September 01, 2017
End of an Era: Tupperware Closes BeautiControl
by Douglas M. Lane
In July, Tupperware Brands Corp. announced a series of restructuring initiatives aimed at improving profitability of the global operations of the world’s 10th largest direct selling company. Among the initiatives: shuttering the money-losing BeautiControl business in the U.S. after years of experiencing declines.
BeautiControl Inc., a Texas-based cosmetics and skin care company, has declined considerably from its peak 10 years ago, when it was a $150 million business. The company had $46 million in sales and lost $9 million in 2016, according to documents filed with the U.S. Securities and Exchange Commission. So far this year, sales have declined 25 percent, although operating losses have been cut in half.
BeautiControl’s round-trip as part of Tupperware is an interesting saga. At the time it was acquired in October 2000, Tupperware had been struggling as an independent company following its May 1996 spinout from Premark International, itself a remnant of the Dart/Kraft conglomerate from the 1980s. Between May 1996 and October 2000, Tupperware’s stock had lost more than half its value, and annual sales in 1999 were nearly 25 percent below levels in 1996, as organic sales declines and a sharp rise in the U.S. dollar over that period worked against the company. Therefore, buying a mostly domestic, non-durable beauty brand made a lot of sense in order for Tupperware to diversify.
Tupperware paid $56.3 million in cash to purchase the then-public stock of BeautiControl and assumed $5.6 million of debt. BeautiControl founders Jinger and Dick Heath stayed on briefly following the acquisition, with Dick leaving in 2003 and Jinger retiring in 2004.
In 2001, its first full year under Tupperware, BeautiControl reported $65 million in annual sales and was a little better than breakeven. By then, it was below its peak sales of $80 million that was achieved in 1996. But Tupperware quickly turned things around. Strong double-digit growth ensued in each year for BeautiControl from 2002 to 2005, driven by a shift in emphasis from color cosmetics to skin care, and the development of a party concept they called “Spa Escape.”
At that time, Tupperware much more than doubled-down on its beauty commitment with its 2005 acquisition of a portfolio of direct selling businesses owned by Sara Lee, which was looking to diversify non-core assets as part of its turnaround plan at the time. Tupperware paid $557 million for the businesses, which combined generated $470 million in annual sales, 90 percent of which were in Latin America and Asia-Pacific. Brands acquired included Avroy Shlain, NaturCare, Nutrimetics, Nuvo and Swissgarde, but the crown jewel was House of Fuller, which included a $300 million direct selling cosmetics business in Mexico. The acquisition took Tupperware’s total exposure to beauty from 12 to 35 percent of sales, increasing total company sales by 38 percent to $1.8 billion.
Coincidentally or not, this was close to the peak for BeautiControl. After posting modest sales gains in 2006 and 2007, the business began declining in 2008 to the point that each year from 2009 through 2014, management cited BeautiControl’s decline either first or second among divisions that were underperforming as part of its established markets portfolio. Tupperware distinguishes between established markets and emerging markets, with emerging markets being where it gets most if not all of its growth. Tupperware tried bringing in new management and twice changed the compensation plan, once in 2010 and again in 2015, but to no avail. Recruiting proved ineffective, and sales continued to decline.
Therefore, as part of its recent cost rationalization initiatives, the decision was made to shut down BeautiControl. Given that Tupperware manages a portfolio of other direct selling beauty companies around the world, we would think that if management thought there was a path forward, they could muster the talent and resources necessary. But maybe because of its learnings elsewhere, apparently no path forward was envisioned among Tupperware management. Given its inability to find a buyer for the business, evidently that view was shared by others as well.
Any way you look at it, between direct sales and traditional retail, beauty in the U.S. is a crowded market, and it appears that after its successful multi-decade run, the market has moved on and BeautiControl has been crowded out.
Douglas M. Lane, CFA, is a securities analyst with more than 20 years of experience covering companies that employ the direct selling business model, and his boutique equity research firm, Lane Research, focuses on those companies. His website is www.laneres.com.