Having fallen 47% in the last year, food storage products manufacturer Tupperware Brands Corp. (TUP, Financial) could offer turnaround potential.
The company is implementing a revised strategy that could strengthen its competitive advantage. For example, it is investing in new technology to improve the customer experience. It is also seeking to become increasingly innovative in terms of the types of products it sells, as well as the materials it uses.
While its recent financial performance has been disappointing, the stock has a low valuation and is expected to post earnings growth next year.
Having underperformed the S&P 500 by 57% in the last year, the stock could have investment potential.
Increasing innovation
An increasing focus on innovation could widen Tupperware’s economic moat. The company has invested in several new designs in recent quarters that have won numerous awards. They are expected to drive consumer demand, with new products such as an updated version of its water filter in China and a cold brew carafe in the U.S. slated for release later this year.
In addition to new products, the company is seeking to introduce increasingly innovative materials by working closely with its suppliers. For example, it plans to introduce a new circular material made from mixed plastic waste. As envioronmental concerns are growing, this could resonate with consumers.
The company is also updating its business model, aiming to reduce administrative functions to improve efficiency while utilizing competitive analysis to ensure a solid value chain. It is also introducing standardized software across its international operations that will allow it to adapt more quickly to changes in consumer tastes.
Technological changes
Tupperware is planning to launch a new e-commerce website in August. As part of this initiative, it intends to leverage influencer marketing and ad targeting in order to increase consumer awareness of its new products. It is also integrating a new platform called TupSocial, which allows its sales force to reach prospective customers through social media sites. This could increase the size of the company’s active sales force, while improving its efficiency and effectiveness.
New technology will also be used to improve the customer experience. The company recently launched personalized emails on behalf of the sales force manager in the U.S. and Canada. This has delivered a 10% to 15% increase in new sales force activation, with the program expected to be launched in Europe later this year. This could strengthen the productivity of its sales force and lead to a competitive advantage versus industry peers.
Risks
Tupperware's recent financial performance has been disappointing. Sales in the most recent quarter declined 2% on a constant currency basis, with a drop in volume being the key contributor. This trend could continue over the near term as key markets such as Mexico and Brazil are experiencing geopolitical uncertainty.
In addition to falling sales, the company’s gross margin declined 10 basis points to 66.9% in the most recent quarter. The company was unable to offset cost inflation in a number of markets through price increases. Further inflationary pressure expected in the current year.
In order to boost volumes, Tupperware is expanding its experience studios. They provide consumers with visibility and ease of access to its brand, which makes it simpler for its sales force and customers to connect. Its goal is to increase the number of experience studios from 300 to 1,000 by 2022. They are expected to boost volumes, while helping to improve brand awareness and customer loyalty. This may provide scope for increased pricing power over the long run.
Outlook
In the next fiscal year, Tupperware is guiding for 5% earnings per share growth. While this is a relatively low rate of growth, its price-earnings ratio of 7.7 suggests it could offer good value for investors.
Plans to release increasingly innovative products and the use of new materials could enhance its financial performance over the long run. Investing in improved technology as part of a focus on strengthening the customer experience could lead to a greater competitive advantage and higher profitability.
Having significantly underperformed the S&P 500 in the last year, Tupperware's valuation and strategy changes suggest it could have recovery potential.
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