Q2 2021 Tupperware Brands Corp Earnings Call
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Good day on thank you for standing by at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need to press star 1 on your telephone if you require any further assistance. Please press star here.
I would now like to hand, the conference over to your first speaker of today gain Girard Vice President of Investor Relations. Thank you. Please go ahead.
Thank you operator, welcome to Tupperware brands second quarter 2021 earnings Conference call.
With me on today's call on Miguel Fernandez, our president and CEO, and Sandra Harris, our chief financial and operations Officer.
Earlier. This morning, we issued a press release announcing our financial results for the second quarter ended June 'twenty, 6.2020 1.
The press release is available on our company website on our Investor Relations page.
We will begin with our safe Harbor statement.
During the course of today's call. We will make forward looking statements that are subject to risks and uncertainties as described in our press release and in our SEC filings.
You should listen to today's call in the context of that information.
We will also discuss some of our results for the quarter on a non-GAAP basis.
Reconciliations between GAAP and non-GAAP measures can also be found in our press release.
Any reference to sales in the discussion today is referring to local currency sales, which compares results between periods as the current period foreign exchange rates had been the exchange rates in the prior period.
You can access the release and our forward looking statement language from the Investor Relations section of the company website, where you can also access a webcast replay of this call later today.
I will now turn the call over to Mcgill for his remarks.
Thank you Jane and good morning, everyone.
We're now over 15 months into our 3 year turnaround plan and we continue to make progress across many areas of the business cost structure capital structure fixing the core direct selling business on creating the ability to take our iconic brands into new channels of distribution.
During the quarter, we continued to make the necessary investments that we believe will driver of future growth from both our current direct from the business on order of business expansion efforts.
Adding new talent on investing in our core infrastructure.
Such as marketing sales and support functions to evolve to a consumer centric on Omnichannel business.
We right sized the business on strengthening our balance sheet in 2020 to make the needed investments in 2021, the will enable us to accelerate growth in 2022.
As we continue to attract new investors toward turnaround story.
I'd like to remind you of the key elements of our strategic growth plans are well underway today, we're pivoting from a distributor push to a consumer pull on distributor push model. We're updating of our Brian of architecture to allow us to segment Randy products channels on pricing to appeal to a broader consumer base while the.
Minimizing potential channel conflict.
We're expanding into new product categories, where consumers give us permission.
We're aligning product development efforts to address the needs of for consumers social sub segments, we're expanding the distribution and access points to meet consumers, where they shop on.
Most importantly, we're continue to fix the core direct selling business with proven methods.
The Tupperware brands is iconic we have been around for 75 years and that is for 1 primary reason our products have the loved and trusted in homes around the world for generations.
We're making new investments to build on Omnichannel business..1 of the growths are direct selling channel provides new consumers new ways to access our products and gives our brand of beer platform to nurture a better future every day.
Let me first provide you with the progress we've made in modernizing of our core direct selling business over the last year, we have implemented a suite of tools to enable our sales force to reach the the.
Customers in new and more efficient ways on honestly, it's all about Virtualized and of our sales force journey by looking at the experience from end to end on delivering the right technologies for our sales force to start grow and sustain their businesses.
Our most advanced digital tool called TUP social on it makes it easy for our sales force to grab ensure social media content to better market their businesses on.
Offerings, we have now expanded this technology into 23 markets with 2 more planned for later this year.
We're also rolling out technology and tools like Tupperware life, formerly called the top that enables our sales force to host virtual parties and it allows the customers to purchase in the moment. We have launched this in 12 markets. So far with 5 more countries coming online by year on and.
Our most recent technology addition is on on boarding tool. It helps to drive retention on performance, where our consultants come find resources for communication as well as continuing education and training.
It has been launched in 2 key markets, so far with 5 more of coming by the end of 2021.
Additionally, we now have e-commerce direct to consumer functionality available in 13 markets.
Now, let me turn to our business expansion for sales are 18% of year to date revenue on.
The include distribution channel such as business to business loyalty programs sustainability, the specialty retail such as QVC importers of retail studios in China Korea and Vietnam.
Our efforts to dramatically expand this business is rooted in our brands strategy to build the branded house, we believe creating sub brands such as Tupperware essentials on top of approach of will allow us to develop the right product mix the right pricing on expanding into new channels of distribution, while minimizing channel conflict.
Let me explain a bit more about our business expansion and drill down on some specific around more developers, our b to b relationships support of loyalty programs of major retailers, while improving our brand presence.
We're making good progress developing more relationships with large retailers in Brazil, Mexico and Europe.
Our <unk> sales have historically been between 30% and $35 million annually and we expect this to be over $50 million. This year.
Another important part of the business expansion strategy is moving into new markets through on important model, whereby we don't have physical business presence, rather we sell tupperware branded products into markets through an agreement with an important distributor.
This products are being distributed through direct selling and in some cases through omni channel strategies.
Prior to this quarter, we sold into 2 markets through this model.
Beginning in the third quarter, we opened 2 new important markets on duress in Panama, and we hope to finalize an agreement to open a very promising market. The UK before the end of the year.
For this important markers are strategically important and provide incremental profitability in this quarter. We saw the best profitability in the last 10 years, specifically in the reported markets.
In the sustainability pillar, we're now selling our limited edition National Park, the product as part of our partnership here in the U S.
The product line includes products intended to be taken on the goal to help reduce waste in the parks of.
A number of national parks and products are made with our E coat plus materials, which is made with no debt.
Innovative sustainable materials using mixed plastic for renewable recycled materials.
This product can also be found for.
For sale at some national parks across the country for a limited time.
Now, let me provide a product of <unk> protein innovation is important to us to meet on the address the needs of all consumer social sub segments, and we're making some good progress in this area for.
For the second quarter, the percentage of sales for new products in Mexico was 11, 6% of 52% from prior year second quarter.
Brazil, New products contributed 8.3% of sales up 41% on U S and Canada contributed 3.8%, which is 38% higher than last year.
Our largest product category continues to be put conservation of 27, 5% of sales on it is 17% higher than last year, followed by entertain category at 16% of sales up 18%.
Kitchen preparation is about flat versus last year at 15, 2% on on the Gulf categories 13, 2% of our revenue and was down slightly versus last year.
I would also like to 2.
To give a brief update on our ESG environmental social and governance strategy. We have made great strides in the last quarter to refine our ESG goals, including the aligning the hour with our employees' performance objectives.
We have developed by the internal cross functional of working group to grow with the support of our board of directors to take our ESG efforts to the next level on.
Our goal is honing on our sustainability focus social impact on government efforts to align our brand purpose to nurture a better future every day.
Also we are working in this area of progress I look forward to share more on our long term ESG targets, social impact initiatives and training and education in this area.
Looking to the next few quarters, our key priorities in 2021 are the following first so it's true.
<unk>, our direct selling business in the areas of detail on product investment.
Segmentation of our sales force introducing preferred customer loyalty programs around the world use of data to identify best practices use of data to upsell and cross sell to our preferred customers and to ensure competitive service on cost.
And in the business expansion our priorities are the following.
To explore new channels of distribution avoiding a potential conflict with our current directionally on channel introduced Tupperware sub brands on penetrating into different product categories, where we know the consumers give us permission to ensure.
We believe the execution of these priorities.
