Peloton Interactive’s stock continues to play an important role in Woodson Capital Management’s portfolio.
The long-short firm headed by Tiger Cub Jim Davis was down about 15 percent in the first half of the year. And one-time high-flying Covid lockdown beneficiary Peloton accounted for a sizable portion of the loss, according to the firm’s first- and second-quarter letters, obtained by Institutional Investor.
The letters also provide a rare insight into the hedge fund’s short portfolio and strategy, which have generated gains in the portfolio all year.
In the first quarter, when Woodson was down 18 percent, Peloton was the second-biggest long detractor, accounting for negative 2.45 percent of performance. In the second quarter, when the fund was up by more than 2 percent, Peloton detracted from performance by 4.3 percent, more than any other long, according to the firm’s letter.
As a result, Peloton slipped to become Woodson’s tenth-largest U.S.-listed common stock long at the end of the second quarter — dropping eight places from the second spot at the end of the first quarter — even though Woodson boosted its stake by more than 11 percent in the June three-month period, according to regulatory filings.
The maker of high-end exercise bicycles — whose shares plunged 75 percent in the first half of the year — has suffered this year from huge losses, a sharp decline in revenues, a major restructuring and management shakeup, and rumors of a possible sale of the company.
It’s hard to believe that this is the same company whose stock surged more than 440 percent in 2020. Peloton was Woodson’s largest long that year, accounting for roughly 15 percent of assets, and it helped drive Woodson’s eye-popping 118.5 percent gain.
However, since peaking at $162.72 on Christmas Eve 2020, Peloton’s stock has plummeted more than 94 percent, closing Wednesday at $9.05.
Meanwhile, Woodson’s shorts have been a major source of profits this year. They offset first-quarter losses by 1.1 percent and accounted for 25.7 percent of gross gains in the second quarter, a period in which longs cost the fund 23.1 percent of gross return.
Woodson’s top short contributors in the first quarter were eco-friendly footwear and apparel company Allbirds, mall REIT Simon Property Group, wood-pellet grill maker Traeger Inc., smart TV maker Vizio Holding, and fast-casual restaurant chain Portillo’s.
Its top short contributors in the second quarter were REIT Seritage Growth Properties, British REIT Hammerson, EV charging station provider Blink Charging, shopping center REIT The Macerich Company, and coffee chain Dutch Bros.
During the July and August short squeeze, Woodson said it trimmed long positions and added to its short exposure, resulting in a “neutral” 15 percent net exposure, according to the second-quarter letter dated September 9.
Davis, who worked as an equity analyst at Tiger Management directly under Julian H. Robertson, Jr. from 2006 to 2008, said that several of its newest short positions were in the pet category, including pet food, pet retail, and pet insurance. It noted that after a surge in pet adoptions in 2020 and 2021, the first year or so of the pandemic, the Covid puppy boom has recently “reversed to a bust.”
The manager also said that it added short exposure in office REITs, taking six positions totaling 5 percent of the fund. “The industry faces structurally diminished demand and a growing supply glut,” Davis stressed in the letter.
Shopping malls, however, remain Woodson’s largest short theme, accounting for 18 percent of the fund. “Mall tenant health is again deteriorating, as stimulus-driven tailwinds reverse and wage inflation further pressures store-level economics,” Davis explained in the second-quarter letter.
Meanwhile, the firm reminded clients that green energy bubble stocks, frauds, and “flimsy business models” are a continual source of shorts, accounting for 10 percent of the fund.
