TUPPERWARE
(NYSE-TUPFounded1946 by New Hampshire inventor Earl Silas TupperHeadquartersOrlandoAnnual sales$1.1 billionCEOE.V. "Rick" GoingsIndependent salespeople1.2 million in 100 countriesAverage 90-minute party sales$400Stock price
(52-week range)$12.05 to $17.53Over the past half-century, the Tupperware party has served the company well. Worldwide sales are $1.1 billion. But two years ago, in an effort to develop new sales channels in the U.S., Orlando-based Tupperware broke with its tradition and began selling about 50 of the 250 items it makes through Target retail outlets.
As part of the Target deal, Tupperware sales reps were on hand at the stores to explain and demonstrate the product, much as they do at their home parties. Target sent out 55 million circulars letting shoppers know that they could buy Tupperware products at Target stores.
But the deal proved disastrous. Tupperware's sales force found the store setting uncomfortable, says Jane Garrard, Tupperware's director of investor relations. And for many shoppers, the Target deal created the perception that the Tupperware party was passe. Party bookings dropped precipitously.
Tupperware pulled all of its products off Target shelves by the end of September -- but not before causing longer-lasting damage. U.S. sales, which accounted for about 25% of Tupperware's overall revenue in 2002, were expected to be down 30% last year. The main culprit: The company's active sales force -- the hardcore group of independent reps who actually sell something -- shrunk, down 19% through the first nine months of 2003.
"We underestimated the damage that being in Target had done to Tupperware's direct selling franchise, and hence the amount of time and money it will take to turn the ship around," Douglas M. Lane, an analyst at Avondale Partners, wrote in a September research report. "It's now apparently going to be at least another six to eight months before we see meaningful signs of improvement."
Tupperware operations overseas, especially in Europe, and the company's recent acquisition of a cosmetics direct-sales business called BeautyControl have been showing relatively robust gains. But the deteriorating condition of the U.S. Tupperware business has continued to be a drag on the company's overall performance. The company expected to earn about 80 cents a share last year, a nearly 40% drop from the $1.30 in 2002.
Steady slide
Tupperware's financial woes began surfacing before last year; the Target venture just added to the concern. Operating margins, as measured by Standard & Poor's Rating Services, for the U.S. business have steadily eroded each of the past five years, from 18.8% in 1999 to 12% for the nine months ended Sept. 30, 2003.
Consequently, S&P lowered Tupperware's debt rating late last year from the lowest investment-grade to the highest non-investment grade. Tupperware had about $305 million in total debt. The "junk" bond rating likely will mean higher borrowing costs. In its report, S&P said the downgrade "reflects Tupperware's weakened operating and financial performance and S&P's expectation that the company will continue to struggle as it attempts to restore its core food storage party business, primarily in the U.S."
Some factors, such as severe weather last year and the war in Iraq, have hurt Tupperware sales. But, notes S&P analyst Jean Stout, other direct-sales companies, such as Avon and Mary Kay, aren't suffering. "Tupperware's margins are down. Sales are stagnant," Stout says.
Tupperware CEO E.V. "Rick" Goings declined an interview for this article. In a conference call with investors and analysts, Goings said the company is working hard at rebuilding its sales force. But the sales force won't be back to the levels needed to produce sales and profit growth until mid-2004.