Tupperware Brands Corporation (NYSE:TUP) Q2 2022 Earnings Conference Call August 3, 2022 8:30 AM ET
Company Participants
Alexis Callahan – Vice President of Investor Relations
Miguel Fernandez – President and Chief Executive Officer
Mariela Matute – Chief Financial Officer and Chief Operating Officer
Conference Call Participants
Jason Binder – Citi
Anthony Lebiedzinski – Sidoti
Linda Bolton-Weiser – D.A. Davidson
Operator
Good morning. My name is Joanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tupperware Brands Corporation Second Quarter 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.
Alexis Callahan, you may begin your conference.
Alexis Callahan
Thank you, operator. Good morning and welcome to Tupperware Brands second quarter 2022 earnings conference call. Joining me today are Miguel Fernandez, President and CEO; and Mariela Matute, CFO. We will all be available for Q&A, following our prepared remarks.
Earlier this morning, we issued a press release announcing our financial results for the second quarter of 2022, as well as the supplemental deck to accompany our prepared remarks. And both items 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, August 3, 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 first quarter of 2022, subsequent filings with the SEC and in our press release filed this morning. Please review the forward-looking statements disclosure on Page 3 of today’s press release.
Please note that all references today 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 comparison excluding the impact of foreign exchange rate fluctuations. Please also note that all references, unless otherwise noted, are being made on a continuing operations basis.
During this call, we’ll 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 can be found in today’s press release. Finally, a replay of this call will be available on our Investor Relations website later today.
And with that, let me turn the call over to you, Miguel.
Miguel Fernandez
Thank you, Alexis. Good morning to everyone, and welcome to our second quarter call. Our journey to turn around and transform this business started just over two years ago, and this journey has a goal to make the business as big as our iconic brand. Our turnaround plan began in early 2020, with first defining what was the core to our business and finding another home for those businesses that did not fit into our vision. As you saw in our press release this morning, we divested two more of our beauty businesses over the past three months, with only one small non-core business remain.
Next, we need to fix our capital structure to enable the turnaround plan to succeed. We took aggressive rightsizing actions in 2020 and [holding up] (ph) in late 2021 with the refinancing of our credit activity at a very favorable terms. All of these steps enable us to free up necessary investment dollars for our term ramp plan initiatives and business expansion plans.
As we mentioned last quarter, we are investing ahead of expected growth to open new channels and distribution, to make the necessary upgrades and enabling to our systems and processes and to attract new talent that can help us successfully take the Tupperware brand to all consumers wherever they shop. This investment ahead of growth is open in common, but for us, it’s necessary. With these efforts, we are building a new company within our 76-year-old direct selling company. We said that our churn run will take three years, but with the global headwinds of the pandemic inflation and stronger dollar, that time has slipped.
We also said that the financial recovery of the company will be bumpy and it has, just like in the first quarter. But with every quarter of performance, our confidence increases that our turnaround plan will be successful. As a result, we are creating a stronger pure-play premium branded consumer product company with a singular focus to design, produce and distribute our products in all channels where consumers shop.
Let me now address our second quarter performance. Overall, while we are not pleased with our current financial performance, we’re encouraged by the improvement in profitability, reflecting the many structural improvements that we made during Q2. We are navigating the company through difficult global events, general inflation and currency headwinds, all while executing a multiyear turnaround in our core direct selling business and a transformation to become more accessible to today’s consumers. The improvement in the profitability compared to the first quarter reflects many of the structural improvements that we have made during the quarter.
Specifically, ongoing lockdowns in China and lower consumer sentiment in Europe along with dramatic business model changes in the U.S. and Canada were primarily responsible for the year-over-year decline in sales. These revenue declines were partially offset by our performance in South America. Inflationary pressures continue to weigh in on our margins, but were partially mitigated by widespread pricing actions taken during the quarter together with tighter cost controls, which resulted in sequentially higher profitability, compared to the first quarter. Second quarter performance was also impacted by unfavorable foreign currency translation adjustments, which reduced sales approximately 400 basis points and adjusted earnings per share by approximately $0.06, compared to 2021.
