Tupperware stock craters after company warns its debt burden may force it out of business

Sales slowed in Asia Pacific and North America, and were weak in Europe where the Russia war on Ukraine is playing out, he said. China was a disappointment, thanks to COVID-related lockdowns which continue to hurt sales. Those trends were partially offset by growth in South America, but the strong dollar partially offset that positive and is expected to remain a negative going forward.

Tupperware
TUP,
-41.66%
was also hurt by actions it’s taking as part of a turnaround plan, said Fernandez. These included “pricing decisions” to protect margins in North America, and information-technology (IT) upgrades that created service issues that hurt sales. The company raised prices by an average of 11% to combat inflation, he said.

“Rest assured that we remain keenly focused to right size our business and find the necessary investment dollars to support future growth,” he told analysts.

From the archive: You won’t believe what Tupperware says is a key challenge

One key move is the start of sales at 1,900 Target Corp.
TGT,
-2.67%
stores in the U.S. which kicked off at the start of the current quarter. That’s part of a strategy of reducing the company’s dependence on direct selling, which trade groups note accounts for a tiny portion of overall retail sales.

“This is an important step in re-engaging with today’s shoppers, particularly GenZs and millennials, more affluent consumers who probably have never been to a Tupperware party,” said Fernandez. “We think it’s critical to reach out to a younger and more affluent consumers, and bring them into our ecosystem.”

Several analyst questions on the call focused on the company’s debt and its efforts to squeeze concessions from its bank lenders so it can remain compliant with financial covenants.

The company had total debt of $704 million at the end of the quarter, up from $684.8 million a year ago. Cash flow from operations was an outflow of $65.8 million year-to-date, driven by higher working capital and lower earnings.

A recent credit agreement amendment calls for Tupperware to reduce its maximum leverage ratio from 4.50 times in the third quarter to 4.25 times in the following two quarters, and Chief Financial Officer Mariela Matute acknowledged that is unlikely. The company said in its earnings release that the issue “raises substantial doubt” about its ability to continue as a going concern.

On the analyst call, Matute sought to reassure investors that the company will manage the issue.

“We’re taking a proactive approach and started discussions with the banks to create additional flexibility as we continue to right size the business due to our current revenue trends,” she said.

Tupperware “has been here before,” she added, referring analysts to the period in 2020 when the company had to cut more than $150 million of costs.

“And currently, we have plans to take more than $100 million of fixed cost out over the next three years and expect every investor will return,” she said.

Before Wednesday’s opening bell, the company said that it swung to third-quarter net income of $16.8 million, or 38 cents a share, from a loss of $86.1 million, or $1.63 a share, in the same period a year ago. When counting only continuing operations, the company swung to a net loss of $3.8 million from income of $60.4 million.

Excluding nonrecurring items, adjusted earnings per share fell to 14 cents from $1.19 a year ago, and missed the average EPS estimate of two analysts of 42 cents, according to FactSet.

Revenue dropped 20% to $303.8 million, below the average analyst estimate of $316.1 million, FactSet said.

Tupperware stock has fallen 70% in the year to date, while the S&P 500
SPX,
-2.50%
has fallen 19%.