Tupperware Brands Corporation

Greetings and welcome to the Tupperware Brands Corporation fourth quarter 2022 earnings conference call. Please note today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. At this time, I will turn the conference over to Doug Lane, Vice President, Investor Relations and Strategy. Mr. Lane, you may begin.

Thank you, operator. Good morning and welcome to Tupperware Brands' fourth quarter 2022 earnings conference call. Joining me today are Miguel Fernandez, President and CEO, and Mariella Matute, CFO. We will be available for Q&A following our prepared remarks. Earlier this morning, we issued a press release announcing our preliminary financial results for the fourth quarter of 2022, which can be found on our investor relations website. Today's release is preliminary as management completes the year-end procedures and external audit with open items mainly related to tax matters. Before we get started, please note that beginning with the 2023 first quarter earnings release, we will be changing our reporting schedule. We will continue to hold our conference call on Wednesday morning at 8.30 a.m. Eastern Time, and the 2023 first quarter is tentatively scheduled for May the 10th. However, we will issue our earnings release the night before after the market closed. We will simultaneously publish a management commentary on our website. That way, everyone will have plenty of time to digest the news and update models before the call. It would also allow us to jump right into Q&A on the call after brief introductory remarks. Now, back to this quarter just reported. Let me remind you that the following discussion and our responses to your questions reflect management's views as of today, March the 1st, 2023, and may include forward-looking statements. Actual results may differ materially from such statements. Additional information about factors that could potentially impact our financial results will be included in our Form 10-K for the 2022 fiscal year subsequent filings with the SEC and in our press release file this morning. Please review the forward-looking statement disclosure on page five of today's press release. Please note that some references are being made on a constant currency basis, which reflects the application of current period foreign exchange rate to any prior period results, enabling comparisons excluding the impact of foreign currency exchange rate fluctuations. Please also note that all references, unless otherwise noted, are being made on a continuing operations basis. During this call, we'll discuss certain non-GAAP measures, including those we refer to as normalized measures. Additional disclosures regarding these non-GAAP measures, including explanations and reconciliations of these measures to the most comparable GAAP measures, can be found in today's press release. Finally, a replay of this call will be available on our investor relations website later today. And with that, let me turn the call over to you, Miguel.