Let me now highlight performance in our top four market. In the U.S. and Canada, we made drastic, but necessary changes to our business model, and we increased prices 10% in each quarter. This was the first time we have taken pricing actions in quite some time. As a result of these changes, while sales were down 24% in the quarter, operating profit alone improved 200 basis points, and we further expect expansion in the second part of this year. The investments and changes we are making were not easy to do, but we knew they were necessary to increase profitability and create a more sustainable business. While these changes had an emotional impact that caused our active sales force to declining 2%, compared to the first quarter, these changes had a desired effect as productivity improved 23% and resulted in better service levels towards the end of the quarter.
The net result was an improvement in monthly profitability across the quarter, which is both encouraging and confirming that we made the right changes. From this smaller, but much more profitable and sustainable base, we believe that we are very well positioned for a more profitable growth in the future. I should also note that we will be hosting our annual sales for recognition event this week in-person, something that we have not done for more than two years. As you know, the direct selling industry is a person-to-person business. We believe the lack of in-person meetings, cool recruiting and selling activity over the past year, and we are hopeful that these trends will improve as soon as we return to more normal meeting schedules.
In Mexico, service challenges that began in the first quarter continued to the second quarter, and we believe that the sales growth of 1% could have been higher had those issues not persisted. We launch initiatives to address those issues, think are backholded and delayed shipments and began to see slight improvements towards the end of the quarter. This service issues, however, have caused a reduction in number of active sales force member, which were down 4%, compared to the first quarter, and it will take some time to rebuild our sales force back up in the upcoming quarters.
In Brazil, we are pleased to deliver a growth of 1% in the second quarter, following two quarters of double duty plans. The growth was driven by improving service levels, successful commercial campaigns and an increase in in-person gatherings. What we have now is with popular momentum that appears to be building in the market as evidenced by a 12% maturity in average active sales force, compared to the first quarter. We also note that upcoming events, including Presidential Election and the World Cup, may cause distraction and volatility in the second half of the year.
Turning to Asia. China was down 32% versus last year. China is a critical market for us in terms of profitability, and our performance there, like many other companies that rely on foot traffic, has suffered due to the ongoing lockdowns over the past several months and overall impacted caused by COVID over the last two years. Despite the lockdowns, our local team continued to make investments for the long-term, including upgrading the look and feel of our retail studio locations, and in traditional, product offerings all in effort to uplift the brand in lives of consumers. The reason we believe these investments will prove a great return is that the newly upgraded studios are shown an increase in productivity of over 20%. While we cannot predict the timing and severity of the further lockdowns, we believe the investments that we’re making now are important to make and eventually will pay off when commerce begins to work normally.
Excluding China, our Asia Pacific business was down 8% with markets like Indonesia driving the decline, particularly in countries with low [data adoption] (ph), the cumulative lack of in-person gathering has severely impacted the sales force engagement over the last two years. I actually just got back from a trip to that region, where we hosted a first in-person event in Malaysia in nearly three years. Asia is a key region for us with a lot of opportunity to grow. We are hopeful that a return to more in-person gathering, as well as more attractive promotional programs and new product offerings will help to incentivize selling behavior, general momentum and drive long-term sustainable growth.
On the business expansion side, we are pleased to see that early success in Korea, which saw growth of 15% in the quarter by implementing our omnichannel strategy, including success in home shopping channels, and we expect other countries in Asia to follow this winning strategy. And as it relates to channel expansion and this report, our omnichannel expansion plan remains on track.
During the second quarter, we launched small-scale efforts on Amazon, Bed Bath & Beyond and 100s in the U.S. and Intermarche in France, and Soriana in Mexico to name a few. As you’re aware, this is new territory for us, and we’re testing pricing and merchandising strategies as these retailers on a very limited number of products in order to help us assess what resonates with today’s consumer. We’re also working closely with our direct selling force to ensure we create a healthy ecosystem where our entry into new channels provides them with customer needs and raises the brand awareness for Tupperware Brand.
These tests are not yet in large scale, but instead more like pilots to help us see how consumers react to our products and this is — in these new channels. This test are also helping us to refine our supply chain to better service the retail channel, and I think this is a new muscle for us. In addition, we’ve made meaningful progress with newly retailers in North America, and we expect to gain additional retail distribution in the next few months. We believe your patience with our transformation will begin to pay off. Our Tupperware product will begin to appear in each channels, including retail shelves and online. For competitive reasons, we’re not planning to provide any details onto our products actually in these channels. We’re excited to update you further on the next earnings call.