Building, a strong foundation that will create meaningful value for our shareholders for years to come let me now turn the call over to Sandra Harris, our CFO and COO for a review of our financial statements.
Thanks Danielle.
Second quarter sales were $465 million, reflecting an increase of 17% compared to last year on a reported basis.
Growth in the quarter was benefited by about 7% from more favorable FX rates compared to a year ago.
Our performance in the second quarter marks the fourth consecutive quarter of double digit growth since the beginning of our turnaround plan.
The strong proof point that our strategy is working further supporting our confidence in the large growth opportunity that lies ahead for tupperware.
From a geographic perspective growth was driven by our largest market U.
The U S on Canada, Mexico, and Brazil contributed more than 80% of the dollar increase driven by the improvements, we're making to build a stronger core of direct selling business. In addition to our continued investments to support our expansion into new channels.
Some highlights on the area of business expansion.
The <unk> sales for $15 million or 3% of our revenue for Q2, and our employer market increased more than 50% of the quarter.
As Miguel mentioned business expansion is about 18% of our total sales with the b to B and employer markets, representing a significant growth opportunity for tupperware brands and represent the key growth pillar of our long term strategy.
Turning now to the revenue performance in the region.
North America increased 17% type.
<unk>, Mexico sales increased more than 20% driven by 36% growth in average active sales force.
Partially offset by a 9% decline on productivity.
The strong performance was driven by a combination of more effective utilization of data and analytics of key strategic priority for us.
New merchandising and promotional strategies.
The <unk> innovation and increase sales force adoption of digital tools, specifically in social media.
We're implementing personalized websites for our sales force of Mexico can make it easier for them to sell on place orders, which we believe will drive higher sales force productivity over time.
In the U S on Canada sales increased 12% as of 20% increase in productivity was partially offset by a 6% decrease in the average active sales force.
In Europe sales increased 17% the major contributor to growth for the quarter or <unk> of the loyalty programs up 16% in the quarter with major retailers in Germany, Austria and in our central Eastern Europe Great.
South America increase almost 50% driven predominantly by Brazil, where sales increased more than 35%.
At 22% increase in sales force activity combined with a 12% increase in productivity drove the results for the quarter.
While COVID-19 continues to negatively impact our recruitment efforts in Brazil, we are deploying retention strategies and targets in an effort to incentivize our sales force in that region.
Looking forward.
Evolving our e-commerce strategy in Brazil, as we become more consumer centric in our approach as well of initiating a <unk> loyalty program the.
These initiatives will help support a constructive growth outlook for this important market as we head into 2022.
Asia was flat excluding China.
<unk>, China, the region was down 14% compared to last year, including of more than 30% decline in China, primarily as a result of studio clothing, and a slower pace of new openings.
While disappointed with the ongoing weakness we continue to believe China holds great potential for the Tupperware brand long term.
While on the mix of a leadership change for the important growth market. The local team is working to update the look and feel.
On the retail studios to help create a more competitive franchise in the marketplace.
In China, we will begin to elevate our brand and product segmentation strategy to expand into new channels, such as E Commerce and develop flagship studios in the mall locations.
These efforts will be supported by a strong product innovation pipeline to ensure the studio owners have relevant product with competitive pricing.
Once again, we're pleased with the fourth consecutive quarter of revenue growth and now I will turn to profit.
You will continue to see the efforts of our turnaround plan.
Gross margin was 68, 3% or 200 basis points higher than a year ago, driven by the carry out of 2020 inventory at lower costs combined with the favorable impact of higher volume in our manufacturing plants.
Looking forward to the second half, we do expect higher product costs versus a year ago, primarily as a result of higher resin and logistics.
However, our turnaround plan of efforts will continue to drive efficiencies through the supply chain.
And when coupled with the impact of price increases we believe we can largely neutralized the overall impact.
SG&A as a percentage of sales of 51%, which Bennett.
Hi of favorable tax ruling in Brazil that resulted in a reversal of the prior year operating tax reserve of $10 million.
Adjusting for that 1 time nonrecurring items.
Adjusted SG&A as a percentage of sales would have been 52, 2% of cells are 140 basis points higher than last year.
The increase reflects the 120 basis points of higher freight costs, primarily in the U S and the incremental investment costs that we discussed last quarter.
Of these investments of portion comes from the add back of 25% of $193 million in growth turnaround savings. We reported in 2020 that were largely associated with COVID-19 actions.
As we previously communicated the majority of new investments related to the acceleration of tax planning strategy infra.
The infrastructure and digital investments will be in the back half of this year, along with expense timing differences shifted from the second quarter to the third.
In regard to the higher freight costs, we're experiencing the increased costs from carriers or carriers associated with the higher demand as well as Fedex surcharges that have yet to be lifted.
However, we are also seeing a shift in our business model on the U S.
In an effort to grow sales and offset the physical limitations related to COVID-19, we began shipping direct to the end consumer versus using our sales force for distribution and order fulfillment.
This resulted in more packages as our units per carton decrease from over for per carton to 1 of the half per carton.
As we shift for a more omni channel approach. We expect this trend to continue and we'll be working on ways to optimize and improve efficiencies in this area.
For the second quarter the improvements in gross profit and the onetime Brazil tax reserve reversal of 10 million contributed to an adjusted operating income of $85.8 million or 18, 5% of sales.
Allow me briefly to touch on adjusted EBITDA as I know what the metric that's important to many of our investors as we continue to delever the business and evolve the capital structure.
The trailing 12 month adjusted EBITDA at the end of June was $377 million versus last year of $214 million.
This improvement of $163 million reflects the results of the right sizing and focus on stabilizing our core business as part of our turnaround plan.
Now, let's review EPS on an adjusted basis for the second quarter.
Adjusted EPS of <unk> 95, compared to 84 cents last year.
We did benefit from the Brazil tax reversal already mentioned by 13th at the 2021 operating tax rate.
The divestiture of average lane early in 2021 negatively impacted EPS by Tucson.
Profit from higher sales were offset by a portion of the turnaround plan savings add back and also by a shift from higher profit markets, such as China to lower profit markets like the U S and Canada.
In our press release is a reconciliation of EPS and you can see that the GAAP EPS was largely impacted by prior year, 1 time items associated with the early extinguishment of the debt and the Australian property sales in the prior year.
Cash flow for the quarter was $6 million versus the $102 million last year.
Higher cash flow in the prior year was due to aggressive turnaround plan saving actions, including Covid specific actions like furloughs.
And our intense focus on liquidity through preservation of cash by lowering spending on inventory and higher payables.
In the current year for investing in inventory to improve our service levels and prepare for increased demand. While we are also returning to a more normal capital spending level as previously communicated.
And the second quarter, our total debt balance of $644 million, reflecting a reduction of nearly a $160 million from the $804 million in the second quarter of last year, which include the recent debt prepayment on our term loans, which we announced earlier in the quarter.
The debt reduction together with the improvement in EBITDA resulted in a debt to adjusted EBITDA ratio for debt covenant purposes of 2.05 versus $4.91 last year and well below the required covenant of 375.
While we recently announced that our board approved a new share repurchase program of 250 million. It was a prudent announced during a self imposed blackout period. So no repurchases have occurred to date.
Turning quickly to an administrative matter I'd like to take a few minutes and touch on the disclosure in our press release. This morning with regard to our intent to file a 10-K E amended annual report for fiscal year 2020.