Thank you, Doug. Good morning, everyone, and welcome to our fourth quarter call. 2022 proved to be a much more challenging year than we could ever expect it. We started that year bullish on our turnaround efforts in our direct selling business. Excited to expand into new channels of distribution and cautiously optimistic that the surge of inflation in 2021 was behind us. That confidence in our early outlook of the year led us to authorize a $75 million stock buyback in February. Well, as it turned out, our initial positive outlook for 2022 changed quickly. Our excitement in general was dampened by a February conflict in Europe and the COVID lockdown in China in March. These events, coupled with ongoing inflationary pressures, strengthening dollar, and rising interest rates, had a major impact on consumers globally. and also in our financial performance throughout 2022. But as in the past, we reacted quickly to external challenges. We made meaningful leadership changes mid-year. In the second half of the year, we took further right-sizing efforts, implemented further improvements in our direct selling compensation plans, and took additional pricing actions, all while setting focus and executing our channel expansion plans. 2022, as it turned out, was a real test of our resolve to turn around this iconic company and expand it to new channels and make the company as big as the brand. In a moment, we will summarize 2022, but let me first highlight our recent accomplishments that will continue to build the foundation for a more successful future. First, increased financial flexibility. Due to our operating performance last year, our financial leverage is much higher than we would like. Late last year and nearly this year, we had discussions with our banks to amend our recent credit agreement to allow us additional financial flexibility to pursue our growth strategies and at the same time to accelerate our right-sizing efforts. The talks recently came to a successful conclusion, and we appreciate the support our lenders continue to provide us, even as market conditions became more difficult. Second, channel expansion. Despite the difficult external environment we faced throughout 2022, we did not allow those unexpected challenges to derail us from our most important growth initiative. We successfully launched national distribution in 1,900 target stores in the U.S. in early October. The results exceeded our expectations as we exited the quarter with a 10% category market share. So we're carrying good momentum into 2023. While still small, B2B sales grew strongly in the double digits in China last year, despite difficult conditions out there. And we look for another strong year in 2023. In fact, the number of our markets reporting B2B activity in 2022 was 22 markets. In total, we added 50 retail chain customers around the world. As you may imagine, selling products into retail chain is a very different proposition from operating a direct selling distribution model. As such, we're building a new consumer-facing company within our legacy direct selling consumer push company. Perhaps No better showcase for a broad strategy was the success we had in Korea last year. Korea is among the most advanced markets in the process of building an omnichannel ecosystem. In 2022, Korea surpassed Indonesia as our third largest market in the Asia Pacific region, behind China and Malaysia. In total, Korea grew 16% last year in custom currency. As core sales increased in middle, single digits, and B2B expansion, particularly TV shopping, added over 10 percentage points to growth. We're learning from this success and are sharing best practices in many markets around the world throughout this 2023. While it's still early days, this initiative has helped validate that our growth strategy to expand the consumer access to our products beyond the direct distribution channel. Third, the new product introductions. We have many successful new product introductions over the past couple of years that really gained traction last year. It's our goal to continue to move into New product categories where we believe iconic Tupperware brand may resonate with consumers. Our entry to small appliances was highlighted with our Air Fire. We launched Air Fire late 2021 in China. Due to its success, we expanded its launch to Philippines, India, Japan, and Myanmar, showing similar success. Our most successful product introduction last year was a supersonic chopper compact, which uses a pooled cord quickly and conveniently to chop up herbs and vegetables. New products accounted for 14% of sales last year. This year, we're moving into new product categories. First will be the cast iron cookware, such as Dutch ovens. Second, we'll introduce a unique reusable silicone bag that are designed to replace the single-use plastic bags. Our system has an innovative sealed system that we have filed patents for. Every year, over 500 billion single-use plastic bags are used worldwide. which is over 1 million bags every minute. At Tupperware, we're looking to reduce single-use plastic anywhere we can. Fourth, wide-sizing. As we stated in our last call, we look to spend an additional $100 million in green interim costs over the next three years. In fact, we're running slightly ahead of schedule. By the end of the program, we expect to realize more than $60 million in annual cost savings. We remain committed to right-sizing the business, including manufacturing and supply chain optimization. And fifth, new leadership. Last spring, we hired a new CFO to help us better navigate our turnaround plans. In the summer, we hired a new executive vice president of supply chain to help us optimize our supply chain network and improve service levels. We're already seeing results through our successful channel expansion activities, accelerated re-engineering efforts, and the first facility closure that we've had in five years. And finally, last quarter, we established a new position of Chief Commercial Officer, who provides holistic oversight of our commercial growth plans while delivering and simplifying our go-to-market infrastructure. Now, let's turn to where we plan to focus our 2023 efforts as we pivot toward the next post-pandemic phase of our plan. First, in our direct selling business, we're facing now the virtual starter kit that we introduced in the early stages of the pandemic. At that time, it was a way to keep the recruiting engine running during the time of limited in-person activities. However, given its relative inexpensive price point, we found that we were attracting more discount buyers with lower retention to the brand. With the elimination of the virtual kit, we expect the pendulum to gradually swing back to business building. who should also benefit from the recent return in-person events, since that's where recognition and training is most effective. While it is early days, we have already seen some prevalent movement in those selling markets where we eliminated the virtual kids. We also expect the post-pandemic phase to benefit from increased consumer mobility. Many markets in Asia, particularly China, operate through the models where are reliant on consumer food traffic. In these locations, consumers enter a location run by a member of our sales force to purchase our products. China had a very difficult 2022. Sales were down 27% on the year a zero COVID policy impacted consumer access to our products. Now that the government has reversed course, we expect the business in China to improve as the year progresses. But market conditions there remain uncertain. One bright spot has been the adoption for a digital tool in ETOP during the lockdowns, making China among the most advanced markets with regards to the utilization. Our initiatives for 2023 in China include accelerating the dilution trend to improve retention and productivity, new products launches such as cast iron cookware, on-the-move drinking bottles, and small appliances, B2B channel expansion, including e-commerce, and optimizing our cost structure and working capital to improve cash flow. Elsewhere among our big four, the U.S. and Mexico were impacted by low recruiting and overall sales force productivity, as well as lower volumes due to price increases. The U.S. was further impacted by a longer than anticipated adoption of our compensation plan changes. Sales in the U.S. were down 19% in 2022, and Mexico was down 7%. Our focus for 2023 in the U.S. will be twofold. First, improve service both in product delivery and systems reliability. While we're entering the year with a smaller Salesforce, we have created a space for new members to make money from day one, so we think retention and productivity will improve. We believe that a greater number of in-person events coupled with a promotional activity that increases the income to the lower-level Salesforce members should help drive top-line growth this year. Second, we will continue to invest in our need-to-be efforts in retail and home TV shopping. In Mexico, we will introduce new products in our core food storage categories, such as packable freezer mates and cold savers. as well as one-touch fresh food, storage containers with easy-to-close and open lids, which is one of our newest global products. This, along with an improved service, should drive growth towards the second half of the year. Brazil ended the year with a good momentum as sales were up 15% in the fourth quarter, which we're currently expecting to carry into 2023 for the direct selling business. Added to that, Brazil is pursuing opportunities in e-commerce, loyalty programs, top of our stores, premium brand partnerships, and retail B2B. Finally, it's worth noting that Brazil and Mexico together account for over a quarter of sales and even more of our operating cash flow, and they remain very healthy and profitable direct selling business. Now over to you, Mariela.