$TUP An American Icon In Ruins
Going short on Tupperware Brands Corporation (NYSE: TUP) may at first seem absurd given the stock’s recent 428% run, however, due to the company’s current circumstances a short play could be viable for multiple reasons. TUP’s sales have dwindled significantly since the pandemic due to its lack of adaptability. Additionally, the company is late in filing its earnings reports which could lead to delisting and the stock plummeting. Having said that, TUP has nearly $700 million in long-term debt and leasing obligations that it needs to pay to avoid bankruptcy. Given the company’s failing business model, it may be unlikely for the company to pay off its debt and instead seek relief by filing for bankruptcy. For these reasons, shorting TUP stock may prove to be profitable for investors.
TUP Fundamentals
At first glance, TUP may seem like a solid investment due to the iconic nature of its products and its rich 70-year history. Be that as it may, despite its past resiliency the company is exhibiting undisputable signs of decay, chief among them, is that it has not filed its 2022 annual report or its Q1 2023 report yet – making its Q3 2022 report its latest financial report. In that report, the company witnessed a drastic YoY plunge in sales from $376.9 million to $302.8 million due to outdated business practices and pricing issues.
Since then, TUP has negotiated an amended credit agreement that alleviates debt in order to navigate through its going concern status and has resorted to liquidating real estate properties to raise capital. That being said, TUB forecasts that it will have insufficient liquidity to pay off its interest payments in July which is an extremely bearish indication for the company since it hints at the possibility of bankruptcy.
Archaic Sales & Outrageous Prices
How did TUP end up in this position? Well, there are two overarching reasons. The first is the fact that TUP’s business model is outdated which resulted in insufficient marketing and subpar distribution. TUP’s archaic retail model does not rely on stores, instead, it relies on a direct sales force that resorts to tactics like throwing Tupperware parties. Recently, TUP started leaning on big wig retailers like Target, however, it was too late by then, which is why it only generates 1-2% of its revenue from these retailers.
It is worth mentioning that TUP has started to put more effort into selling its products online, however, it may be too late for the brand to recover. Decades of outdated business practices have taken a toll on the brand’s visibility and its online presence does not solve its second overarching problem, which is its pricing.
As things stand, most of TUP’s products are priced between $20-$40, with some products reaching prices as high as $80 and $100. Currently, plastic containers are a dime a dozen. Why pay $20 for a container when one can just go to a dollar store to get one for little more than a dollar? It is also worth noting that exporting Tupperware would amplify this pricing issue which means that entering foreign markets may be out of the question for TUP. All in all, in order for TUP to efficiently sell its products it will have to drastically lower its prices and overhaul its business model to compete in the market.
Counter Measures & Pending Calamity
In an effort to minimize its losses, TUP sold its central properties in central Florida and placed a sale-leaseback agreement on its headquarters to obtain liquidity back in 2021. That said, the company was not able to turn itself around since then which is indicated by TUP’s report in which it predicted material losses in revenue.
TUP stated that its Q1 revenue is expected to be around $280–$290 million. In an attempt to manage its declining health, the company signed on investment bank Moelis & Co LLC to explore strategic alternatives. Given this information, bankruptcy is a likely scenario for TUP, especially since it has $687.8 million in long-term debt and lease obligations, six times more than its $102.9 million cash balance.
A compounding factor in this assessment is TUP’s amended credit agreement. The agreement does have its benefits since it increased its leverage ratio which is a ratio that contrasts debt to a company’s assets. It is calculated by putting debt over assets -Debt/Assets. The agreement increased the company’s permitted leverage ratio to 5.25% in Q4 2022. This was critical since TUP’s Q4 leverage ratio was 4.9%, which is a clear violation of the previous agreement’s 4.25% maximum.
Despite that, the deal is extremely harmful to TUP since it shortened the debt’s maturity date from November 23, 2025, to July 31, 2025, and increased interest payments. The increase in interest payments relates to SOFR which is the cost to borrow cash overnight collateralized by the U.S Treasury securities. This means that as interest rates increase, so do TUP’s interest payments.
Under the old agreement, TUP was set to pay a SOFR rate of +2.75%. Meanwhile, the new agreement stipulates that the company will pay a SOFR rate of +6.25% in 2023 and the SOFR rate will further increase to +7.5% in 2024 and +8% in 2025.
In short, the deal is set to permit TUP to finance itself with more debt in exchange for a shortened maturity date and increased interest rate. Its current fiscal trajectory is unsustainable which is why if TUP continues down its current path, the company might implode.
The Filing Dilemma
Another issue that TUP stock faces is a possible delisting because of NYSE guideline violations due to issues filing its 2022 annual report and its Q1 2023 report. Generally, filing deadline regulations indicate that a 10-K must be submitted 90 days after the end of its fiscal year and a 10-Q must be submitted 60 days after the end of its quarter. As things stand, TUP has not filed its 10-K which was due on April 1, 2023.