In summary from a quantitative perspective, I want to emphasize that no restatement of the previously issued financial statements as required.
The only change to the consolidated financial statements will be to amend the out of period corrections footnote to disclose a $4.5 million understatement of net income in 2020, and a total of $4.5 million, an overstatement and net income from the prior years.
As a reminder, in 2019 of the company made adjustments related to its fuller business and in 2020 disclosed the material weakness in internal controls over financial reporting related to Tupperware Mexico.
As a result of our cooperation with an ongoing SEC inquiry related to these matters, we determined that in hindsight the accounting positions presented in the historical periods required adjustments.
We believe there will be no impact to our 2021 results go forward plans or overall financial position as a result of these adjustments.
And lastly, as part of our turnaround plan. Our current leadership team is committed to continuing to make the appropriate investments and improvements across the organization, including governance and compliance.
This leadership team and our board take our responsibilities in these areas very seriously.
While our investments in these areas are ongoing and foundational to the integrity of our strategic growth plan I am pleased with our progress and confident in our ability to stand up of World class organization.
Before I turn the call over for Q&A.
I'd like to announce the new member of our executive team.
Joe <unk> joined Us on Monday, as executive Vice President of Finance and corporate strategy E.
Joining us from VF Corporation, which is the consumer focused company with a diverse portfolio of iconic global lifestyle brands, where he served in a number of corporate finance leadership roles.
Bringing Joe on to the team is in line with our focus to build our business and our leadership team to match the power and reach of our iconic global brands.
I've worked with Joe on the path and I'm confident he has the right skill set to continue building a high performing team and strong financial culture to support our turnaround plan.
Will oversee the company's corporate strategy as well as some global finance functions, including financial planning and analysis of Investor Relations corporate development.
Business data analytics and treasury.
We look forward to the partnership as we continue to execute the turnaround plan drive our strategy and deliver strong returns for our shareholders and stakeholders.
In summary of Chi.
Cheating a double digit growth for the fourth consecutive quarter day.
Delivering profit for continue to reflect our right sizing efforts and lowering our debt through the proceeds of noncore asset sales on improving our EBITDA, resulting in a leverage ratio of 2.05 are all further evidence that our turnaround plan is working.
As we look forward to the rest of the year for investing in initiatives, we believe will drive penetration and growth into new channels. We believe these actions and our strategic plans, we will create a stronger more competitive company for the future.
I will now turn the call over for Q&A.
As a reminder to ask the question you will need to press star 1 on your telephone again that the star 1 on your telephone. However, if your question has been answered and you wish to remove yourself from the queue. Please press the pound key please standby, who we compile the Q&A roster.
Okay.
Your first question is from Wendy Nicholson with Citi. Your line is open.
Hi, good morning.
I had a couple of questions first of all on just sort of a housekeeping item I think you called out food conservation is 27% of your sales and I'm wondering the Gal, maybe if you have of long term target or as you focus on innovation, which I think of such an important part of the story.
You have a target for what that will be over time.
Hi, Good morning. Thank you for your question actually we don't we don't have targets in terms of percentage of the of the company sales because we believe that we can enter into more categories. So even if this put conservation of category keeps on growing we expect to have even more growth from other new categories that we enter into.
Okay Fair enough and then my second question is just on your target and it sounds like Youre, making good progress on the omni channel development and expansion into new new.
Whatever distribution channels.
But again same thing I know you've set the skull of 50% of the sales coming from non direct selling channel again kind of the progress that you're making how far out is that 50% and are you beginning to get any feedback from your distributors.
How the viewing those actions.
So as you know this is this a completely new muscle for the company. This is something that we have never done. So so we're making good progress in more more selling of our bigger markets because the level of management that we have in those markets allow us to do more things.
The 1 very positive thing is the every time, we touch any channel.
The response that we've gotten is.
Very possibly so that means that the brand is as we expected a very strong on the there's a lot of people that want to work with us So thats very positive.
We're building we're building the skill set but also we're engaging with people that do that for the Liberty. You know there is companies on kind of help us open up doors on them.
Buildup the muscle.
Muscle you know.
For us in the in the meantime, so in terms of when we're going to get to the 50%. Obviously, it's hard to tell but my goal would be in about 3 years, we're going to be very close to that number.
And obviously is going to be driven by the bigger market.
We're going to be.
I guess moving the needle, but every day is the learning experience for us, but what I can share with you also is that we already have a marketing organization that is.
On the structure and design of our sub brands and as you know, we're going with our sub brands, who all of these different channels. The first to the we're going into is tupperware essentials as you can see by the name of this is where we're going to be a lot more price competitive.
We are also going with our pro series approach of series switches.
Pre is a premium brand, where we might go with especially the stores.
I am very targeting <unk>.
Professionals in the kitchen. So so now some parts of the company's total looking at the CPG company more so than.
The typical direct selling company.
Fair enough Okay. It sounds great and then my last question maybe for you Saundra is obviously.
The top line growth year to date has been fantastic but.
But we hit a really tough comp of all of a sudden here on the third quarter and I know you don't want to give us too much guidance.
But can you give us any directional guidance on are we talking you know sales growth in the third quarter potentially down mid single digits down double digits. Just maybe anything you are seeing here third quarter to date, just so that we can kind of frame the likely outcome. So there isn't an unpleasant surprise when we get to the end of the third.
Carter.
Yeah, maybe I'll just reiterate some of what we.
We said in the past that as we get into the second half of the concert had much tougher. So just to remind everybody. We were up 21% of Q3 last year and 20 per cent in Q4, So you know.
As we enter into the head of the comps will be much much more difficult I think you've heard from the script today, we continue our efforts in both areas right on.
Of course, selling business as well as our business expansion and so.
The theme of of what we talked about the day is what we truly believe in on the turnaround plan that we have the growth platform.
So obviously harder comps.
No don't think we can necessarily say double digit growth as the go forward, but we're doing everything around both of our businesses to ensure that we do have the growth platform and that we are deploying the right skills. We're investing in the right tools to really drive the growth in both of those areas.
Fair enough. Thank you very much.
Yeah.
Your next question is from Linda Bolton Weiser with D. A Davidson your line is open.
Yes. Thank you.
So I was kind of wondering if you could explain a little bit more about this important direct import program you talked about.
Just exactly what is that and once the product of imported into a market who are you is it being distributed and sold through your sales force or are you just proud of going into other channels and to regular retailers. Thanks.
So highly in the this amigo good morning. So so the model is very simple.
We have 2 options right, let's say smaller country I'm going to put on <unk>. Because this is 1 that we just opened so we have 2 options..1 is to set up on office higher management on how all of those costs.
Obviously because of the business at the beginning of is very small you know we would be losing money on it would be.
I'm going to call it painful to settle the whole off of is trained people and get it on the other option, which is on important models is to reach to reach out to.
It could be of family.
Well the family of our business family and the in Honduras or it could be another.
Business bigger business that is already settled there and we're getting to agreement with them to sell them the product.
We support them with marketing materials, obviously with the product with the latest innovation and the.
On sometimes we deliver the product to the port or sometimes they come on pick it up wherever we want to we agree on we just give it to them.
