TUP - Tupperware Brands: Not Worth The Risk

2023-12-29 16:56:05 ET

Summary

• Tupperware Brands Corporation is facing financial challenges and an unsustainable debt burden.
• The company is shifting from direct sales to nationwide distribution through Target stores and other channels.
• TUP has engaged in debt restructuring and changed its leadership, appointing a new CEO in October 2023.
• However, the positives don't outweigh the huge red flags it has now. Its already depressed valuation reflects this, so I rate it a "sell" and not a "strong sell."
• I recommend keeping TUP on a watchlist until the next financial update in early 2024.

Tupperware Brands Corporation ( TUP ) faces financial challenges and an unsustainable debt burden. The company is attempting to execute a turnaround plan to improve its situation. Firstly, TUP is shifting from direct sales to nationwide distribution through Target stores and other channels. Additionally, TUP engaged in debt restructuring and changed its leadership, appointing the former North American Avon CEO, Laurie Ann Goldman, as TUP’s new CEO in October 2023. Another challenge to be overcome is the personnel changes in the accounting department that produced an inability to report the financial records for all the 2023 quarters and delayed the presentation of the 10-K for 2022. Yet, the overall picture is plagued by red flags. Thus, it isn’t easy to find a reasonable bullish narrative on the stock until we get updated financials in 2024. In my analysis, the stock’s valuation is already so depressed that it’s no longer a shorting opportunity, but the outlook remains bleak, so I give it a “sell” rating.

A Former Giant: Business Overview

Tupperware Brands is a multinational company focused on producing gadgets and containers and serving products for the kitchen. Established in 1938 and headquartered in Orlando, Florida, it is a global leader in kitchenware and home products. The company was founded in 1938 and is based in Orlando, Florida. TUP is best known for its plastic food containers. However, its product line also includes cookware, knives, microwave products, microfiber, and items to avoid water filtration, among other household items. TUP operates in about 70 countries in North and South America, Asia Pacific, Europe, Africa, and the Middle East, employing approximately 6600 people. So, TUP is undoubtedly a significant worldwide operation, which makes its current situation all the more interesting.

Concretely, TUP is facing significant challenges , including a high debt burden. One of the reasons for the fall in revenue was the pandemic that halted in-person sales events that were the basis for TUP's product commercialization. As you might imagine, an MLM business model that relies on personal and in-person meetings suffered greatly during COVID-19’s worldwide lockdowns. To correct the situation, the company engaged in a debt restructuring attempt, negotiating with lenders and extending the payment of its obligations from 2025 to 2027. Still, the ongoing high interest rate environment engineering by the Fed to control inflation proved a major headwind for the company. Since then, TUP has been battling to survive as a going concern.

Additionally, TUP is shaking up its business model, trying to adapt to a new marketplace and the evolving needs of consumers in a shifting retail ecosystem. The change involves going from direct sales from its website to distribution through 1900 Target stores and other channels nationwide, targeting new generations with new designs to integrate them into its customer base. The reality is that TUP must adapt to a new business landscape post-pandemic, all while handling a debt burden with crushing interest payments.

Furthermore, TUP changed its leadership in October with Laurie Ann Goldman. Goldman will now serve as TUP’s President, CEO, and Director of the board to delineate and execute TUP's turnaround strategy. Goldman was previously CEO of Spanx, Avon North America, and OVME Aesthetics. Theoretically, she seems to have the credentials and experience to lead TUP out of its current challenging situation. However, time will tell if she’s ultimately successful.

On a more recent note, TUP’s problems kept piling up as it announced that it couldn’t present its required Q3 2023 financial report on November 1, 2023. This is noteworthy because PwC declined to continue as TUP’s accounting firm. Given the company’s troubling financial situation and new accounting concerns, it paints a very concerning picture for shareholders. I believe it’s difficult not to doubt the company's long-term viability at this stage.