Additionally, it has not filed its Q1 2023 report which was due on May 30th. Currently, the company intends to file its 2022 annual report in August 2023 and its Q1 2023 report in September. However, it is important to note that the company had violated its previous filing deadlines. If TUP violates its own deadline again, the stock could potentially be delisted and end up as an OTC stock which will likely cause the stock’s PPS to plummet.
Risks
As things stand, TUP stock has a low float of 44 million shares and is heavily shorted with short interest at 29% and 31.4% of its float on loan. With utilization rate extremely high at 100%, TUP stock is likely to witness short squeezes as shown by its recent run which makes shorting the stock a risky decision. For this reason, investors shorting the stock should set stop losses to mitigate the risk of short squeezes occurring.
TUP Financials
According to its Q3 2022 report, TUP experienced a significant decrease in its assets from $1.25 billion in Q4 2021 to $1.05 billion due to its cash balance decreasing from $267.2 million to $102.9 million during the same period. This decline in its cash balance is likely due to the company paying off a portion of its long-term debt, leasing obligations, and current liabilities which decreased from $555 million to $374 million over the same period. Having said that, total liabilities declined from $1.4 billion to $1.2 billion as a result of the decrease in current liabilities.
Due to the aforementioned issues regarding sales and pricing, TUP experienced a devastating YoY decrease in revenue from $376.9 million to $302.8 million. Meanwhile, its operating costs declined from $190.7 million to $175.6 million most likely due to rightsizing. In this way, the company's net loss of $86.1 million in Q3 2021 turned into a net income of $16.8 million in Q3 2022.
Technical Analysis
TUP stock is in a neutral trend and is trading in a sideways channel between its support at $2.53 and its resistance at $3.73. Looking at the indicators the stock is trading above the 200, 50, and 21 MAs which is a bullish indication. Meanwhile, the RSI is overbought at 71 and the MACD recently turned bearish.
As for the fundamentals, TUP stock may be poised for a sharp drop given that it is highly likely the stock gets delisted or the company declares bankruptcy since its current cash balance is not enough to pay off July's interest payments. For this reason, taking a short position in TUP stock may prove to be a profitable decision.
With this in mind, a good entry point could be at the current PPS and take profits on retests of the 50 and 200 MAs, while leaving a tail in case the company files for Chapter 11. Meanwhile, a stop loss could be set at $3.3 since breaking above that level would indicate that there is strong buying action which could see the stock continue its run.
TUP Forecast
As is, TUP is likely to implode due to its overwhelming debt, as in its current circumstances, the company is likely incapable of paying its debt obligations. The company's revenue has constantly dwindled due to outdated business practices as well as pricing issues and it does not have enough liquidity to cover its interest payment for July. Taking all these factors into consideration the company is likely to go bankrupt which makes shorting TUP stock a potentially profitable decision.
TUP Fundamentals
At first glance, TUP may seem like a solid investment due to the iconic nature of its products and its rich 70-year history. Be that as it may, despite its past resiliency the company is exhibiting undisputable signs of decay, chief among them, is that it has not filed its 2022 annual report or its Q1 2023 report yet – making its Q3 2022 report its latest financial report. In that report, the company witnessed a drastic YoY plunge in sales from $376.9 million to $302.8 million due to outdated business practices and pricing issues.
Since then, TUP has negotiated an amended credit agreement that alleviates debt in order to navigate through its going concern status and has resorted to liquidating real estate properties to raise capital. That being said, TUB forecasts that it will have insufficient liquidity to pay off its interest payments in July which is an extremely bearish indication for the company since it hints at the possibility of bankruptcy.
Archaic Sales & Outrageous Prices
How did TUP end up in this position? Well, there are two overarching reasons. The first is the fact that TUP’s business model is outdated which resulted in insufficient marketing and subpar distribution. TUP’s archaic retail model does not rely on stores, instead, it relies on a direct sales force that resorts to tactics like throwing Tupperware parties. Recently, TUP started leaning on big wig retailers like Target, however, it was too late by then, which is why it only generates 1-2% of its revenue from these retailers.
It is worth mentioning that TUP has started to put more effort into selling its products online, however, it may be too late for the brand to recover. Decades of outdated business practices have taken a toll on the brand’s visibility and its online presence does not solve its second overarching problem, which is its pricing.
As things stand, most of TUP’s products are priced between $20-$40, with some products reaching prices as high as $80 and $100. Currently, plastic containers are a dime a dozen. Why pay $20 for a container when one can just go to a dollar store to get one for little more than a dollar? It is also worth noting that exporting Tupperware would amplify this pricing issue which means that entering foreign markets may be out of the question for TUP. All in all, in order for TUP to efficiently sell its products it will have to drastically lower its prices and overhaul its business model to compete in the market.
Counter Measures & Pending Calamity
In an effort to minimize its losses, TUP sold its central properties in central Florida and placed a sale-leaseback agreement on its headquarters to obtain liquidity back in 2021. That said, the company was not able to turn itself around since then which is indicated by TUP’s report in which it predicted material losses in revenue.
