailers, but that good favor could soon run out if they don’t quickly diagnose and fix what’s wrong. 

“We would see in the data what’s important to the Nike consumer. It’s all about innovation, technical quality, product and [the competitors] who are growing super fast … they’re known for innovation, they’re known for product development, they do it a heck of a lot quicker than we know that Nike does it,” said Lapinsky. 

She said it’s a similar situation at Kohl’s, which has changed its assortment strategy many times over the years, but has won consumers with competitive prices. 

Consumers “still think they’re the best at product price combination. They’re still getting a deal. They probably love the Kohl’s bucks,” said Lapinsky. “Now let’s make the experience when they’re in the store something that they’re going to come back for and actually drive your top line.” 

Alix’s consumer sentiment report revealed a host of other findings for retailers to keep in mind as they enter the ever important holiday shopping season, including the No. 1 factor that would drive shoppers to a competitor. The majority of consumers surveyed, or 66% of respondents, said they’ll shop at a different retailer if the product they’re looking for isn’t in stock. 

“‘Right product, right place, right time’ echoes in every retail conference room, yet as retailers have expanded online assortments and marketplaces to attract new customers and traffic, it’s become more challenging to avoid frustrating shoppers when they can’t find their size or their desired item in-store,” the report said. 

For example, only 9% of a retailer’s online assortment on average is available in stores, based on a sample set of 30 retailers, according to the report. 

“It’s clear why consumers are frustrated. Macys.com has 24,000 women’s tops available online, but for customers who step foot in their Herald Square flagship in New York City, there are only 2,500 women’s tops available to pick up,” the report said. “For Gap.com, 158 tops and tees are available in women’s online, but only 50 are available for pick-up in the Herald Square location.” 

As retailers look to stand out and attract attention online, they’ve started offering far broader digital assortments. But as consumers return to stores, they’re expecting to see those same products on the shelf.

It would be too expensive and unrealistic to replicate digital inventories in stores, so retailers need to be able to forecast which inventory to put where so consumers can find what they’re looking for in stores.

“This is a perfect kind of recipe for where AI should come in,” said Lapinsky. “They’ve got to get really smart about where the customer is going and what they’re looking for, and they do that with better analytics, potentially AI models, that are predicting what the customer wants. And then they’ve got to have that same view transition to stores, even by store location, store cluster, store region, where they have a good view of what that consumer is likely looking for.”

During a recent event celebrating Foot Locker’s 50th anniversary in New York City, it was hard to imagine that the legacy sneaker chain was appearing on bankruptcy watch lists as recently as March.

Grammy-nominated rapper Coi Leray was there to celebrate the company with a special performance of her hit song “Players” as influencers, journalists and handpicked members of the company’s revamped loyalty program sipped on lavender margaritas and champagne cocktails.

Employees – and not just those in the glare of the company’s PR team – gushed about CEO Mary Dillon as Adidas staffers celebrated the company’s new store design, which showcases individual brands instead of mixing them on nondescript shoe walls. 

Foot Locker turns 50 while on a bit of an upswing two years into Dillon’s tenure as CEO. Last month, it released fiscal second-quarter results and full-year guidance that beat expectations, as comparable sales grew for the first time in six quarters.

As Foot Locker revamps its sprawling store footprint, and perhaps benefits from some good timing, it’s making strides in winning back its critical brand partners like Nike and Adidas, the latter of which co-hosted the Monday night party and helped secure Leray’s performance. 

“Our last quarter was a really good indication that the hard work that we’ve been putting into the Lace Up plan is working, and that makes me feel really, really great, because I really see the next 50 years of growth for Foot Locker and our future,” Dillon told CNBC in an interview, referencing the company’s turnaround plan. “I really think that there’s layers of category growth that we can drive by just making sneakers that much more inclusive, that much more fun, that much more easy to access.”

But as Foot Locker stares down the next 50 years, the company is still at a crossroads and must answer some fundamental questions: can it once again be the market leader in sneakers, and can it not just survive, but thrive, as brands rely less and less on wholesalers?

“With the combination of more direct to consumer from the brands, the deepening of specialists like [Dick’s Sporting Goods], the incursion of JD Sports, Foot Locker still looks risky,” said Neil Saunders, a retail analyst and managing director of GlobalData. “In some ways, they’re just a sort of distributor of everyone else’s products.”

Dick’s has a big private-label business and sells other categories like sporting goods, while JD Sports has strong loyalty programs and a robust fashion business, he said.

“Whereas Foot Locker looks vulnerable because it just doesn’t have all these other strings to its bows,” said Saunders. “The truth is that although they’re getting better, there is still this question: Do we need this specialist sneaker retailer?” 