Our direct selling channels remains our core business and a main source of cash flow and one that needs to continue to improve. To that end, we’ve made several challenges to our direct selling business in the quarter, including changing business models and distribution arrangements in various markets to build service levels and attract and returnable people, all which we believe will yield growth and higher profitability. We also believe that not hosting in-person events for over two years in most developed markets has had a cumulative negative effect in our direct selling business, resulting in lower sales force engagement, low recruiting and unproductive sales.
But with the opening of traveling, we’re beginning to host events again. I mentioned, hosting an [indiscernible] last month. Our first event in the U.S. is this week. We’re planning to hold 72 events in 21 markets during the second half of 2022, with more than 50 of those in-person. Even this activity will help us set up a positive momentum as we head into 2023. We also continue to implement a global direct selling best practice, including using a more data-driven approach to make better and smarter decisions, segmenting how we look at our sales force and our customers to personalize their experience with Tupperware.
In tradition preferred customer loyalty programs is our biggest market and sharing digital inventory catalogs for global trade. As one example of the changes we’re making market by market, we launched a new member referral program in Japan during the quarter and are seeing significant improvement in recruiting and retention, twice as high as the legacy program in the first month. As we continue to add digital headwinds to selling models, we expect further impairment.
And speaking of digital, I’d like to provide a small update. As I mentioned before, the technology has to be foundational to our future business, and we’ll continue to work to operate on centralizing system. During the second quarter, we continued to enhance our direct selling systems across the globe, while carefully balancing change management needs. We stabilized our direct selling order and platform in the U.S., which was a pain point for our sales force over the past year. We also invested in EDI capabilities that will aid in our business expansion efforts.
We have also been making progress in terms of new product innovation and are pleased that our total sales for new products was 13% in the second quarter, up from 9% in the same period of last quarter. We plan to accelerate the surface in the second half of the year, bringing even more products into the market. One recent and highly successful example was the launch of portable blender in Asia Pacific, which had been much better-than-expected and indicated significant potential that exists as we accelerate new product introduction efforts. We’re also testing new materials such as glass storage in a few markets. We believe there is tremendous opportunity to expand into new categories where consumers give our brand permission to compete.
On the branding front, we launched two collaborations during the quarter that drove conversation run our Tupperware Brand and showcase our marketing capabilities as a branded consumer products company. First, we collaborated with Vera Bradley to bring three sets of uniquely patterned products just in time for the summer. And second, when Tupperware party theme was featured the U.S. Minion’s movie, the Rise of Gru, we collaborate with Universal Pictures to create a limited edition Minion-themed product.
On the ESG front, our very partners has a sustainability mission to decide and develop environmentally friendly, reusable product. We are continuing to work towards the ESG targets we established for the very first time last year, and we recently pledged our commitment to the Ellen MacArthur Foundation to promote a circular economy. We also anticipate publishing our next ESG report soon. We are proud of our contribution to our more sustainable world and continue to make progress in this important area.
Next, turning to organizational updates. During the quarter, we made difficult organizational decision to streamline and delay our organization and began a new round of rightsizing given the current rate of our direct selling business. But as importantly, we continue to attract new challenges that can help us achieve our business expansion goals. We hire a new VP of Supply Chain, an area of critical importance to us as branded consumer product company with 11 global manufacturing facilities. Jim Van Ingen has significant experience in global manufacturing and distribution and in leading complex global organization. We also hired a new SVP of the U.S. and Canada Omnichannel Expansion, Jonathan Schaefer, who probably work for spectrum brands who brings the leadership network to accelerate expansion and branding efforts in North America.
Lastly, we strengthened our talent in the Board room as well with the appointment of Mark Burgess, who brings us a wealth of experience in manufacturing and packaging industries and the leading global businesses going through transformations. His expertise will be particularly helpful to us as we continue our omnichannel expansion plan. I encourage you to read the press release we issued this morning for more details.
