Q3 2022 Tupperware Brands Corp Earnings Call
[music].
Good day and welcome to the Tupperware Brands Corporation third quarter 2022 earnings Conference call. Please note today's conference is being recorded all lines have been placed on mute to prevent any background.
Noise. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question Press Star followed by the number one again.
Thank you at this time I will turn the conference over to Doug Lane, Vice President Investor Relations and strategy. Mr. Lang you may begin.
Thank you operator, good morning, and welcome to Tupperware brands third quarter 'twenty two earnings conference call John .
Joining me today are Miguel Fernandez, President and CEO and Marty element to day CFO .
I'll be available for Q&A following our prepared remarks.
Early this morning, we issued a press release announcing our financial results for the third quarter of 2022, which can be found on our Investor Relations website.
Let me remind you that the following discussion and our responses to your questions reflect management's views as of today November <unk> 2022, and May include forward looking statements actual results may differ materially from such statements.
Additional information about factors that could potentially impact our financial results is included in our Form 10-Q for the third quarter of 2022 subsequent filings with the SEC and our press release filed this morning. Please review the forward looking statements disclosure on page three of today's press release.
Please note that all references are being made on a constant currency basis, which reflects the application of the current period foreign exchange rate to any prior period results, enabling comparisons exclude the impact of foreign exchange rate fluctuations.
Additionally, in the third quarter of 2021, the company made an accounting change to classify our sold and held for sale beauty and personal care businesses as discontinued operations consistent with our strategy to fix our core.
Please also note that all references unless otherwise noted are being made on a continuing operations basis. Joining this call will discuss certain non-GAAP measures, including those we refer to as normalized measures additional disclosures regarding these non-GAAP measures, including explanations and reconciliations of these measures to the most comparable GAAP measures.
It can be found in today's press release finally, a replay of this call will be available on our Investor Relations website later today with that let me turn the call over to you ago.
Thank you Doug good morning to everyone and welcome to our third quarter call.
We released our third quarter results. This morning, which were below our expectations. The global macro environment continues to be challenging and we're not executing internally at a level of consistency that we believe we should be.
While the sales declines in the third quarter was consistent with the trends in the first half of 2022, we had expected improvement under much easier comparisons persistent covered quite intense in China are impacting consumer behavior in that important market and geopolitical tension along with inflationary concerns in Europe continued to impact consumer.
Sentiment there.
Additionally, <unk>.
The actions, we've taken internally as part of our turnaround plan that have also impacted says for example, we have taken pricing decisions to protect our margins.
In North America comp plan changes and upgrades that created service issues adversely impacting sales.
Fortunately on improving South American region help offset some of that decline.
Currency headwinds.
In the third quarter and created a 600 basis point hit in our dollar reported sales.
13% hit to EPS as the dollar continues to strengthen against most major currencies.
Our operating margin suffer as a result of continued inflationary pressures coupled with the lower than expected sales, partially offset by price increases that we continue to implement to mitigate the higher input costs.
We ended the third quarter with price increases averaging 11% globally.
From an average 7% price increase coming out of the second quarter.
Let's remember that many of our larger markets such as the U S and Germany have and implemented price increases of this magnitude in decades. The good news is that our gross margin in the mid 60 percentage range, only 90 basis points below the year ago, much better than the 400 basis points.
Year over year, both decline that we had in the second quarter and we expect year over year improvement in gross margins in 2022 for quarter due to many initiatives underway.
However to improve our operating margins, we believe we need to take further action to reduce our SG&A, which has a large fixed cost component.
We plan to address this over the next two quarters, but rest assured that we remain keenly focus to rightsize, our business and fund the necessary investments to support future growth.
At the beginning of the fourth quarter, we began to cover product sold in 1900 target stores in the US This is an important step in re engaging with todays shoppers, particularly gen Z and millennials are more affluent consumers, who probably have never been to a tupperware party.
We think it's critical to reached to reach out to a younger more affluent consumers and bring them into our ecosystem. We believe that once they have the opportunity to more easily access our brand and experienced a quality and design of our products there will be less wanting more.
