Tupperware party is back on

Our original short thesis on Tupperware was on the back of a seemingly endless downward spiral of deteriorating fundamentals, excessive leverage and a business model that simply could not work in a period of social distancing, not to mention its fair share of other red flags.

We were wrong.

We were caught off guard by the new management team's ability to steady the ship, shifting focus to online channels and the reinvigorated demand for homewares by families stranded at home due to COVID-19 restrictions. This culminated in earnings far exceeding our estimates and a dramatic rebound in the share price. Fortunately, our positioning was small and we acknowledged our mistake and closed our position quickly, stemming what would have been further losses.

A silver lining from this mistake was identifying long positions in other homewares businesses that have more than offset our losses on this position. An example is Betterware de Mexico which operates a similar type of business but that we believe is a far more robust proposition with high insider ownership and has been one of the top-performing special purpose acquisition companies (despite being profitable!) to come out of the recent SPAC craze in the US. Another is warehouse-style home furnishings business, At Home Group, which has reported exceptional year-on-year growth, all but eliminating its once perilous debt burden, leading to an exceptional share price re-rating.

Unfortunately, this position was unprofitable, and it is all but certain that it will not be our last. Fortunately, our strict risk management process minimised the damage from this position, and it is this process that will be our ongoing focus to prevent and mitigate such incidences in the future. 

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