In summary, while we are beginning to see encouraging trends in many of the markets as a result of the efforts that we’ve been making, we believe the extreme volatility in Europe and China has adversely impacted us in the near-term and expect this situation to improve sequentially over the next 12 to 18-months. We have plenty of work ahead of us to optimize our operations and supply chain. We remain committed to improving the profitability of our core business, and we believe we’ll remain on track to further penetrate retail channels later this year, which will be the milestone of our omnichannel evolution and provide a needed catalyst for long-term growth.
We have knowledge of the challenge we have in front of us to transform this business. However, we have unwavering company that we are on the right path and execute against the right strategy that we’re ultimately succeed in making the business as big as our iconic brand.
I will now turn the call over to Mariela, who will cover our second quarter performance in more detail.
Mariela Matute
Thank you, Miguel. I’m excited to be on board and involved in the transformation of such an iconic brand. Before we discuss our financial results, I would like to remind you that we made an accounting change in the third quarter of 2021 to classify our sold and held-for-sale beauty and personal care businesses as discontinued op, consistent with our strategy to fix our core. Our comments today, therefore, results from continuing operations only.
Now turning to our second quarter results. Net sales for the quarter were $340 million, representing a decrease of 14%, compared to last year, driven by weaknesses in Europe and lockdowns in China, partially offset by strength in South America.
Next, I will discuss sales site regions, including the specific performance of our largest markets. Net sales in Asia declined 16% and China declined 32%, driven primarily by continued lockdowns in the region, severally impacted as consumer sentiment index fell from 113 in March to 87 in May and fewer total studios. Excluding China, net sales in the remainder of Asia Pacific declined by 8%, driven by significantly lower sales force activity in Indonesia.
It is worth mentioning that the impact of COVID on developing countries is quite different than in developed countries, due to health care systems, and therefore, even when lockdowns are lifted, people remain more hesitant to congregate in general. The lack of in-person galleries for the past two years has had a cumulative negative effect on the overall sales force activity, as Miguel previously mentioned, with our total active sales force down 6% year-on-year. From Q1, our active sales force grew by 1% as we started to host in-person brands in many countries for the first time in years.
In Europe, net sales declined by 30% driven primarily by low consumer sentiment, as well as the timing of our retail loyalty programs, which are larger and seasonal in nature. Excluding logistics programs, sales declined by 25%. European consumer confidence is very low. Consumer budgets are shifting to our basic needs like food, energy and transportation in response to the inflation. Consumers are beginning to spend less and save more, and they are also switching to lower price products.
Germany, which is one of our largest markets in the region, had the largest decline, due to service issues that negatively impacted sales force engagements, as well as the timing of large retail deals that did not repeat from the prior year. We’re working to fix this important market by making organizational and supply chain changes that we believe will improve performance over time.
Moving to the Americas. Net sales in North America declined by 14% in the quarter driven primarily by lower sales force engagement and productivity in the part from service issues that persisted into the second quarter. In the U.S. and Canada, net sales declined by 24%, driven by lower sales force engagement, partially offset by improving service levels. We also intentionally delayed some shipments in an effort to reduce single item shipping cost, which improved profitability, but resulted into lower sales. Profitability was also improved by a 10% price increase we took in the quarter, as well as the difficult, but necessary business model changes that Miguel referred to earlier.
Net sales in Mexico increased by 1% in the quarter, while we acknowledge the growth, service issues and inflation caused meaningfully lower sales force engagement. We kicked off an initiative during the quarter to address service issues in part by offering special incentives and began to see a slight improvement in June. More work remains to further improve service levels and build back our sales force numbers. We also increased prices by 6% in the quarter. Lower retail sales further contributed to relative weakness as inflation is costing consumers to redeem loyalty points for food rather than goods.
In South America, net sales increased by 12% in the second quarter, driven by strength in Argentina, which led to successful equipment campaign, social media efforts promoting the business opportunity, as well as price increases, which on average were 17% for the quarter. Brazil, one of our largest markets, also showed growth with net sales increasing by 1%, driven by higher retention, service improvements and effective commercial campaigns. I will also note that we increased prices by 8% in Brazil.
Next, moving down to the P&L and gross profit. In the second quarter, gross profit was $221 million, which represents a decrease of 19%, compared to last year. Gross margin in the second quarter was 64.9%, approximately 400 basis points lower than last year. The decrease was driven by manufacturing inefficiencies driven by lower volumes, higher resin and transportation costs and country and product mix, partially offset by price increases taken in the quarter. As price actions were taken in the second half of the quarter, we anticipate their full favorable impact to be seen across the balance of the year.