So it's important for us to let consumers know that there is only one authentic couple of brand.
Once consumers are in our ecosystem. They can engage with couple of dot com or any member of our independent sales force.
Have access to a full line of products.
It is important for us to leverage what is unique to <unk> as we open up new channels for us.
Our brand name second our quality third this abuse and functional leader for products.
Last but definitely not least our independent sales force, who have the ability to demonstrate the products and offer a complete line of tupperware products.
We have over 8500 functional on the silent utility patents for kitchen, and calm products from our traditional food storage container to pressure cookers and royalties tied to work in the microwave.
In two or three years, we want to be in many more categories, where consumers give us permission to operate our goal is simple we want to be in every room of the house after two and a half years of no meetings, we return to Colby in personal sales events in many markets around the world in the third quarter for the first time since 2019.
While this impacted our SG&A spending comparison versus previous year, we believe that the return to in person meetings is critical to the health of our direct selling business.
While technology allowed us to survive during the pandemic. This read no substitute for in person training and recognition.
This in person meetings events and promotional vacations should improve our salesforce lead activity recruiting and retention efforts going forward.
But as I've said since I arrived in 2020, the Tupperware brand goes beyond direct selling our goal is to leverage these great brand recognition and expand our product reach outside the direct selling channel of distribution.
Let's face it according to the Wf TSA direct selling did $186 billion in retail sales last year, which is tiny compared to the 96 trillion global economy.
Walmart $568 billion in sales in the most recent fiscal year and Amazon The 407 billion in this last year.
Direct selling and build the brand through millions of micro intrapreneur its around the world over the past seven days and.
And we believe it will continue to be an important part of creating a competitive product ecosystem, but future growth in most of the global markets will come from increasing tupperware access to a broader consumer base through Omnichannel distribution and moving is social selling demoed from analog to digital.
Now, let's review, our third quarter results, starting with our top four markets.
In the U S and Canada sales were down 15% in the quarter.
Complaint changes coupled with a second round of price increases in September resulted in a 34% declining active salesforce does.
Despite the price increases segment profitability was impacted by lower than expected unit volumes increased discounts and promotions and adverse product mix.
As we focus on selling excess product inventory and added costs associated to return to the in person meetings during the quarter.
Mexico was down 19% due primarily to service challenges that began earlier in the year and were exacerbated by the failed software upgrade in the third quarter.
This ongoing service issues continue to cost reduction in the number of active sales force members.
We believe it will take some time to build our sales force back in Mexico over the next two quarters.
Additionally, we had lower <unk> sales, which accounted for 600 basis points of the decline.
Price increases taken and others also dampen salesforce activity, but helped protect profits with segment margins improving over 300 basis points in the quarter driven by increased gross margin.
Mexico is an important source of cash for us so protecting the processor is a priority in Brazil sales declined 5% in the quarter due to a lower activity rate, which we believe reflects the weak economy of this market and high inflation in macroeconomic and political is our central east.
This pressure on consumer spending.
While this is a deceleration from the second quarter trends, we believe we outpaced our non cosmetic direct selling peers, reflecting the strength of our brand and the desire for our products to help reduce input costs and gross margin improved due to favorable pricing of nearly 9% unfavorable product mix, however, higher <unk>.
<unk> spending slightly reduced the segment margin versus last year, However, like Mexico, Brazil carrier segment margins and free cash flow conversion rates that are above our company average as we look forward we are cautious with the outlook for this market.
The national elections, and walk up this quarter may add volatility to a normal consumer behavior and therefore, our results in the near term.
Turning to Asia, China was down 28% versus last year.
Rapid rise in Covid cases during the summer resulted in continues to require tons and made for logistical challenges in many parts of the country.
Economic activity overall remains weak by historical Chinese tenders and consumer spending remained soft.
Despite the Lockdowns will continue to make investments to upgrade the look and feel of our retail studios, which were approximately the same number as last year.