So just how to go to marketing direct selling but we also given the freedom. They have their own contacts to go to retail even on <unk> or e-commerce of whatever they want to do obviously they need to you know to be under the limits of our brands strategy obviously.
Following our policies procedures and so on and then for US just from 1 day to another 1 to get access to all the channels to higher level of management on.
Now if we go we started making profit from the from the first day.
We have a close to 20 markets right now and we expect to have a few more in the next in.
In the next year on the biggest 1 that we're working on US on is the U K as we mentioned in the in the call.
Okay.
So just the way I understand for a big market like the U K you you would still allow them the freedom to distributor sell as they thought that you know with the support of the Corp behind it exactly.
Exactly exactly actually in the UK I think we're going to go retail first.
And then probably.
Probably direct selling if we go in direct salary would be the last 1, but it's going to be retail first.
Our direct to consumer probably through the TV channels.
QVC type of things things like that but I think direct selling is going to be the last channel going into the U K.
Okay, Great and then.
Can you talk about the price thing that you've implemented so far is it on the kind of like everything or are you implementing it more through the new product innovation you mentioned.
And at what point, well like the pricing be kind of fully implemented so it can be upsetting your your inflation.
So so Linda as you know, it's a lot easier to increase prices in your products right. Because there is no comparison, but even with that in some key products, we're making the.
Progress in the pricing also you should know that we expect the resin price to come a little bit down for next year. So we don't want to over price for price ourselves out of the market. So this is where it gets a little bit on the science and art right on.
We're making very detailed analysis on the product by product basis on.
On the other important thing is that as you know.
Our distributors on our sales force they get 25% to 30% on 35% discount. So we can work with them to temporarily instead of making 25% of that can make 23 of 22. So they can do.
Those are on pricing in the single transactions. So the consumer doesn't feel it and they still make they still have of business probably not as profitable and this is where direct selling is very very helpful to us because.
The fact that we price up or doesn't mean that they need to price up for the to the consumer that can be of buffer buffer between us on the consumers. So in some cases, we work with them to ask them to become the buffer.
Yeah.
Okay.
And then.
In terms of of the 40 to 45 million of incremental spending that you had talked about for this year I didn't quite catch if you had quantified how much of that was in.
Both the quarter and the first half.
Yeah, we didn't specifically quantify the majority of that will kind of in the later half we did do some spending as we continue to accelerate our tax planning strategy in Q2.
But the majority of that incremental investment is related to further it infrastructure investments that will occur more in the back half of the year.
Yeah.
Okay.
And can you talk about.
China, just a little bit because I know you're in the process of you know kind of working on the business, but it seems to me that before you were talking about like even the number of studios like growing and you said the studios are kind of more closing in China. What why are they closing and what can you do to kind of change.
That or do you want the number to be reduced somewhat.
So Linda obviously, China is the biggest question right.
As you know, we're leaving under very difficult circumstances. So we haven't been able to go physically to China.
So that makes it a little bit more difficult for us, but the the short answer is product.
If you ask me the product innovation that we've got in China in the last several years has been low.
Less than less than ideal with re lighting 3 to 7 products and that's all of that we've sold for many years.
And now I think the market is as.
Is reacting to that so there's a lot of investment behind product as you know it takes some time to bring <unk> to the market. So we we think in the next 2 or 3 quarters of we're going to bring a lot of innovation.
The market.
Once you have the goodwill.
Good product that is demanded by the Chinese consumer the.
The whole the question shifts you know, it's a lot easier to you know to keep your studios open even to grow the number of studios, but also 1 of the big shifts of where we're making is that a lot of the studio the closing down right now, they're what we call neighborhood Studios studios, where they are not in the high traffic areas also.
The image that we have in some of them is not the 1 that were really 1 for our brand. So we are.
We are pretty much investing a lot of effort on timing and coming up with the.
Ideal studios.
Physical locations, how they should look how are you.
Should feel them.
They're going to be looking at a lot more professional.
I think a combination of a good product we.
Hope this not only to increase the number of studios, but also the productivity to be way way higher than that on that is pretty much of the key of the first page of our of our priorities. The second 1 is.
It's obviously ecommerce.
And then on that also relates to product there were some products that we used to sell in the past that we're not I'm going to call. It e-commerce ideal, but now the whole the product portfolio innovation is going to be you know I think we're going to be able to sell it on E Commerce and that's the that's the other big area of investment for Us.
You know China is the 1 market that I think is going to take us more time to to fix some turnaround on as you know, we're making another shift in the new leadership on.
And we will keep you updated with all of the you know all.
All of the progress there, but this is this is where I spend a lot of my time Saundra Hector we were <unk>.
Everyone is focused on China, how would turn around China.
Yeah.
Okay. Thank you and then since we're on the topic of Asia.
If you exclude the China you had said Asia was flattish in the rest of Asia. So what's going on with those other markets. I guess my impression was they were growing a little bit better or have they just slowed or other COVID-19 impact or kind of be on what's going on in the rest of Asia.
Yeah, you got of discovery.
I think we would have been a lot better we would have shown a lot better numbers without COVID-19 I think the 1 of our biggest contributors from Alicia.
Fooling some full locked down we also have a new management teams pretty much in every single country in APAC.
And we're making good progress where the.
All of the indicators that we you know that our leading indicators are looking much better but COVID-19 was 1 of those bumps in the in the road that we were not obviously, we've thought of where we're going to the out of covered by now but some of those countries just like the Djibouti, it's like it feels like a year ago. So so here we go again.
Yeah.
Okay.
And then just finally.
In Europe, you're actually producing pretty strong growth there can.
Can you just kind of talk about like what are the drivers there going on in Europe.
Yeah.
So it is the basic direct selling methods and techniques that you that you know that the.
We developed on the we are mastering.
It's eliminating sales that on unprofitable on.
Everything starts with service with good product training given tools to the sales force, making sure that we stay close to the leaders talk to them see which are the pinpoints the.
The a b C of direct selling and we're also making some progress in our b to B business, our <unk> business in Europe is the 1 that has the most developed so so.
Things are getting better and better in Europe, and I think theyre going to continue to be even better once South Africa comes comes back from you know all the issues that the country is dealing with.
Okay, Great and then just finally can I ask about on your share repurchase program. You said you hadn't done any yet is your approach to that sort of strictly opportunistic or do you anticipate irregularity and your share repurchase activity.
Yeah.
Yeah, So I wonder what I would say is that we obviously have the full board support on the 250 and it shows the confidence they have in that type of programming on our liquidity situation has definitely improved and we do have certain of your leverage goals on internal criteria that will follow to provide the right framework for making these repurchases and it'll be you know basically of business decision based upon those criteria.
Our cash flow and the best use of our capital and if that's the best Houston will proceed forward with it.
Yeah.
Okay. Thank you very much.
Thank you Linda.
Yeah.
And I'm showing no further questions at the spine that concludes the Q&A session I will now turn the call back to President and CEO Miguel Fernandez for closing remarks.
Thank you I am pleased with the continued results of our turnaround as we made progress across many areas of the business cost structure capital structure fixing of our core direct selling business on creating the ability to take our iconic brands into new channels of distribution.
We believe we are well on our way to a successful execution of our 3 year turnaround plan and we're shifting our time on resources from stabilize to growth with the implementation of our growth strategy is to become a more consumer centric company.
Thank you for your time today.