NYSE Worries and TUP's Compliance Efforts

As if that wasn’t enough, on June 1, 2023, the NYSE notified Tupperware Brands Corporation about the risk of delisting due to non-compliance with requirements such as the on-time submission of annual and quarterly reports and failing to meet the market capitalization minimum of $50 million. Furthermore, its average stock price was less than $1 over 30 days. TUP presented a plan to the NYSE to regain compliance, which was accepted. On August 1, 2023, TUP regained the minimum stock price and is working to meet the market capitalization standard. If TUP is delisted, the consequences include reduced liquidity for current stockholders, the classification as a "penny stock" with less coverage, and limited financing possibilities. Therefore, the company is working to avoid this situation, as it’d only further constrain its already limited options.

On September 20, 2023, TUP submitted an extension request for an additional six-month to file the 10-K for 2022 and the Q1, Q2, and Q3 forms for 2023. On October 13, 2023, TUP presented the delayed 10-K for 2022 containing the last company information. Furthermore, TUP entered into a debt restructuring agreement to access up to $21 million under certain conditions, such as the requirement to use excess cash for debt reduction. TUP can't raise funds through additional debt under this credit agreement. To improve liquidity and capital structure, TUP's board seeks alternatives, such as equity issuance that may dilute shares and offer securities with senior rights. The plan to address its challenges includes appointing a CEO with restructuring experience, a profile fulfilled by Goldman, entering the debt restructuring agreement, deferring certain capital expenditures, and prioritizing short-term actions.

Undoubtedly Bearish: Valuation Analysis

The reality is that the need for up-to-date financial statements limits our valuation analysis significantly. Our latest financial information is as of December 2022, which means all of 2023 is a mystery for us as investors. TUP’s new deadline to file its pending financial statements is February 2, 2024 . So, if the company fulfills this deadline, we will know precisely what TUP’s situation is.

Nevertheless, I believe we have roundabout ways of approaching TUP’s valuation with just the 2022 information and some assumptions. Specifically, let us assume that 2022 represents 2023 and that the company’s financial situation hasn’t materially worsened since then. We can value TUP’s current context as an investment profile if we make such an assumption. Using the company’s December 2022 10-K report , we see that TUP generated roughly $1.3 billion in sales. This is a huge figure compared to the current market cap of just $106.4 million. Yet, if we look at its balance sheet at the time, the company held a negative equity balance of $429.8 million, mainly due to the decrease in accumulated earnings. Unsurprisingly, this was directly related to the 2022 full-year net loss of $232.5 million.

Since then, I doubt the company’s situation has improved significantly. I’d argue that the lack of financial statements and the relatively abrupt change in leadership suggest that the business remains in peril. Plus, the current market valuation makes TUP a microcap, not because it’s a small operation but because it’s distressed. At this stage, we can’t rule out a bankruptcy or a substantial dilution of current shareholders in my view. Either scenario should bring capital losses.

Furthermore, TUP’s revenue trajectory was already lackluster. As you can see in the figure above, since roughly 2013, the company has experienced a substantial and consistent decline in revenues . Thus, no matter how you look at it, it’s unreasonable to be bullish on the company until we get updated information in February 2024. Therefore, I think a “sell” rating is appropriate for TUP, but not a “strong sell” as its valuation is already incredibly depressed. I’d only argue against shorting the stock mostly due to its highly depressed valuation and high beta of 2.79 . This makes TUP precisely the type of stock that can get significant oversold short-term bounces as it heads lower on higher timeframes, making it unfit for shorting.

Conclusion: Not Worth It

Overall, the picture for TUP remains bleak. There’s little to be optimistic about, and there are red flags that investors can’t possibly dismiss. However, at the current valuation, I don’t see it as a great shorting opportunity but rather a bearish outlook. This is why I believe a “sell” rating and not a “strong sell” stance is warranted. The next update on February 2024 will be key to determining whether TUP can recover from its desperate position. Until then, I think staying away from the company is better. It’s not worth the risk.

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