Upgrade our outlets opened up our first experienced centering once you in December and begin to pursue e-commerce opportunity.
We also have several new product offerings in the quarter that we believe could add excitement to our salesforce and attract new customers.
Excluding China, our Asia Pacific business was down, 20% with Australia, Indonesia, and Malaysia is declining 30% or more continuing the softness we have been seeing in those markets driven primarily by external factors and our compensation plan adjustment.
The bright spot in this region continues to be Korea, where sales increased 16% in the quarter with 9% growth in core direct selling sales augmented by an additional 700 basis points will be to be sales, including direct response TV spots.
We will implement in Australia, Indonesia, and Malaysia, when we know it has been working in Korea.
Another early read of our success of our Omnichannel approach is in Belgium, where we rollout nationally in the second largest retailer they'll hazy.
Over the summer this fall during the two of the business weeks, the direct selling business reported 4% growth. Despite the widespread availability of our products on the retail.
While it is early days, we're encouraged to see that our omnichannel approach is truly expanding the top of our ecosystem to reach more consumers, we otherwise we wouldn't count.
While we are also increasing the potential of our sales force to create a relationship with new customers, who saw her purchase our products at retail.
We also just published our latest ESG report, we believe we're making good progress towards achieving our 2025 and 2030 commitments.
<unk> is important for our shareholders to assess investors' rigs for lenders to provide capital for retailers concern about responsible sourcing and for consumers, particularly Gen Z.
In assessing who they want to do business with and workforce.
We believe we're on track to significantly reduce waste generation water usage in our manufacturing facilities reduce greenhouse emissions in our manufacturing facilities and single use plastic packaging increase on our use of non fossil fuel and.
And explore the opportunity to reduce returned tupperware products in fact, our sponsorship of the National Park Foundation is to replace single use plastic bottles with a reusable products.
Lastly, since we set out this company's turnaround plan, two and a half years ago. The strategy has remained the same.
To build a business as big as the Tupperware brand.
That meant shifting our mindset to one that places a consumer in the middle and making sure that we have the right commercial strategies in each of our respective markets to speak to their respective market consumer.
Our 2020 organizational structure was set up to stabilize the layer and simplify our traditional directionally markets and to get them to a place where theyre ready to grow <unk>.
Additionally, our investments have been focused on expanding the tupperware brand into new channels, while energizing our current ones in the markets, where consumers give us permission to do so.
As we soon embark 'twenty to 'twenty three we will enter a new chapter in our turnaround plan, creating a unique product ecosystem in the marketplace.
By channel with the right product mix and consistent pricing strategy will be key.
And we need to organize accordingly, I am pleased to show that <unk> has been promoted to chief commercial officer to Holistically oversee our efforts so chips sustainable growth and improved profitability. He will be responsible for guiding all of our commercial activities around the world.
Our Omnichannel strategy is an inclusive strategy the more Brian is easily accessible the more opportunities we have to bring new consumers to us whether it's customers or our sales force members.
We've seen this mid successful in many markets around the world, where when our Socials adopts the change we see the tide lifting for all.
If you haven't already please read and consider sharing my Linkedin posts, where I share more about the strategy.
What it means for this company.
All of our channels, where we do business as you May know Doug Lane recently joined our team as our Vice President of Investor Relations and strategy <unk> has covered tupperware for many years a sell side analyst I was writing on us when the company went into target some 20 years ago.
Unfortunately, our presence in targeted <unk> live there due to decisions made by prior management I'm going to now pass the call along to Doc who wants to provide investors with some perspective on why our approach today, so much different Doug Thanks, Nik Alan good morning, everybody.
Investors have a long memory and are never more skeptical or any explanation that one starting with its different this time.
Yes back in the fourth quarter of 2001, Tupperware expanded into 62 Super target stores as part of its integrated direct access initiatives or Ida, which included channels outside of direct selling mostly more kiosks at the time. These ida initiatives were about $15 million business in 2001 in North America.