This concludes today's conference call. Thank you for your participation have a great day stay safe and well.
Yeah.
Okay.
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Yes.
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Good day and thank you for standing by at this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the recession, you will need to press star 1 on the telephone if you require any further assistance. Please press star here.
I would now like to kind of gone from theory to your first speaker today gain Girard Vice President of Investor Relations. Thank you. Please go ahead.
Thank you operator, welcome to the Tupperware brands second quarter of 2021 earnings Conference call.
With me on today's call on Miguel Fernandez, our president and CEO, and Sandra Harris, our chief financial and operations Officer.
Earlier. This morning, we issued a press release announcing our financial results for the second quarter ended June 26.2021.
The press release is available on our company website on our Investor Relations page.
We will begin with our safe Harbor statement.
During the course of today's call. We will make forward looking statements that are subject to risks and uncertainties as described in our press release and in our SEC filings.
You should listen to today's call in the context of that information.
We will also discuss some of our results for the quarter on a non-GAAP basis.
Reconciliations between GAAP and non-GAAP measures can also be found in our press release.
Any reference to sales in the discussion today is referring to local currency sales, which compares results between periods as the current period foreign exchange rates had been the exchange rates in the prior period.
You can access the release and our forward looking statements language. Some of the Investor Relations section of the company website, where you can also access a webcast replay of this call later today.
I will now turn the call over to Mcgill for his remarks.
Thank you Jane and good morning, everyone.
We're now over 15 months into our 3 year turnaround plan and we continue to make progress across many areas of the business cost structure capital structure fixing the core direct selling business on creating the ability to take all of our iconic brands into new channels of distribution.
During the quarter, we continued to make the necessary investments that we believe will drive our future growth in both our current direct from the business on our business expansion efforts.
Adding new talent and investing in our core infrastructure.
Such as marketing sales and support functions to evolve to a consumer centric and omni channel business.
We right sized the business and strengthen our balance sheet in 2020 to make the needed investments in 2021, the will enable us to accelerate growth in 2022.
As we continue to attract new investors to our turnaround story.
I'd like to remind you of the key elements of our strategic growth plans are well underway today, we're pivoting from a distributor push to a consumer pull on distributor push model.
We are updating of our Brian architecture to allow us to segment branding products channels and pricing to appeal to a broader consumer base, while minimizing potential channel conflict.
We're expanding into new product categories, where consumers give us permission, we're aligning product development efforts to address the needs of our consumers social sub segments.
We're expanding distribution and access points to meet consumers, where they shop on most importantly, we're continue to fix the core of direct selling business with proven methods.
The Tupperware brands is Iconix, we have been around for 75 years and that is for 1 primary reason our products have been loved and trusted in the homes around the world for generations, we're making new investments to build on Omnichannel business 1 of the growth our direct selling channel provides new consumers new ways to access our products.
And gives our brand of beer platform to nurture a better future every day.
Let me first provide you with the progress we've made in modernizing our core direct selling business over the last year, we have implemented a suite of tools to enable our sales force to reach the customers in new and more efficient ways on honestly, it's all about virtualized and of our sales force Cherokee by looking at the experience from end to end.
And delivering the right technologies for our sales force to start grow and sustain their businesses.
Our most advanced detailed tool called TUP social on it makes it easy for our sales force to grab ensure social media content to better market their businesses on.
For instance, we have now expanded this technology into 23 markets with 2 more planned for later this year.
We're also rolling out technology tools like Tupperware life, formerly called the top that enables our sales force to host virtual parties and it allows the customers to purchase in the moment. We have launched this in 12 markets. So far with 5 more countries coming online by year on and.
Our most recent technology addition is kind of on boarding tool. It helps to drive retention on performance, where our consultants can find resources for communication as well as continuing education and training.
It has been launched in 2 key markets, so far with 5 more upcoming by the end of 2021.
Additionally, we now have e-commerce direct to consumer functionality available in 13 markets.
Now, let me turn to our business expansion for sales are 18% of year to date revenue and include distribution channel such as the business to business loyalty programs sustainability, the specialty retail such as PVC importers of retail students in China Korea and Vietnam.
Our efforts to dramatically expand this business is rooted in our brands strategy to build the brand house, we believe creating sub brands such as Tupperware essentials on top of our approach will allow us to develop the right product mix, the right pricing and expand into new channels of distribution, while minimizing channel conflict.
Let me explain a bit more about our business expansion and drill down on some specific around more developed pillars, our b to b relationships support loyalty programs of major retailers, while improving our brand presence.
We're making good progress developing more relationships with large retailers in Brazil, Mexico and Europe.
Our <unk> sales have historically been between 30% and $35 million annually and we expect this to be over $50 million. This year.
Another important part of the business expansion strategy is moving into new markets through on important model.
Whereby we don't have physical business presence, rather we sell tupperware branded products into markets through an agreement with an important distributor.
This products are being distributed through direct selling and in some cases through omnichannel the stripes.
Prior to this quarter, we sold into Asian markets through this model.
Beginning in the third quarter, we opened 2 new important markets on duress in Panama, We hope to finalize an agreement to open a very promising market. The UK before the end of the year.
This important markers are strategically important and provide incremental profitability in this quarter. We saw the best profitability in the last 10 years of specifically in the employer markets.
In the sustainability pillar, we're now selling our limited edition National Park, the product as part of our partnership here in the U S.
The product line includes products intended to be taken on the goal to help reduce waste in the parks of.
A number of national parks and products are made with our E coat plus materials, which is made with.
Innovative sustainable materials using mixed plastic for renewable recycled materials.
This product can also be found for.
For sale at some national parks across the country for a limited time.
Now let me provide of product update as you know protein innovation is important to us to meet on the address the needs of all consumer social sub segments, and we're making some good progress in this area for.
For the second quarter the percent of sales for new products in Mexico was 11, 6% of 52% from prior year second quarter.
Brazil, New products contributed 8.3% of sales up 41% on U S and Canada contributed 3.8%, which is 38% higher than last year.
Our largest product category continues to be put conservation of 27, 5% of sales and it is 17% higher than last year, followed by entertain category at 16% of sales up 18%.
Kitchen preparation is about flat versus last year at 15, 2% and on the go categories 13, 2% of our revenue and was down slightly versus last year.
But we would also like to 2.
To give a brief update on our ESG environmental social and governance strategy. We have made great strides in the in the last quarter to refine our ESG goals, including the aligning the hour with our employees' performance objectives.
We have develop on internal cross functional of working group to grow with the support of our board of directors to take our ESG efforts to the next level of.
Our goal is honing on our sustainability focus social impact on governor on efforts to align our brand purpose to nurture a better future every day.
Also we're working in this area of progress I look forward to share more on our long term ESG targets, social impact initiatives and training and education in this area.
Moving to the next few quarters, our key priorities in 2021 are the following first.
<unk>, our direct selling business in the areas of detail on product investment.
Segmentation of our sales force introducing preferred customer loyalty programs around the world use of data to identify best practices use of data to upsell and cross sell to our preferred customers and to ensure competitive service on cost.
And in the business expansion our priorities are the following.
To explore new channels of distribution, avoiding a potential conflict with our current direct selling channel.
For this tupperware sub brands and penetrating into different product categories, where we know the consumers give us permission to enter.
We believe the execution of these priorities.
