The tale of this stock is also a tale of this market, filled with irony
The tale of this stock is also a tale of this market, filled with irony
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Compensation in Context Newsletter
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How the Stock of an Iconic Brand Unwound

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May 11, 2022 

Deepest thanks to our friend and colleague Herb Greenberg

The tale of this stock is also a tale of this market, filled with irony and luck...
I call it the "Tale of the TUP"... I'm talking about Tupperware Brands (TUP), the company whose iconic brand has become the Kleenex of plastic storage containers.
Last week, Tupperware reported extremely disappointing first-quarter results – so bad that the company withdrew guidance, blaming a variety of things... including the effect of COVID-related lockdowns in China and the "knock-on effect" of the conflict in Ukraine.
Meanwhile, inflation and freight costs were among the culprits hurting margins – all of this happening at the end of the quarter. Management also cited "outdated field management processes."
Reading between the lines, it appears that management was caught by surprise and that something much worse might be simmering under the surface.
Consider this comment by Executive Vice Chairman Rich Goudis (emphasis added)...
Management has been digging in deeper to further understand the root causes for its missed revenue assumptions, modifying strategic and investment decisions to fix any foundational issues, and they are making the necessary changes to help improve profitability.
And this one from CEO Miguel Fernandez, who was quoted in the earnings release as saying (emphasis added)...
This quarter illuminated elements within our core direct selling business that still require fundamental improvement, and we are refocusing our efforts to address them.
That management was even caught by surprise is in itself surprising.
After all, this is a company that supposedly has been in 'transformation' and 'turnaround' mode under a new management team for two years...
Trouble at Tupperware is nothing new. We had red-flagged it back in 2017 at Pacific Square Research, the short-biased research firm I co-founded but have since departed. At the time, the stock was in the $60s... on its way down to almost $1.
As the financial results went on to prove, the company's Tupperware Party business model was broken... not just in the U.S., but across the globe.
And not just because its core direct-selling model was increasingly challenged, but something more basic – lots more competition at retail from the likes of Rubbermaid, Glad, and Helen of Troy's (HELE) Oxo brand, among many others.
Since it's a direct-selling business, Tupperware also faces competition for salespeople – which isn't easy in the gig economy, especially in the U.S. from the likes of Uber (UBER), DoorDash (DASH), and Lyft (LYFT), but also other direct-sellers... including the Pampered Chef, Perfectly Posh, and Stella and Dot.
But none of that mattered, certainly not at the beginning of 2020...
Long before "meme stock" madness had kicked into high gear, a series of events collided to turn Tupperware into one of the first meme stocks, with an ironic twist missed by most folks.
That story began just as the pandemic was starting to pound away.
At the start of 2020, a long-beleaguered Tupperware brought in a new management team, led by two seasoned multilevel marketing execs from Avon and Herbalife Nutrition (HLF).
There was clearly a big opportunity here for investors, but especially for executives, whose performance stock units had been set at seemingly realistic levels.
For the two top executives, whose options were set at $2.27, that amounted to less than a mere doubling to $4 to reach the first tranche. Short of the company devolving into bankruptcy, that seemed more than possible given the iconic nature of the brand... and since just a few years earlier, this was a $70 stock.
If nothing else, it would seem, the company could be sold... Surely someone would want the Tupperware brand.
As the below chart from the 2021 proxy shows, the higher the stock rose, the more stock the execs could get – a potential windfall as long as the stock didn't do a complete round trip.
    Compensation in Context Newsletter - Executive Pay
    For other executives, the first hurdle was $3. The only catch for everybody was that it had to stay there for 30 consecutive days, and these folks had to remain at the company for three years.
    Well, the story is in the stock chart...
    Take a look...
      Compensation in Context Newsletter - Executive Pay
      That gets to the role luck played here.
      With the pandemic forcing workers to stay at home, there was a surge in demand for all things food storage... and Tupperware was a beneficiary, making it perfect for the stay-at-home Robinhood (HOOD) crowd.
      Then there was the irony, which fell through the cracks of coverage...
      Fueling the stock's rise – and no doubt, a squeeze of anybody short – was an investment by none other than Melvin Capital, which bought a 7.5% stake shortly after management arrived while the share price was in the mid-single digits. Here was Melvin, itself almost squeezed out of business because of its short on GameStop (GME), and it was long a stock that was fueled by its own momentum.
      At the time, Melvin had quite a following among hedge funds, who seemed to pile in on its coattails.
      There's no question Tupperware was a great story... but it was just that – a story. Its pandemic-driven growth was unsustainable... and likely obfuscating the underlying challenges the "transformation" faced.
      Nothing sums just how challenged this company's "transformation" is more than this comment by an executive on the most recent earnings call, in reference to rising prices...
      It's also worth noting that much of our business still relies upon physical printed catalogs which are printed only a few times in a year in many markets, causing changes to be slow.
      To which I want to scream: They're just figuring this out?
      Perhaps more troublesome is that the turnaround plan includes eventually selling Tupperware at retail, which could backfire on its mom-and-pop "Tupperware Party" salespeople.
      The direct sales force is the lifeblood of any direct-sales company, and at Tupperware, it has been unwinding for years...
      As of last quarter, it was down 14% from the prior year and 43% from the same period in 2019.
      Fact is... Tupperware's stock didn't implode for no reason before new management arrived. Even strong brands have their limits, and Tupperware peaked years ago.
      Maybe current executives will figure it out, maybe they won't. But as long as the stock stays above $2.27 per share, they walk away winners. The higher, the better.
      Oh, and as for Melvin... it sold its out just about at Tupperware's peak in the mid-$30s early 2021 for an enormous profit – of course, at roughly the same time it closed out its losing short on GameStop, which nearly put it out of business.
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