After moving into the 62 Super target stores in the end of 2001, the Ida initiatives increased nearly 60% in 2002 to be approximately $25 million business. The North American segment overall had $268 million in sales and $30 million in segment profits in 2002.
<unk>.
And then in the fourth quarter of 2002, the company decided to expand into all 1100 target stores nationwide at the time party cancellations mounted as 2003 progressed and Salesforce numbers started to decline. The 2003 annual sales in North America had dropped 18% and segment profit swung to a 22.
$2 million loss from the $30 million in profits of the year before and active sales force by the 2003 fourth quarter declined 24%.
And as a result of this impact on this direct selling business. The company exited all target stores in the second half of 2003, and the North America segment and returned to profitability until 2006.
Back then I strongly believe the problem was that when the stores were open and independent sales Rep was expected to be in the store to do demonstrations and solicit target customers to be their personal clients. There are two things I can think of that are suspect with this approach first shoppers probably not interested and be engaged in a product discussion while wall.
<unk> is a target and secondly, the independent sales rep, especially those working part time, probably werent interested in camping at target stores cold, calling on their shoppers part of the reason one becomes a direct sellers the ability to conduct business on your own schedule. As a result, many started to leave the system.
At this time the salesforce behavior in our Omnichannel approach is expected to be unaffected. The ecosystem. We are creating will focus on the following one brand building and positioning to incremental sales taking market share from our competitors and lastly lead generation for our sales force when the customer buys the product at retail today will be.
<unk> the scan a QR code to register their products for the lifetime guarantee and in that process, we will get to know who is buying our products and offer them a consult a follow up to experience with our sales force.
Our expansion into Omnichannel will truly leverage the uniqueness of the Tupperware brand and incorporates the learning from the target test over 20 years ago.
I will now turn the call over to Marcelo who will cover our third quarter performance in more detail. Thanks.
Thank you Doug.
<unk> costs were below expectation.
Net sales for the quarter were 303 million, representing a decrease of 20% compared to last year.
Driven by continued Lockdowns in China, along with macroeconomic pressures in Europe .
Slowing in North America, partially offset by ongoing strength in South America.
Excluding currency sales declined 14%, which was in line with first half trends.
Net sales in Asia Pacific declined 19%.
Net sales in China declined by 28% in the quarter.
Severally impacted by strict lockdowns as well as declining consumer sentiment was 10, a quarter GDP of three 9% rebound John to your 0.4% in the second quarter.
<unk> spending remains subdued.
Particularly in the premium segment.
Excluding China net sales in the remainder of the Asia Pacific declined by 20% driven by significantly lower sales force activity in Indonesia, Malaysia and Australia.
One bright spot is this region is Korea, which while still small is becoming increasingly important the market was up 16% in the quarter with both that excel in China, and B to b channels contributing to growth.
In Q3, Korea surpassed Indonesia, and South conciliation.
We're getting close to Malaysia and in the second largest market in the Asia Pacific region.
In Europe net sales declined by 24% driven primarily by low consumer sentiment rising inflation and energy cost. Additionally, a timing shift in one of our b to b programs in Germany from the third quarter to the fourth quarter accounted for 400 basis.
Points of the decline, we have new management in Germany and are looking to consolidate it with other markets to right size the business and rationalize the product offering we have.
<unk> on the sales force incentive programs and promotional plans in order to revitalize and Reengage the sales force.
Consumer confidence is very low given rising inflation, particularly in energy prices as well as concerns our possible energy chart ticket and the conflict in Ukraine like other regions Europe <unk> holding in person gatherings with you believe running in Germany and <unk>.
In the first quarter for the first time in over two years.
Moving to the Americas net sales in North America declined by 16% in the quarter, driven primarily by lower sales force engagement and productivity lower unit volume due to price increases and service delays in Mexico due to an upgrade in AP that move.
The last two weeks of orders into Q4.
In the U S and Canada net sales declined by 15% driven by lower sales force engagement, partially offset by improving service levels compensation plan changes earlier in the year, along with a second 10% price increase in September adversely impacted sales force at <unk>.