Building, a strong foundation that will create meaningful value for our shareholders for years to come let me now turn the call over to Sandra Harris, our CFO and COO for a review of our financial statements.
Thanks Danielle.
Second quarter sales were $465 million, reflecting an increase of 17% compared to last year on a reported basis.
Growth in the quarter was benefited by about 7% from more favorable FX rates compared to a year ago.
Our performance in the second quarter marks the fourth consecutive quarter of double digit growth since the beginning of our turnaround plan.
The strong proof point that our strategy is working further supporting our confidence in the large growth opportunity that lies ahead for tupperware.
From a geographic perspective growth was driven by our largest market U.
U S on Canada, Mexico, and Brazil contributed more than 80% of the dollar increase driven by the improvements, we're making to build a stronger core of direct selling business. In addition to our continued investments to support our expansion into new channels.
Some highlights on the area of business expansion.
<unk> sales were $15 million or 3% of our revenue for Q2, and our employer market increased more than 50% of the quarter.
As Miguel mentioned business expansion is about 18% of our total sales with the day to be an importer markets, representing a significant growth opportunity for tupperware brands and represent the key growth pillar of our long term strategy.
Turning now to the revenue performance in the region.
North America increased 17% type.
<unk> for Mexico sales increased more than 20% driven by 36% growth in average active sales force.
Partially offset by a 9% decline in productivity.
The strong performance was driven by a combination of more effective utilization of data and analytics of key strategic priority for us.
New merchandising and promotional strategies.
<unk> innovation and increase sales force adoption of digital tools, specifically in social media.
We're implementing personalized websites for our sales force in Mexico to make it easier for them to sell on place orders, which we believe will drive higher sales force productivity over time.
In the U S on Canada sales increased 12% as the 20% increase in productivity was partially offset by a 6% decrease in the average active sales force.
In Europe sales increased 17% the major contributor to growth for the quarter or BTB of loyalty programs up 16% in the quarter with major retailers in Germany, Austria and in our central Eastern Europe right.
South America increase almost 50% driven predominantly by Brazil, where sales increased more than 35%.
At 22% increase in sales force activity combined with a 12% increase in productivity drove the results for the quarter.
While COVID-19 continues to negatively impact our recruitment efforts in Brazil, we are deploying retention strategies and targets in an effort to incentivize ourselves fourth in that region.
Looking forward.
Evolving our e-commerce strategy in Brazil, as we become more consumer centric in our approach as well as initiating a <unk> loyalty program the.
These initiatives will help support a constructive growth outlook for this important market as we head into 2022.
Asia was flat excluding China.
<unk>, China, the region was down 14% compared to last year, including of more than 30% decline in China, primarily as a result of studio clothing, and a slower pace of new openings.
While disappointed with the ongoing weakness we continue to believe China holds great potential for the Tupperware brand long term.
While in the midst of a leadership change for this important growth market. The local team is working to update the look and feel.
Of the retail studios to help create a more competitive franchise in the marketplace.
In China, we will begin to elevate our brand and product segmentation strategy to expand into new channels, such as E Commerce and developed flagship studios in the mall locations.
These efforts will be supported by a strong product innovation pipeline to ensure the studio owners have relevant products with competitive pricing.
Once again, we're pleased with the fourth consecutive quarter of revenue growth and now I will turn to profit.
You will continue to see the efforts of our turnaround plan.
Gross margin was 68, 3% or 200 basis points higher than a year ago, driven by the carry out of 2020 inventory at lower costs combined with the favorable impact of higher volume in our manufacturing plants.
Looking forward to the second half, we do expect higher product costs versus a year ago, primarily as a result of higher resin and logistics.
However, our turnaround plan of efforts will continue to drive efficiencies through the supply chain.
And when coupled with the impact of price increases we believe we can largely neutralized the overall impact.
SG&A as a percentage of sales of 51%, which benefited by a favorable tax ruling in Brazil that resulted in a reversal of the prior year operating tax reserve of $10 million.
Adjusting for that 1 time nonrecurring items.
Adjusted SG&A as a percentage of sales would have been 52.2 per cent of cells are 140 basis points higher than last year.
The increase reflects the 120 basis points of higher freight costs, primarily in the U S and the incremental investment costs that we discussed last quarter.
Of these investments of portion comes from the add back of 25% of 100 of $93 million in growth turnaround savings. We reported in 2020 that were largely associated with COVID-19 actions.
As we previously communicated the majority of new investments related to the acceleration of tax planning strategy. It infrastructure and digital investments will be in the back half of this year, along with expense timing differences shifted from the second quarter to the third.
In regard to the higher freight costs, we're experiencing the increased costs from carriers or carriers associated with the higher demand as well as Fedex surcharges that have yet to the lifted.
However, we are also seeing a shift in our business model on the U S.
In an effort to grow sales and offset the physical limitations related to COVID-19, we began shipping direct to the end consumer versus using our sales force for distribution and order fulfillment.
This resulted in more packages as our units per carton decrease from over for per carton to 1 of the half per carton.
As we shift to a more omni channel approach. We expect this trend to continue and we'll be working on ways to optimize and improve efficiencies in this area.
For the second quarter the improvements in gross profit and the onetime Brazil tax reserve reversal of 10 million contributed to an adjusted operating income of $85.8 million or 18, 5% of cell.
Allow me briefly to touch on adjusted EBITDA as I know, it's the metric that's important to many of our investors as we continue to delever the business and evolve the capital structure.
The trailing 12 month adjusted EBITDA at the end of June was $377 million versus last year of $214 million.
This improvement of 163 million reflects the results of the right sizing and focus on stabilizing our core business as part of our turnaround plan.
Now, let's review EPS on an adjusted basis for the second quarter.
Adjusted EPS of <unk> 95, compared to 84 cents last year.
We did benefit from the Brazil tax rehearsal already mentioned by 13th of the 2021 operating tax rate.
The divestiture of average lane early in 2021 negatively impacted EPS by Tucson.
Profit from higher sales were offset by a portion of the turnaround plan savings add back and also by a shift from higher profit markets, such as China to lower profit markets like the U S and Canada.
In our press release is a reconciliation of EPS and you can see that the GAAP EPS was largely impacted by prior year, 1 time items associated with the early extinguishment of the debt on the Australian property sales in the prior year.
Cash flow for the quarter was $6 million versus $102 million last year.
Higher cash flow in the prior year was due to aggressive turnaround plan saving actions, including Covid specific actions like furloughs.
And our intense focus on liquidity through preservation of cash by lowering spending on inventory and higher payables.
In the current year, we're investing in inventory to improve our service levels and prepare for increased demand. While we are also returning to a more normal capital spending level as previously communicated.
And the second quarter, our total debt balance of $644 million, reflecting a reduction of nearly $160 million from the $804 million in the second quarter of last year, which includes the recent debt prepayment on our term loans, which we announced earlier in the quarter.
The debt reduction together with the improvement of EBITDA resulted in a debt to adjusted EBITDA ratio for debt covenant purposes of 2.05 versus $4.91 last year and well below the required covenant of 375.
While we recently announced that our board approved a new share repurchase program of 250 million. It was a prudent announced during a self imposed blackout period. So no repurchases have occurred to date.