Foot Locker can be traced back to the legendary retailer Frank Winfield Woolworth, whose namesake company branched into footwear in the 1960s and later opened the first Foot Locker in City of Industry, California, in September 1974. 

From the beginning, Foot Locker was a mall retailer. Over the next two decades, it opened thousands of stores in malls across the U.S. and abroad. 

By the turn of the century, it was the world’s largest retailer of athletic footwear and apparel, with a 20% market share in the U.S., according to a 2002 Forbes report. It was the primary place to buy Nike sneakers and was responsible for 26% to 28% of Nike’s total domestic revenue. Nike accounted for more than half of Foot Locker’s total sales at the time.

“It was a simpler retail world. I think in the years that they were initially really experiencing strong growth, it was as simple as being in the mall, having a large mall footprint and having the right brands and they had that footprint,” said Janine Stichter, a retail analyst and managing director at BTIG, who has been covering the retail industry since 2008. “They were the No. 1 partner of Nike. Nike, at the time, was strong and growing, and I think they were really viewed as like the destination in an environment that was a lot less competitive.” 

When Foot Locker’s chief commercial officer, Frank Bracken, joined the company in 2010, the retailer’s relationship with Nike was poised to get even stronger. By the end of the decade, 75% of the products Foot Locker sold were from Nike.

“This was [pre-direct-to-consumer], Foot Locker was definitely ‘most favored nations’ with most of our brand partners at that time, Nike was about to go on a pretty epic run alongside Jordan, and so I actually joined at a really good time,” Bracken said in an interview.

Bracken recalled how from 2012 to about 2018, Foot Locker’s stock rose to record highs as revenue grew at a mid-to-high single-digit compound annual growth rate. But as the 2020s neared, the company got “complacent” and began taking its position as the market leader in sneakers “for granted,” said Bracken. 

“[We] got some weak signals about where the industry was headed, from our partners and from competition, and then Covid, you know, paralyzed everybody momentarily and I think we lost some time, candidly, during Covid,” he said. “Competition used it as an opportunity to invest in technology and capability and the business, and maybe we probably stood a little bit too still at that point in time.” 

As consumers moved online and away from malls, Foot Locker did too little to update its e-commerce capabilities and its real estate footprint, said Bracken. At the same time, competitors were getting bigger and savvier, adjusting their real estate strategies as malls across America sputtered and died. 

In North America, the company let its banners — Foot Locker, Footaction and Champs Sports — overlap too heavily with each other in terms of assortment, location and marketing, and brands “started to take note of that,” said Bracken.

At the end of 2021, Foot Locker was winding down its Footaction business and had acquired WSS – an off-mall athletic apparel retailer that caters to the Hispanic community – to help differentiate itself from competitors.

But by then, it was too late.

Nike, carrying out a new strategy to cut off wholesalers and sell directly to consumers through its own websites and stores, had started reducing the number of sneakers it was selling to Foot Locker, the company said on an earnings call in February 2022. It chose instead to reserve its best products for Foot Locker’s primary competitors: Dick’s and JD Sports. 

For a company that relied almost exclusively on Nike, the change was devastating and posed an existential threat. By the end of fiscal 2022, comparable sales had fallen 7.2% in North America. The declines would only mount in the quarters to come. 

When Dillon, the former CEO of Ulta Beauty, took the helm of Foot Locker in September 2022, Wall Street breathed a collective sigh of relief. Highly regarded among peers, Dillon was known for her ability to win over brands, and appeared to have the necessary chops to turn Foot Locker around. 

“In a way, she soothed investors … they know that she can deliver and they know that she understands retail and the sector and she’s got good operation control and all the rest of it,” said Saunders from GlobalData. “That’s obviously starting to come through a little bit more now.”

In her first major public event as CEO, Dillon hosted an investor day last March where she touted a revitalized relationship with Nike. She pledged the “fruits of our renewed commitment to one another” would begin to show up in results by the end of the year. 

She outlined her Lace Up turnaround strategy, which focused on four key pillars: better marketing, a new real estate plan, a revamped loyalty program and an emphasis on online sales. 

But as the year wore on, the macroeconomic picture worsened, which hit Foot Locker hard because about half of its customers are considered low income. The company went on to cut its guidance twice, suspend its dividend and delay a key financial target that it outlined at its investor day. 

“As a CEO, it’s hard to go out and make a commitment and have to change it, but because I believe so much in the plan and where we’re heading, I felt confident that it was the right thing to do,” said Dillon. “Now I believe we’ve kind of worked past that.”