Profitability suffered during the quarter, despite the price increases due to higher promotional and discount items higher beta resales, and one time costs associated with the closing of our third party logistics provider.
Net sales in Mexico declined 19% as service pricing.
Price increases and inflation costs meaningful lower sales force engagement ring.
We increased promotions and events in the third quarter in order to Reengage, the sales force and already seeing salesforce activity, increasing we do not expect this harvest thesis we have had in Mexico in 2020 will recur in future years.
Despite this Asia, Mexico remains among our most profitable market with a strong free cash flow conversion rates.
In South America net sales increased by 7% in the prior quarter driven by strength in Argentina, which continues to leverage social media in each successful recruiting efforts as well as price increases breast.
Brazil, one of our largest markets had a 5% decline in the quarter.
Are there other teammates in the direct selling industry at cloud in the quarter decreasing 14%, but it performed better than the rest of the non cosmetics that excel in market.
Averaged 9% price increases in Brazil.
Strong top line growth in Argentina.
When profitability in South America by 90 basis points.
Next moving down the P&L to gross profit in the third quarter gross profit was 197 million, which represents a decrease of 21% compared to last year.
Gross margin in the third quarter was 64, 9% approximately 90 basis points lower than last year.
Much better than the gross margin degradation that we experienced earlier in the year as our price increases are beginning to have an impact.
The decrease was driven by manufacturing efficiencies due to lower volume higher raskin transportation cost country and product mix, partially offset by the price increases.
Pricing actions continue to we've taken throughout the third quarter.
Dissipate or fully variable impact to be seen across the balance of the year.
For the full year, when anticipate increasing prices by an average of 15% after coming out of the third quarter and 11%.
Continuing on the P&L.
G&A expense was 176 million in the third quarter, our 58% as a percentage of sales. This compares to 56% on a reported basis for the prior year.
The increase of 740 basis points was driven by lower sales volume or have relatives or stay with fixed cost base higher selling expense and investments in technology, and then our omnichannel expansion strategy.
Adjusted EBIT for the third quarter with 29 million or 10% of net sales. This represents a decrease compared to the S&P 8 million reported last year.
Given the lower volumes and margins.
<unk> in the quarter includes approximately $4 million in reading and hearing charges related to manufacturing footprint rationalization to reduce fixed costs and improved distribution.
Our adjusted operating tax rate in the third quarter was 64% as compared to a tax benefit of $12 million in the same quarter last year and 46% in the second quarter of this year.
<unk> tax rate was driven by an unfavorable mix of earnings by country, including receiving not tax benefit for substantial entity losses in countries like the U S.
Concurrent with the recent organizational changes and market volatility, we continue to refine our supply chain and tax planning strategies to achieve a lower overall tax rate I should also note that for the full year with pet cash taxes to be lower than in the prior year.
And finally adjusted earnings per share were 14 cents in the third quarter compared to $1 19 last year driven by oil factors. Previously discussed include an approximately 13.
Favorable foreign currency translation adjustments.
Turning now to cash flow.
On a reported basis year to date operating cash flow net asset base.
<unk> was an outflow of $8 8 million compared to negative $7 4 million last year.
And by lower earnings together with an increase in working capital in preparation for our Omnichannel expansion and excess inventory due to lower than expected sales volume.
We are increasing our focus on cash management, particularly with regards to our manufacturing footprint and working capital management.
We also recently amended our credit facility to provide for greater flexibility in anticipation of continued market volatility and the timing of our turnaround plan.
We ended the quarter with a consolidated net leverage ratio of 417 with our debt covenants for the third quarter of $4 five is the maximum.
Cash balances at the end of the quarter.
$103 million compared to $267 million as of the end of 2021.
Total debt was $704 million compared to 685 million a year ago.
Company recent credit agreement Amendment allows for a maximum leverage ratio to decrease from four five in the third quarter to 425 in the following two quarters.