Turning quickly to an administrative matter I'd like to take a few minutes and touch on the disclosure in our press release. This morning with regard to our intent to file a 10-K E amended annual report for fiscal year 2020.
In summary from a quantitative perspective, I want to emphasize that no restatement of the previously issued financial statements as required.
The only change to the consolidated financial statements will be to amend the out of period corrections footnote to disclose a $4.5 million understatement of net income in 2020, and a total of $4.5 million in Overstatements and net income from the prior years.
As a reminder, in 2019 of the company made adjustments related to its fuller business and in 2020 disclosed the material weakness in internal controls over financial reporting related to Tupperware Mexico.
As a result of our cooperation with an ongoing SEC inquiry related to these matters, we determined that in hindsight the accounting positions presented in the historical periods required adjustments.
We believe there will be no impact to our 2021 of the results go forward plans or overall financial position as a result of these adjustments.
And lastly, as part of our turnaround plan. Our current leadership team is committed to continuing to make the appropriate investments and improvements across the organization, including governance and compliance.
This leadership team and our board take our responsibilities in these areas very seriously.
While our investments in these areas are ongoing and foundational to the integrity of our strategic growth plan I am pleased with our progress and confident in our ability to stand up the world class organization.
Before I turn the call over for Q&A.
Like to announce the new member of our executive team.
Joe I'll car joined Us on Monday, as executive Vice President of Finance and corporate strategy.
He joins us from VF Corp, which is the consumer focused company with a diverse portfolio of iconic global lifestyle brands, where he served in a number of corporate finance leadership roles, bringing.
Bringing Joe on to the team is in line with our focus to build our business and our leadership team to match the power and reach of our iconic global brands.
I have worked with Joe in the past and I'm confident he has the right skill set to continue building of high performing team and strong financial culture to support our turnaround plan.
Will oversee the company's corporate strategy as well as some global finance functions, including financial planning and analysis Investor Relations corporate development.
Business data analytics and treasury.
We look forward to the partnership as we continue to execute the turnaround plan drive our strategy and deliver strong returns for our shareholders and stakeholders.
In summary of Chi.
Feeding a double digit growth for the fourth consecutive quarter day.
Delivering profit for continue to reflect a right sizing efforts and lowering our debt through the proceeds of noncore asset sales on improving our EBITDA, resulting in a leverage ratio of 2.05 are all further evidence that our turnaround plan is working.
As we look forward to the rest of the year. We are investing in initiatives, we believe will drive penetration and growth into new channels. We believe these actions and our strategic plans will create a stronger more competitive company for the future.
I will now turn the call over for Q&A.
As a reminder to ask the question you will need to press star 1 on your telephone again, but the star 1 on the telephone. However, if your question has been answered and you wish to remove yourself from the queue. Please press the pound key please standby, who we compile the Q&A roster.
Okay.
Your first question is from Wendy Nicholson with Citi. Your line is open.
Hi, good morning.
I had a couple of questions first of all on just sort of a housekeeping items I think you called out food conservation is 27% of your sales and I'm wondering the Gal, maybe if you have of long term target or as you focus on innovation, which I think is such an important part of the story.
Do you have a target for what that will be overtime.
Hi, Randy Good morning. Thank you for your question actually we don't we don't have targets in terms of percentage of the of the company's sales.
Does we believe that we kind of enter into more categories. So even if this put conservation category of keeps on growing we expect to have even more growth from other new categories that we enter into.
Okay Fair enough and then my second question is just on your target and it sounds like you're making good progress on the omni channel development and expansion into new new whatever distribution channels, but again same thing I know you've set the school of 50% of of the sales coming from non direct selling channel.
Again kind of the progress that you're making how far out is that 50% and are you beginning to get any feedback from your distributors.
How are the viewing those actions.
So as you know this is a completely new muscle for the company. This is something that we have never done. So so we're making good progress in more more so in your bigger markets because the level of management that we have in those markets allow us to do more things.
The the 1 very positive thing is that every time, we touch any channel.
The response that we've gotten is.
Very possibly so that means that the brand is as we expected the very strong on theres a lot of people that want to work with us So thats very positive.
We are building we are building the skill set but also we're engaging with people that do that for the living you know theres companies on kind of help us open up doors on them.
On buildup of the muscle.
Muscle you know.
For us in the in the meantime, so in terms of when we're going to get to the 50%. Obviously, it's hard to tell but my goal would be in about 3 years, we're going to be very close to that number.
And obviously, it's going to be driven by the bigger markets because of that.
We're going to be.
I guess moving the needle, but every day is the learning experience for us, but what I can share with you also is that we already have a marketing organization that is.
On the structure and design of our sub brands and as you know, we're going with our sub brands through all the different channels. The first to the we're going into is tupperware social as you can see by the name. This is where we're going to be a lot more price competitive.
We are also growing with our pro series approach of series, which is.
Pre is a premium brand, where we might go with especially the stores.
I'm very targeting.
Professionals in the kitchen. So so now some parts of the company is still looking at the CPG company more so than the typical direct selling company.
Fair enough Okay. It sounds great and then my last question maybe for you Saundra is obviously you know the top on growth year to date has been fantastic but.
But we hit a really tough comp of all of a sudden here on the third quarter and I know you don't want to give us too much guidance.
But can you give us any directional guidance on are we talking sales growth in the third quarter potentially down mid single digits down double digits, just maybe anything you're seeing here third quarter to date, just so that we can kind of frame the likely outcome. So there isn't an unpleasant surprise when we get to the end of the third.
Carter.
Yeah, Wendy I'll, just reiterate some of what we.
He said in the past that as we get into the second half of the comps that had a much tougher. So just to remind everybody. We were up 21% of Q3 last year on 20% in Q4. So you know as we enter into the sort of the comps will be much much more difficult I think you've heard from the script today, we continue our efforts in those areas right, our direct selling business as well as our business expansion.
And so you know the theme of of what we talked about the day is what we truly believe in on the turnaround plan that we have a growth platform.
So obviously harder comps.
Think we can necessarily say double digit growth as the go forward, but we're doing everything around both of our businesses to ensure that we do have the growth platform and that we are deploying the right skills. We're investing in the right tools to really drive growth on both of those areas.
Fair enough. Thank you very much.
Your next question is from Linda Bolton Weiser with D. A Davidson your line is open.
Yes. Thank you. So oh it was kind of wondering if you could explain a little bit more about the import direct import program you talked about.
Just exactly what is that and once the product gets imported into a market who are you is it being distributed and sold through your sales force or are you just proud of going into other channels and to regular retailers. Thanks.
So highly in the this may go a good.
Good morning, so so the model is very simple.
The 2 options right, let's say smaller country I'm going to put on Europe. Because this is 1 that we just opened so we have 2 options..1 is to set up on office higher management on how all of those costs.
Obviously because of the business at the beginning of this very small we would be losing money on it would be.
I'm going to call it painful to set up a whole lot of fees trained people and get it on the other option, which is on important models is to reach to reach out to.
It could be a family of big.
Well the family of our business family and the in Honduras or it could be another.
Business bigger business that is already settled there and we're getting to agreement with them to sell them the product.
We support them with marketing materials, obviously with the product with the latest innovation.
On sometimes we deliver the product to the port or sometimes they come on pick it up wherever we want to we agree on we just give it to them.
So just how to go to marketing direct selling but we also given the freedom they have.