For the full year, we anticipate increasing prices by an average of 15%. Continued down the P&L, SG&A stances were $187 million in the second quarter or 54.9% as a percentage of sales. This compares to 50.1% on a reported basis for the prior year or 51.6% adjusting for a one-time favorable tax ruling in Brazil. The increase on an adjusted basis of approximately 300 basis points was driven by lower sales, higher selling expenses and investments in technology and processes to support our omnichannel expansion strategy, partially offset by lower promotions and improved collection efforts.
Adjusted EBITDA per debt covenant for the second quarter was $38 million or 11% of net sales. This represents a decrease of 11%, compared to last year, driven by lower volume and margins. For adjusted operating income, adjustments in the quarter included approximately $7 million in reengineering charges related to organizational changes, primarily in Europe, to reduce fixed costs and improve distribution, as well as $2 million write-down in technology assets no longer in use.
Our operating tax rate for the second quarter was 45.8%, as compared to 34.7% in the same quarter last year and 52.5% in the first quarter this year. The operating tax rate was driven by an unfavorable mix of earnings by country, including receiving no tax benefit for substantial entity losses in countries, including 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, we expect cash taxes to be lower than the prior year. And finally, adjusted earnings per share were $0.41 in the second quarter, compared to $0.90 last year, driven by all factors previously discussed, including approximately $0.06 of unfavorable during currency translation.
Turning now into cash flow. On a reported basis, year-to-date operating cash flow net of investing activities was negative $64 million, compared to negative $1 million last year, driven by lower earnings, together with an increase in working capital for preparation of our omnichannel expansion. We also recently amended our credit facility to provide greater flexibility in anticipation of continued market volatility and the timing of our turnaround plan.
We completed our previously announced $75 million accelerated share repurchase during the quarter, repurchasing and retiring a total of 4.9 million shares, which contributed $0.09 to adjusted EPS. While dilutive in the immediate term given where our stock price has trended, we believe that this will be highly accretive as the company performance becomes more predictable and more profitable in the years to come.
We ended the quarter with a cash balance of $119 million. Following the chart report as we announced in the first quarter, our capital allocation priorities shifted toward the pay down of debt, which we reduced the balance by nearly $110 million, ending with a total debt of $702 million. At quarter end, our consolidated net leverage ratio was 3.1.
In summary, while second quarter net sales declined year-on-year, profitability sequentially improved compared to the first quarter, driven by pricing actions and tighter cost control measures. While our performance is trending in the right direction, we also acknowledge the potential for near-term volatility as we continue to address internal challenges and navigate external headwinds. We, nevertheless, will continue working to strengthen our financial foundation to enable us to continue executing our turnaround plan.
And now with this, let’s take some questions.
Question-and-Answer Session
Operator
[Operator Instructions] And your first question comes from the line of Jason Binder with Citi. Your line is open.
Jason Binder
Great. Thank you. Good morning, everyone, and thanks for shouting me in. I guess, Miguel, where I’d like to start is just on the transformation plan. And I guess the question is, what are the big mile markers you really need to achieve to get us from this kind of stabilization Phase to back to that expansion? And where do you think you stand on those? And relative to kind of that original 3-year plan, how do you think the timeline has changed?
Miguel Fernandez
Good morning, Jason. Nice to talk to you. So basically, as you know, our turnaround plan is, it can divided in two: one is, fixing our core business; and the second part was to meet the consumers where they shop in very responsible world, which is our omnichannel strategy. And obviously, we had a three-year plan, but there were a few things of major things outside of our control that we’re not taking into account, right, when we put the plan together a couple of years ago, which one was obviously the conflict in Europe and the other one was COVID in different versions. But now killing us importantly in China, which, as you know, is one of our most important markets.
So what are the milestones that I’m looking at? First, where you’re going to be able to see it in some of our markets when you see the Tupperware Brand pretty much in your everyday life, which basically has been translated when you see online and when you see it on the shops. And that’s getting closer and closer day by day. And as you heard in the script, you’re going to see a lot of those examples and real-life examples towards the end of Q3, a little more in Q4 and even more in Q1 of next year.