While the company is currently in compliance with covenants were taken a proactive approach and started discussions with the banks to create additional flexibility as we continue to right size the business due to our current revenue trends and accelerate our reengineering actions.
Given global economic outlook in which we operate and current consumer sentiment, we have to actively manage cash flow and liquidity as you know we have been here before as a reminder, in 2020, we took more than $150 million of cost out.
Currently we have plans to take more than $100 million of fixed costs.
Over the next three years.
But at re investable returns.
In summary, third quarter net sales declined year over year.
Operating margins were below expectations, we acknowledge the potential for continued near term volatility as we continue to address internal challenges and navigate external headwinds.
So we're that these external headwinds are impacting our ability to execute our turnaround plan and promptly as we'd like.
You can be sure that we will continue to look at additional ways to right size, the business and to increase our cash generating capabilities in order to further strengthen our financial foundation will be we will be doubling down our reunion and efforts in Q4 and we further rationalized.
Our global manufacturing footprint.
Now with that let's take some questions.
Okay.
At this time I would like to remind everyone. If you would like to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Anthony Lubinsky with Sidoti.
Yes. Good morning, guys. Thank you for taking the questions.
So firstly, so as far as the.
The conversations that you've had with your lenders about your debt covenants.
Can you just share more details as to when those conversations started and then.
Perhaps a two part question here. So I guess you talked about the rationalizing inventories.
Well were inventories because that was not disclosed in the balance sheet. Because you only had a consolidated balance sheet. So if you could just talk about where your inventories now.
<unk>.
Plans going forward to do to reduce inventories.
Hi, Anthony Marinello here. Thank you for the question and yes, we continuously talk to our banks partners as we have a serious of reengineering actions to take to make it tougher.
Top outerwear.
Sustainable for the next 50 years.
So.
Discussions for the next round of the agreement as Todd picked back in September .
We are proactively doing the five year plan.
To ensure that we will have the flexibility to continue our turnaround plan.
See the levels of inventories in our 10-Q that will be.
Publishing and we also have.
Our CSR programs across the world to improve our days of inventory turns and that program includes the manufacturing rationalization included.
Yes.
Sales and promotions across the world across different channels as well as on the SKU rationalization.
Got it okay. Thanks for that and then.
In terms of the.
New programs with target and Amazon can you give us any early read on those.
What's been the response from your direct sellers and how are you managing channel conflict.
So Anthony good morning. This is Miguel So let me talk to you about the targeting in one sentence.
That is.
Only four months four weeks into into the business.
Ahead of our expectations. So we're we're performing better.
We just have to remember that we are going with a very limited number of skus into target stores on our.
Direct selling workforce now they have access to many many hundreds of different skus. So so obviously there you have pockets of people that are a little bit concerned but for the most part our great sales leaders around the in this case the U S. They understand the strategy.
And some of them have been reporting already more activity.
In their own business, just because this is a brand activation.
Therefore that we also do so obviously consumers go and see our branding.
And target and they are looking for some other products and they conduct their their sales the sales rep. So so it's been great and as I mentioned in the.
My previous remarks, we have a.
Yeah.
We have it in Belgium.
Perfect ecosystem, where we already are.
Operating in one of the biggest retail stores around the country and we have a big penetration in indirect selling and both of them are growing. So so those are good indicators for us obviously early in the game.
Lots and lots to do the the softness that we saw in the U S was related to some compensation mola adjustments that we did.
But on completely unrelated to our target initially.
The good thing about target is that now we're going to go to stage two which includes saw end caps and all the holiday season. So in three months from now we're going to be reporting our first full quarter of results in target.
Okay.
Okay got it thanks for that in terms of just my last question here.
In terms of just.
Hi.
Elasticity and elasticity I mean, just in response to your price increases it sounded like that.
Bigger adverse impact on volumes in <unk>.
Just with the slowing of the economy it seems like everywhere.
Should we be concerned about additional discounting pressuring gross margins.
And <unk> we.