The 1 contact to go to retail, even Doris or e-commerce of whatever they want to do obviously they need to be.
Under the limits of our brands strategy obviously.
Following our poly.
Policies procedures and so on and then for US is to from 1 day to another 1 to get access to all of these channels to higher level of management.
Now if we go we started making profit from the from the first day.
We have close to 20 markets right now and we expect to have a few more in the next.
In the next year on the biggest 1 that we're working on on is the UK, yes, as we mentioned in the in the call.
Okay.
So just so I understand for a big market like the U K you you would still allow them the freedom to distributor sell as they thought that you know with the support of the Corp behind it.
Exactly exactly actually in the UK I think we're gonna go retail first.
And then probably.
Probably direct selling if we go in direct selling it would be the last 1 but it's going to be retail first.
Our direct to consumer probably through the TV channels, and you know like QVC type of things things like that but I think direct selling is going to be the last channel going into the UK.
Okay.
And then.
Can you talk about the price thing that you've implemented so far is it on the kind of like everything or are you implementing it more through the new product innovation, you mentioned and at what point will like the pricing of the kind of fully implemented so it can be upsetting your your inflation.
So so Linda as you know, it's a lot easier to increase prices the new products right. Because there is no comparison, but even with that in some key products, we're making the.
Progress in the pricing of so you should know that we expect the resin price to come a little bit down for next year. So we don't want to over price of price ourselves out of the market. So this is where it gets a little bit of us.
The signs on art right on where we're making very detail analysis on the product by product basis.
On the other important thing is that as you know of.
The distributors on our sales force they get $25.30 from 35% discount. So we can work with them to temporarily instead of making 25% of that can make 23 of 22. So they can judge there on pricing in the single transactions. So the consumer doesn't feel it and they still make you know they still have of business probably not as profitable.
And this is where direct selling is very very helpful to us because the fact that we price up or doesn't mean that they need to price up for the to the consumer there can be a buffer on buffer between us on on the consumer so in some cases, we work with them to ask them to become the buffer.
Yes.
Okay.
And then.
In terms of of the 40 to 45 million of incremental spending that you had talked about for this year I didn't quite catch if you had quantified how much of that was in both the quarter and the first half.
Yeah, we didn't specifically quantify the majority of that will come in on the later half we did do some.
Spending as we continue to accelerate our tax planning strategy in Q2.
But the majority of that incremental investment is related to further it infrastructure investments that will occur more in the back half of the year.
Okay, perfect and can you talk about.
China, just a little bit because I know you're in the process of you know kind of working on the business, but it seems to me. The before you were talking about like even the number of studios like growing and you said the studios are kind of more closing in China. What why are they closing and what can you do to kind of change.
Of that or do you want the number to be reduced somewhat.
So for Linda you know, obviously, China is the biggest question right.
As you know we're a.
The living under very difficult circumstances, so we haven't been able to go physically to China.
So that makes it a little bit more difficult for us, but the the short answer is product.
If you ask me the protein innovation that we've got in China in the last several years has been the less than less than ideal with re lighting 3 to 7 products and that's all of that we've sold for many years.
And now I think the market is.
Reacting to that so there's a lot of investment behind product as you know it takes some time to bring protein to the market. So.
We think in the next 2 or 3 quarters of we're going to bring a lot of innovation.
To the market.
Once you have goodwill.
Good product that is demanded by the Chinese consumer.
Then the whole the question shifts you know, it's a lot easier to you know to keep your students open even to grow the number of studios, but also 1 of the big shifts of where we're making is that a lot of the studios. The closing down right. Now there are what we call neighborhood students students, where they are not in the high traffic areas.
Also the image that we have and some of them is not the 1 that we really want for a brand. So we are.
We are putting much investing a lot of effort on timing and coming up with E.
Ideal studios.
Physical locations, how they should look how you should feel them.
They're going to be looking at a lot more professional we think combination of a good product.
We hope this not only to increase the number of studios, but also the productivity to be way way higher.
And that is pretty much of the key of the first page of our of our priorities. The second 1 is it.
Obviously of Commerce.
And then on that also relates to product there were some products that we used to sell in the past that we're not on.
Kind of call. It e-commerce ideal, but now the whole of the product portfolio innovation is going to be you know.
I think we're going to be able to sell it on E. Commerce. So that's the that's the other big area of investment for US. So you know Chinese.
China is the 1 market that I think is going to take us.
No more time to to fix some turnaround.
And as you know, we're making another shifting the leadership.
And.
And we will keep you updated with all of the you know all of the.
There, but this is this is where I spend a lot of my time Saundra Hector.
Oh, you know everyone is focused on China on how we turn around China.
Yeah.
Okay. Thank you and then since we're on the topic of the Asia.
If you exclude the China you had said Asia was flattish in the rest of Asia. So what's going on with those other markets. I guess my impression was they were growing a little bit better or have they just slowed or other COVID-19 impact or kind of what's going on in the rest of Asia.
Yeah, you got of discovery.
I think we would have been a lot better we would have shown a lot better numbers without COVID-19 I think the 1 of our biggest contributors from Alicia.
Fully simple locked down we also have a new management teams pretty much in every single country in APAC.
And we're making good progress where you know.
All the indicators that we you know that our leading indicators are looking much better but COVID-19 was 1 of those bumps in the in the road that we were not obviously, we've thought of where we're going to be out of covered by now but you know some of those countries just like the Djibouti like it feels like a year ago. So.
So here we go again.
Yeah.
Okay.
And then just finally.
In Europe, you're actually producing pretty strong growth. There can you just kind of talk about like what are the drivers there going on in Europe.
So it is the basic direct selling methods and techniques that the you know that from the weed develop on the we are mastering.
It's eliminating sales that on unprofitable on everything starts with service with good product training given tools to the sales force, making sure that we.
We stay close to the leaders talk to them see which are the pain points.
The ABC of direct selling on.
We're also making some progress in our b to B business.
The business in Europe is the 1 that is the most developed so so things are getting better and better in Europe, and I think theyre going to continue to be even better once South Africa.
It comes back from you know all the issues that the country is dealing with.
Okay, Great and then just finally can I ask about on your share repurchase program. You said you hadn't done any yet is your approach to that sort of strictly opportunistic or do you anticipate irregularity and your share repurchase activity.
Yeah. So you know wonder what I would say is that we obviously have the full board support on the 250 and it shows the confidence they have in that type of programming on our liquidity situation has definitely improved so we do have certain leverage goals on internal criteria that will follow to provide the right framework for making these repurchases and it'll be basically of biz.
On a decision based upon those criteria of our cash flow and the best use of our capital and if that's the best Houston will proceed forward with it.
Okay. Thank you very much.
Thank you Linda.
And I'm showing no further questions at the spine that concludes the Q&A session I will now turn the call back to President and CEO Miguel Fernandez for closing remarks.
I am pleased with the continued results of our turnaround as we made progress across many areas of the business cost structure capital structure fixing of our core direct selling business on creating the ability to take our iconic brands into new channels of distribution.
We believe we are well on our way to a successful execution of our 3 year turnaround plan and we're shifting our time on resources from the top of life to growth with the implementation of our growth strategy is to become a more consumer centric company.
Thank you for your time today.
This concludes today's conference call. Thank you for your participation have a great day stay safe and well.