TUP stated that its Q1 revenue is expected to be around $280–$290 million. In an attempt to manage its declining health, the company signed on investment bank Moelis & Co LLC to explore strategic alternatives. Given this information, bankruptcy is a likely scenario for TUP, especially since it has $687.8 million in long-term debt and lease obligations, six times more than its $102.9 million cash balance.
A compounding factor in this assessment is TUP’s amended credit agreement. The agreement does have its benefits since it increased its leverage ratio which is a ratio that contrasts debt to a company’s assets. It is calculated by putting debt over assets -Debt/Assets. The agreement increased the company’s permitted leverage ratio to 5.25% in Q4 2022. This was critical since TUP’s Q4 leverage ratio was 4.9%, which is a clear violation of the previous agreement’s 4.25% maximum.
Despite that, the deal is extremely harmful to TUP since it shortened the debt’s maturity date from November 23, 2025, to July 31, 2025, and increased interest payments. The increase in interest payments relates to SOFR which is the cost to borrow cash overnight collateralized by the U.S Treasury securities. This means that as interest rates increase, so do TUP’s interest payments.
Under the old agreement, TUP was set to pay a SOFR rate of +2.75%. Meanwhile, the new agreement stipulates that the company will pay a SOFR rate of +6.25% in 2023 and the SOFR rate will further increase to +7.5% in 2024 and +8% in 2025.
In short, the deal is set to permit TUP to finance itself with more debt in exchange for a shortened maturity date and increased interest rate. Its current fiscal trajectory is unsustainable which is why if TUP continues down its current path, the company might implode.
The Filing Dilemma
Another issue that TUP stock faces is a possible delisting because of NYSE guideline violations due to issues filing its 2022 annual report and its Q1 2023 report. Generally, filing deadline regulations indicate that a 10-K must be submitted 90 days after the end of its fiscal year and a 10-Q must be submitted 60 days after the end of its quarter. As things stand, TUP has not filed its 10-K which was due on April 1, 2023.
Additionally, it has not filed its Q1 2023 report which was due on May 30th. Currently, the company intends to file its 2022 annual report in August 2023 and its Q1 2023 report in September. However, it is important to note that the company had violated its previous filing deadlines. If TUP violates its own deadline again, the stock could potentially be delisted and end up as an OTC stock which will likely cause the stock’s PPS to plummet.
Risks
As things stand, TUP stock has a low float of 44 million shares and is heavily shorted with short interest at 29% and 31.4% of its float on loan. With utilization rate extremely high at 100%, TUP stock is likely to witness short squeezes as shown by its recent run which makes shorting the stock a risky decision. For this reason, investors shorting the stock should set stop losses to mitigate the risk of short squeezes occurring.
TUP Financials
According to its Q3 2022 report, TUP experienced a significant decrease in its assets from $1.25 billion in Q4 2021 to $1.05 billion due to its cash balance decreasing from $267.2 million to $102.9 million during the same period. This decline in its cash balance is likely due to the company paying off a portion of its long-term debt, leasing obligations, and current liabilities which decreased from $555 million to $374 million over the same period. Having said that, total liabilities declined from $1.4 billion to $1.2 billion as a result of the decrease in current liabilities.
Due to the aforementioned issues regarding sales and pricing, TUP experienced a devastating YoY decrease in revenue from $376.9 million to $302.8 million. Meanwhile, its operating costs declined from $190.7 million to $175.6 million most likely due to rightsizing. In this way, the company's net loss of $86.1 million in Q3 2021 turned into a net income of $16.8 million in Q3 2022.
Technical Analysis
TUP stock is in a neutral trend and is trading in a sideways channel between its support at $2.53 and its resistance at $3.73. Looking at the indicators the stock is trading above the 200, 50, and 21 MAs which is a bullish indication. Meanwhile, the RSI is overbought at 71 and the MACD recently turned bearish.
As for the fundamentals, TUP stock may be poised for a sharp drop given that it is highly likely the stock gets delisted or the company declares bankruptcy since its current cash balance is not enough to pay off July's interest payments. For this reason, taking a short position in TUP stock may prove to be a profitable decision.
With this in mind, a good entry point could be at the current PPS and take profits on retests of the 50 and 200 MAs, while leaving a tail in case the company files for Chapter 11. Meanwhile, a stop loss could be set at $3.3 since breaking above that level would indicate that there is strong buying action which could see the stock continue its run.
TUP Forecast
As is, TUP is likely to implode due to its overwhelming debt, as in its current circumstances, the company is likely incapable of paying its debt obligations. The company's revenue has constantly dwindled due to outdated business practices as well as pricing issues and it does not have enough liquidity to cover its interest payment for July. Taking all these factors into consideration the company is likely to go bankrupt which makes shorting TUP stock a potentially profitable decision.