We have been doing a series of price increases throughout the year and we have play with two models of small incremental increases month over month or double digit increases on a quarterly basis and we are learning as a company as in many countries and this is the first.
This time, we have had to do price increases over a decade. So we are applauding the data to understand the elasticity of today of the put all of the program anecdotally, we have seen that demand, where we do double digit price increases we see sharp volume declines.
That come back over time.
We still believe that the price increase program is that rate action to protect the economics of the business.
We are not alone in this inflation more of that.
Salaries competitors as well as CPE have done price increases this year.
Across most of the markets.
Alright, Thank you and best of luck.
Thank you. Thank you Anthony.
Your next question comes from the line of Jason Bender with Citigroup.
Great. Good morning, Thanks for taking the question just to come back to the leverage covenant.
I get that.
So very early and you have only been discussion.
Whatever it is two months at this point, but can you just speak to your confidence in your ability to get your terms amended and just kind of assuming you do breach.
What should we kind of expect in terms of NEC.
Next steps in your ability to then work out from there. Thanks.
Hi, it's somebody else. Thank you for the question.
We have.
A group of very supporting banks and this is.
Capital allocation answers size, our priority as a company is to generate cash and improve our working capital. We have signs that Q4 would it be better than Q3 with the actions that we started in Q2 for inventory management and for cost containment.
So we have put into their forecast as serious.
<unk> and risks given the volatility of the macroeconomic environment and consumer sentiment and we have flexibility in both in debt management as well as EBIT reduction.
So we are working with the banks and we expect to have by Q4 and you are getting demand that will be long lasting will facilitate and did turnaround plans that we have for the next two years.
So let me let me ask.
Just a quick comment.
Jason So as you know.
Recent history, we've been there before so we know I mean, it's not something that we're proud of but we have that scale.
We already know.
How to rightsize the company how to focus on cash.
And obviously, we provide confidence to the banks and everyone that we're going to be in compliance with all of our obligations. So so it's a rather we already took on we know how to drive a company with limited risk.
Great and just relative to all the investment you've been making to grow capabilities to drive the omnichannel side of the business.
Given where you guys are the leverage ratio in the macro environment just the overall trends in the business is your expectation that you might have to pull back on some of those investments and at least for the short term to manage cash.
Yes. The short short answer is yes, we might we might pull back some we might delay some more.
The strategy continues to be the same way, we believe is the right one.
Obviously, we faced some execution issues.
Very weak consumer sentiment around the world.
We're managing this company actively right.
If we see that there is a market that.
Is reacting favorably, we're going to be investing in that market, but but the short answer of your question is yes, yes, where we are we're doing that.
And in parallel if I may add we are taking costs out sequentially. So we already have a plan to take out another $10 million in Q4 that will help to continue right sizing this business and making tough, but we're a very sustainable profitable for the future it's important to recognize that.
Company and prepare for growth.
And in some cases, we will do that trade off so that we invest ahead of growth.
Got you. Thank you for that had been just switching gears one of the things you've mentioned in terms of kind of catalyzing promotion in the direct selling side of the business has been the return of live person events. Since you've had these events have you seen any sort of change in activity for those.
As members of the sales force, who have participated in them versus those who haven't can you just offer some commentary there in terms of what youre seeing and expectations.
Yes, So let me.
Share with you a little bit of the I'm going to call it out.
Salesforce analytics, so basically what we've seen is that the people that have been with us for a longer period of time I'm going to call. It two to three years. They feel there's still remain with us sometimes not as productive because obviously the consumer sentiment is low and they don't have as many customers, but theres still engage with us where we've been as Tony's too.
To bring on keep the newer people right.
And I'm talking people with less than two years of <unk>.
A experienced with us and that has really correlation we've never been in an in person meeting. So we've never really understood. What our DNA was as a company. So they missed out on that and Thats. What we saw were retaining them and training them and so on so now with these new generations of people we expect obviously.
Retention or engagement on recruiting efforts to start increasing.
We have some good news in some of our major markets, but its too early to tell that that is.
