Case Study – What Happens When a Great Brand Has an Outdated, Broken Business Model
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Case Study – What Happens When a Great Brand Has an Outdated, Broken Business Model
Or Why Tupperware Investors Are Not Having a Party
Note: This originally ran on April 11 before I was publishing on Substack. I’ve been following Tupperware for years, going back to my days doing short-biased research. I feel it’s worth republishing, and adding it to my “Case Studies” section, which might as well be called, “Investor Education.” P.S.: I’ve revised this version slightly to update for recent events.
Just because a brand is great, doesn't mean it's a good investment...
The most compelling example today is Tupperware Brands (TUP), which is no stranger to my Empire Financial Daily readers… and likely no stranger to anybody.
It’s a tale worthy of being told and retold, and a lesson that should never be forgotten.
And it’s best told going backwards…
For our purposes, this story starts on April 7, when Tupperware issued a regulatory filing saying that there's substantial doubt it can continue as a going concern – that is, whether it can even manage to stay afloat. I would call this the regulatory filing from hell… every company’s worst nightmare.
With $700 million in long-term debt and a market capitalization of just about $110 million, the company said it's not in compliance with New York Stock Exchange listing standards and that it's "doing everything in its power to mitigate the impacts of recent events" – including seeking additional funding.
It also warned that it would likely be in violation of loan covenants, and reminded everybody that less than a month earlier it had disclosed that its financial statements from 2020, 2021 and the first three quarters of 2022 “were materially misstated and therefore the financial statements should be restated and no longer relied upon.”
Mind you, this is the very same company whose board in February had authorized a $75 million stock buyback. The reason, its CEO said, was its confidence "in our early outlook of the year." Never mind that it didn't have the cash flow or balance sheet to do one.
(Tupperware is a classic example of why you should always run – not walk – from financially hobbled companies that announce buybacks as a sign of confidence. In reality, the mere announcement is usually a sign of desperation. But I digress…)
This is all just the latest in the ongoing saga of Tupperware, whose business model despite the iconic nature of its brand has been broken for years...
Last May, I gave a full rundown on how Tupperware’s stock unwound, in part because the days of Tupperware parties have passed it by... not just in the U.S., but across the globe.
What many people don’t remember was that in early 2020, just before the pandemic hit, Tupperware appeared to be on its death bed. Its stock had sunk to levels not quite as low as it is today, before skyrocketing seemingly overnight.
Tupperware swiftly became a COVID winner as people started cooking more at home, causing them to seek out containers for leftovers, and its stock rose nearly 3,000%, before plunging back to earth...
Long story short, competition can topple even the greatest brands, especially one with a model as outdated as Tupperware’s, which during the pandemic had shifted its famous Tupperware parties to Zoom.
All this while it was facing increased competition at retail from the likes of Newell Brands' (NWL) Rubbermaid, Clorox's (CLX) Glad, and Helen of Troy's (HELE) Oxo brand, among many others that are cheaper and more readily available.
But for a direct seller, beyond selling products there was also competition for salespeople. That's tough in the "gig economy,” given the rise of companies like Uber (UBER), DoorDash (DASH), and Lyft (LYFT), but also continued competition from other direct sellers... including the Pampered Chef, Perfectly Posh, and Stella and Dot.
The company has been desperately trying to turn itself around...
As part of doing so, it has started to turn to retail, currently via Target (TGT) and Amazon (AMZN). This is the second time in 20 years it has tried to sell through Target... in a sense, creating another layer of competition for itself. After one quarter, management says that Target amounts to around a mere 1% of sales.
Adding to the challenge is the downside of having a brand that has become generic. By that, I mean if you go to Target's website and type in "Tupperware," it spits out products not limited to Tupperware, but also competitors that even include Target's own house brand.
One of the trickiest parts of investing is determining if a product is a brand or a business, or worse, a fad...
Tupperware clearly isn't a fad, but it has devolved into a brand that in all likelihood shouldn't be a company. The story is in the numbers...
As of last year, Tupperware's sales had plunged by more than 50% from its 2014 highs. The company's gross margin is starting to shrink... and management says it's pulling out all stops to protect it, like plugging leaks in a dam. And it doesn't really matter, because the company is barely making money.
At this point, the question is: What happens next?
The reality is, just because Tupperware is a great brand doesn't mean things can't get worse.
Wall Street is littered with the remains of great brands whose companies didn't survive...
Among them, Blackberry, Kodak, Polaroid, Blockbuster, Toys "R" Us, Palm, America Online, and Xerox, to name a few...
That's not to say all companies that are either given up for dead or deemed fads disappear. Great examples include Crocs (CROX), Apple (AAPL), Netflix (NFLX), Monster Beverage (MNST), Starbucks (SBUX), and Chipotle Mexican Grill (CMG).
As for Tupperware, I'm sure the brand will survive, but doing so as a public company? With its stock trading for less than $1, that seems like a long shot.
(This originally ran at Empire Financial Research, where I also write two investment newsletters, Empire Real Wealth and Herb Greenberg’s Quant-X System. For more information, click here and here.)