The other part of the strategy and you already see this in some parts of the world. You already see a lot of this presence in Europe with our Essentials brand and the expansion that we’ve been having with a lot of our loyalty programs that we have there — some of the retail expansion that we’re having there. In terms of our core business and fixing the basics, obviously, COVID and not having in-person meetings, that’s really a variable for us, which — little by little, we’re seeing easing in many parts of the world. So we believe that every time we have the environment that we want to create in the market, we see growth and we see accelerated growth.
So to answer more specific, the timeline, I’d say — obviously, these headwinds that we had probably delayed everything. I’m going to — it’s hard to put a number, right? But I’m going to say between nine months to a year, but it could be accelerated, because obviously, COVID release and China becomes normal, then not accelerated things or Europe turns around quickly, then we can turn around just as fast. I know it’s a long-winded answer, but it’s kind of hard to predict the exact time. But the good thing is that any time that we create an environment in direction that we want to create, we see growth. And every time we approach retailers, they’re — they open up with all the lack of brands and so on. So that would be it.
Jason Binder
Great. Thanks for that. That’s helpful. And then I just want to spend a little bit of time on the price increases you’ve been taking. Obviously, come across a number of markets and pretty substantial. Can you talk about the demand elasticity you’ve seen in response to those price increases? And whether you’ve seen any pull forward of demand and pre-buying ahead of those purchases? And if so, is there any way to quantify what that might have been? Thanks.
Mariela Matute
Hi, Jason, it’s Mariela. Yes, we have done pricing in more than 30 markets throughout the course of Q2, and it varies from 3% price increase to 56% price increase, depending on the country and the inflation conditions. And with that, we are analyzing the effect on volume. We’ve seen some countries that, yes, some groups of sales force buy ahead of the price increase. In other markets, it’s the opposite. So at this point, we are learning the elasticity of our demand, and as of now, we expect we are being conservative with the forecast, and we expect to learn more in the next price rounds we’re going to do throughout the year.
Jason Binder
Great. Thank you. I’ll pass it on.
Operator
Your next question comes from the line of Anthony with Sidoti. Your line is open.
Anthony Lebiedzinski
Yes. Good morning and thank you for taking the questions. So I guess as far as on the cost side of the business, so just curious, since the end of the second quarter, have you seen any meaningful changes to your costs, specifically resin and logistics?
Mariela Matute
Anthony, hi, Mariela. Resins continue to be in an inflationary environment, primarily due to the situation in Europe. And in our P&L in Q2, we received a cost increase between 9% and 13% for resin cost and in a similar fashion, increase for freight and distribution costs. For the rest of the year, we are predicting the same inflationary environment for resin price. The good news is that we don’t see further increases from what we already have reflected in our P&L.
Anthony Lebiedzinski
Got you. Thanks. And then with the changes that you made to your credit agreement that you announced today, how should we think about your cash flows and your leverage ratios for the back half of the year?
Mariela Matute
Yes. So we negotiated with the banks, an amendment to create more flexibility and been able to invest in our turnaround plan initiatives. So we will continue to restructuring parts of our direct selling business, mainly in Europe. And as far as the COVID answer, we have plans to continue using our debt capacity and being within the debt-to-EBITDA covenant ratios that we have with the bank.
Anthony Lebiedzinski
Got it. Okay. And then so if you look to continue to transform Tupperware and to the new sales channels, I know you’ve made some strategic hires. Miguel, are you satisfied with the — as far as the executive team, do you think you have the right people in place? Or do you think you need to add more talent to make this journey into the new sales channels?
Miguel Fernandez
So I think we’re good now, mostly in Americas. I feel very good in some parts of the rest of the world, probably EMEA, we might bring a couple more new executives. But it’s not only bringing that key leader, but also the teams that actually execute on the strategy, and they’ve operate under those circumstances so they know when will look like.
Anthony Lebiedzinski
Got you. Okay. And then — and I guess lastly, your tax rate has been kind of all over the place. And you, sort of, any thoughts about how should we think about the tax rate for the back half of the year?