That is gaining ground because we just had those events very recently.
Okay.
Got it thanks for that color I'll pause, there and pass it on for now thanks.
Your next question comes from the line of Linda Bolton Weiser with D. A Davidson.
Yes, hi.
So I'm just wondering if.
The cost cutting initiatives.
I guess, the new actions, you're undertaking if theres cash charges associated with any of those actions like for severance and things like that can you quantify that.
Yes, I mean that and that is exactly why we are in discussions with the banks as you probably know exiting some of the regions that.
That we play today and right sizing our distribution.
Light chain and manufacturing footprint.
Could be costly in terms of evidence absolutely the right thing to do for the next 20 years and we are evaluating every a scenario with a proper return analysis on MTBE and in discussion with the bank is to help us.
Yeah.
Those.
Structuring plans to transform this company at a capacity that our EBIT cut production.
And Kent.
Our next step and then have a good liquidity ratio in terms of both debt to EBIT tax and interest coverage. So we're working with the banks and and.
And many of our financial advisors to pace based ranging made and actions over the next three years and now as of today, we have an estimate that the charges would be and the magnitude of $100 million.
I'm, sorry could you repeat that number in terms of the charges the amount.
Yeah. So we would we will expect that we're going to have a $100 million of additional restructuring over the next three years with an investment return of course of course.
And what percentage of the 100 million is.
Or is cash roughly.
Yes.
<unk> will be cash yes.
Okay.
That's a pre tax or after tax number.
That will be a pretax number.
Okay.
And then.
Can you just talk about.
Well I mean, so the target stores, even though it's a small number of skus is quite a large number of stores was there some channel fill shipments in the third quarter or in the in the third quarter and can you quantify the channel fill shipments.
Shipments.
Yes, yes. It was there were some I mean it was it was.
Less than a million dollars.
But what we're seeing right now the reordering pattern theres, some skus that have exceeded greatly exceeded our expectations.
Linda if I may add on the SKU selection and its Greg again.
Enough data to validate base with data but.
Some of the steps that we have placing target that are very high price and sometimes double than competition are the first failures.
Because this is the first time in many years that consumers are able to pass right their quality of the tupperware container products and then validate that the pricing.
And consumers are seeing the quality for the pricing.
Okay.
Okay.
And then.
Just in terms of those retail initiative I know you had talked about having to build up some infrastructure.
To be able to ship to retailers and things I mean is that work already done or do you still have like more investment to make along those lines.
So depends on the country, but the bigger ones most of the investment is already there in the U S is already there. So so we're good to go at least for the for the first big customers. Obviously, we might require more as we expand expand our presence and more.
Our partnership with more retailers.
And just finally, I mean, obviously you're you're.
Objective would be to expand into more retailers I guess do you think that just the general stability of the company and your financial condition is going to inhibit perhaps other partnerships with other retailers.
No I don't think so I think.
Obviously it takes these partnerships take a long time right.
The lineup on it's a once a year worth of preparing so.
So we are we are preparing for that so I don't see any risk on that.
Besides any cash that we generate.
In excess of our obligations are going to be dedicated to product and omnichannel because as you know this is the charter of the company.
We see it.
Highly beneficial not only for for for the future of our company, but also for their direct celanese workforce. Because this is how we're going to be attracting a lot more customers to all the all the top of our products not only the ones that we are offering in retail.
Okay. Thank you very much.
Thank you Linda.
Yeah.
Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Yeah.
There are no further questions at this time I will now turn the call over to Miguel Fernandez for any closing remarks.
Thank you in closing, while we're not pleased with our third quarter results. Our Omnichannel expansion plan remains on track and we look forward to future penetration into retail channels. Later. This year. We have noticed there is plenty of work still remains ahead of us.
To transform this business, but this quarter market incremental progress towards our goal of making the business as big as our iconic brand and we will continue to build from here once that about all the time.
Thank you for your time today, and we look forward to talking to you again soon.
Thank you for participating.
This concludes today's call you may disconnect at this time.
Okay.
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