Beyond the macro situation, the company likely underestimated the challenges it was facing, and how much the Nike breakup would hurt its business, Saunders and Stichter said. 

“You don’t really know until you do it how impactful that’s going to be and I think that they thought they’d be able to offset more of that loss more quickly,” said Stichter. 

While Foot Locker’s fiscal 2023 turned out worse than it originally anticipated, the company is seeing some of its turnaround efforts start to take hold. While Nike is still its biggest partner, it’s focusing more on other brands, such as upstarts like Hoka and On and legacy incumbents like Birkenstock and Ugg.  

Online sales are growing. Foot Locker plans to relaunch its mobile app at the end of the year, and it recently unveiled its revamped loyalty program FLX, which allows customers to earn discounts, access to product launches and perks like free returns. 

“We know that we only capture a fraction of this annual sneaker spend that our existing customers spend on sneakers,” said Kim Waldmann, Foot Locker’s chief customer officer. “[FLX] isn’t necessarily about getting you to buy 10 more sneakers per year, it’s an opportunity for us to drive share of wallet consolidation by the fact that you’re getting value back in shopping with us.” 

When Waldmann started in the role last year, she learned from consumer research that customers loved having access to a wide variety of brands at Foot Locker’s stores and enjoyed the product knowledge that its employees, known as “Stripers,” had. 

“The thing that they wanted to see more from us is like we’re just not top of mind. A lot of consumers just hadn’t seen us in a while,” said Waldmann. “And I think that was really the opportunity to take what is an iconic brand and make it influential and top of mind again, and that’s really the work that we’ve been doing.” 

The company is marketing more toward women and has partnered with stars such as Leray, who was part of Foot Locker’s spring style and trend campaign. 

Perhaps most critically, Foot Locker is finally doing the work necessary to overhaul its aging store fleet, which is responsible for about 80% of its sales. Since Dillon took over, she’s closed around 500 stores, opened about 200 new shops and remodeled or relocated another 200 or so doors. Earlier this year, Foot Locker unveiled its “reimagined” store concept and its plans to move away from its traditional format, which tends to be two walls of shoes with a middle section used for trying on sneakers. 

As more and more brands move away from wholesalers in favor of their own stores and website, the strategy change was critical to Foot Locker’s survival. Its business does not work if it doesn’t have the support of its brand partners, which want to ensure that their assortments are showcased individually – not mixed together with competitors. 

“When you talk to a company like On they’re like, yeah, we’re selective about who we sell to, we don’t want to be just another shoe on the wall,” said Stichter. “They’re really investing behind putting more signage and just investing in the displays … that’s what makes the brands want to work with them.” 

Since May, Foot Locker has brought the new design concept to at least 80 of its stores, which it says have better comparable sales and margins compared with the balance of the chain. The company is working to refresh two-thirds of its global Foot Locker and Kids Foot Locker doors by the end of 2025, and said 40% of its North American footprint is now off-mall. 

The new store approach couldn’t come at a better time for Foot Locker. Over the last year, Nike has begun to walk back its direct selling strategy after acknowledging that it went too far in cutting out wholesalers. 

“Nike is our largest partner and they’re the largest in the industry so for us, it’s also about, how do we make sure that we have a really terrific long-term growth relationship with Nike? And I’m proud about the fact that we’re going back to growth [with Nike] starting in the fourth quarter of this year,” said Dillon. “Also … at the same time, Nike has been very public about the role of retailers and the importance of that for them as well so maybe it was good timing, right?” 

As Foot Locker looks ahead to the next 50 years, its ability to survive is still up for debate. Nike is at a low point and is cozying back up to the wholesale partners, but when it rebounds, will it cut off those retailers once again? 

Absent a robust private-label business, Foot Locker’s success is also highly dependent on the performance of its brand partners, which leaves it with less control over its own destiny than other retailers that have recently made big comebacks, such as Abercrombie & Fitch. 

If Nike has a major product launch, it can be a boon for Foot Locker’s sales, but if innovation dries up, Foot Locker will suffer. It has found itself in a similar quandary facing other multi-brand retailers, such as Macy’s, which has also struggled to find itself in a post-mall world. 

When asked if Foot Locker can survive another 50 years, GlobalData’s Saunders said the company is the “most at risk of extinction” of its peers. Stichter disagreed. 

“One thing we’ve learned is that consumers really do want a multi-brand experience. There are people who go to Nike.com or Adidas.com but people really like having that selection, having the service,” said Stichter. “So there is a reason for a concept like Foot Locker to exist. I think it all just depends on, can they execute well and be one of the preferred places for consumers who are looking for choice.”