Mariela Matute
Yes. Anthony, good description all over the place. That happens when you have more than 50 different tax rates and grow patterns in different countries. So the tax rate — the adjusted tax rate for the quarter was 45%, and that was slightly lower than the 52% we reported in Q1, but higher than what we reported last year of 34%. And the dynamics with Tupperware is that the mix of earnings shifted from countries where we can take adoption and a higher tax rate to countries where we have a loss. And unfortunately, at this point, we cannot take those losses as credit for taxes.
So in other words, in countries where we have losses, we don’t get the benefit of lowering the tax rate. So we just have the tax rate, I mean, countries where they — where we have yet to put our tax planning initiatives. And we expect that the tax rate, we continue to be high in the short-term, and we are working on a complete net income basis to understand where are the priorities and where are the countries that we can execute tax initiatives to lower the tax rate over the long-term.
Anthony Lebiedzinski
Got it, okay. Thank you and best of luck.
Mariela Matute
Thank you.
Operator
Your next question comes from the line of Linda Bolton-Weiser with D.A. Davidson. Your line is open.
Linda Bolton-Weiser
Yes, hi. And welcome Mariela.
Mariela Matute
Thank you.
Linda Bolton-Weiser
So I was wondering, I think one of the things that was mentioned in the quarter that affected SG&A expense was higher technology spending. How much investment in technology do you anticipate in the remainder of the turnaround efforts for the company, because you do have a lot of work to do on that front, so are there any estimates of how much investment will be required in the remainder of the turnaround?
Mariela Matute
Yes. Linda, actually, that was one of the reasons why I joined Tupperware. I do enjoy modernization with technology and using digital tools to make their job of our direcet selling workforce, more [Technical Difficulty]. There is a multiyear plan that I am working right now to be presented to the Board, and this road map will be defined with data to enable digital era in this direct selling channel, as well as enable the company to sell in retail. So we expect that the IT investment will be approximately between 50% and double of what we spent today. Next year once we have the plan together to take the company to a digital era.
Linda Bolton-Weiser
Okay. Thank you. That’s helpful. And then also, I think, Miguel, in your commentary, at one point, you said something about you expect improvement sequentially. So I wasn’t sure what you meant. Do you mean in the decline of constant currency sales? Like the decline will improve sequentially? Did you mean profit EBITDA will decline or will improve sequentially? What did you mean exactly when you use those words?
Miguel Fernandez
So in one word, all of the above, right? We expect that one of our values in the company that we obviously improve, but more specifically, we’ve been obviously facing huge headwinds. And you got to believe that sometimes they’re going to lowered, and we are prepared and we are obviously manevering to them, but I see a progression in the top line and the bottom line and everywhere in between for us.
Linda Bolton-Weiser
Okay. So can you just talk about as you expand more the omnichannel strategy in the U.S., there were probably some costs in the second quarter related to that. Do you think the cost or the investment in the P&L to execute on that will increase materially more in the second half? Or does the second quarter represent an ongoing rate of investment to bring that strategy to fruition?
Miguel Fernandez
I think in terms of investment is going to increase, but also revenue is going to hit. So it’s going to come, because we — so far, we own invested, but we haven’t had any revenue or meaningful revenue, but starting towards the end of Q3 and probably Q4 ongoing, we’re going to have a lot more investment around, obviously, merchandising strategies and activations and brand activities, but also the revenue is going to compensate for that.
Linda Bolton-Weiser
Okay. And you touched on your cash flow performance, and certainly, we can see the operating cash flow in the first half was worse than last year. So can you explain why that is? Because you’re supposed to be working on reducing excess inventory, which I would expect would release cash flow in a positive sense. So what are the elements that are making the cash flow deteriorate year-over-year?
Mariela Matute
Yes, Linda. And so in Q2, our cash deterioration was better than in Q1 of the $70 million or so of cash of operations plus investing about $60 million was used in Q2. And what is driving the uses of cash are our margin erosion. As you know, we declined our gross margin from 60 — 400 basis points year-on-year, so that took some cash. And the second item with investments in SG&A, where we also went from about 51% adjusted last year to 54%. Those are the two main facts of cash, and we had indeed have benefit in inventory between Q1 and Q2. We’re working very hard to improve our [S&OP] (ph) plan as well as our product development cycle so that we manage our inventories better. So we have that in our eyes and plan to continue reduce in inventory as a used source of cash.
Now, so in addition to that, what you also see in our free cash flow for working capital is an investment to prepare for the retail expansion. So you will see our AR some of our AP terms increasing to enable the multichannel strategy.
Linda Bolton-Weiser
Okay. And then when you mentioned the pricing averaging 15% increase through the year, is that already — is that reflecting what’s already been taken? Or do you still need to take some actions to get to that 15% increase for the full-year?
Mariela Matute
Yes. So we are taking more actions. The price increases were into effect at different times of the quarter. So you don’t see the full effect in Q2. You will see more of the benefit coming in Q3 and Q4.
Linda Bolton-Weiser
Okay. And then on the retail initiative in the U.S., you mentioned initiatives at Home Goods and Bed Bath & Beyond. Are you talking about online initiatives? Or is that actually a product that we can see in the stores at this time in those brick-and-mortar stores?
Miguel Fernandez
So as I mentioned in the — on the script, those were, I’m going to call it, pilots and tests for us to make sure that let’s say, the pipeline is working, supply chain, our systems and everything, right? I think the product that we sold to them, let’s say, in 100s, I think it’s already gone. I think we’ve already sold all of it. The Bed Bath & Beyond, it was online, and I think they are pretty much — it’s all gone by now. But what you’re going to start seeing in Q3, and more importantly, in Q4 towards the end of Q3 and Q4 is our products on the shelf and online in major retail.
Linda Bolton-Weiser
Okay. And then just finally, I mean, I guess, I’m sort of wondering, I mean, if profitability meaning EBITDA will improve sequentially in the second half. Why was there a necessity? I’m still not understanding, in order to get that credit agreement amendment and to raise that leverage ratio cap or whatever for the second half? Is that because of the working capital requirements for the omnichannel strategy? Or what is the real reason for needing to change that credit agreement?
Mariela Matute
Yes. Linda, EBITDA is expected to improve, but also we are accelerating some of our restructuring initiatives as part of our turnaround plan primarily to take action in Europe as we have had more declined revenues than originally anticipated, as well as in Asia. So you will see some cash required to restructure part of the business, and also, there is another cash requirement to enable the technology investments and the working capital for our retail expansion.
And the last piece is the uncertainty of the inflation that we are seeing in the different markets and lockdowns in China and the situation in China. Obviously, we are all — everybody is expecting to COVID becoming an event of the past, but as you know, there are still ramifications of the COVID pandemic in our business. So with that uncertainty, we thought it was prudent to revise the credit agreement so that we have the flexibility to execute both the turnaround of the direct selling market as well our expansion in retail for our brand.
Linda Bolton-Weiser
Okay, thank you. That’s very helpful. And then one last one, on your share repurchase, just can you clarify what your stance is right now? So you’ve completed the accelerated share repurchase. In terms of what you’re going to do going forward, is it — is your focus on debt reduction? Or could there be some further share repurchase on an opportunistic basis? Or are you prevented from that temporarily under the terms of the credit agreement?
Mariela Matute
Yes. So we have 150 — well, first, we did finish the share repurchase in May, and we repurchased 4.9 million shares, that had an effect of $0.09 to EPS, and then we have still remaining $150 million in capacity of our original $250 million. And — but at this time, we do not anticipate additional travel purchases for the remaining of the year as we have shifted to manage working capital and debt and then the retail expansion this year. So those are the priorities, but we obviously, we will managing our capital allocation closely on a monthly basis.
Linda Bolton-Weiser
Okay, thank you so much for answering all my questions. I really apperciate it.
Mariela Matute
Thank you, Linda.
Operator
There are no further questions at this time. Mr. Fernandez, I turn the call back over to you.
Miguel Fernandez
Thank you. In closing, while we are not pleased with our second quarter results, they were in line with our expectations, and we are pleased to see the sequential improvement in profitability as a result of the changes we are making to our core direct selling business. Our omnichannel expansion plan remains on track, and we look forward to the future penetration into retail channel later this year. We acknowledge that there’s plenty of work still remains ahead of us to transform this business, but this quarter, we marked incremental progress towards our goal of making this business as big as iconic brand.
Thank you for your time today. We look forward to talking to you again soon.
Operator
This concludes today’s conference call. You may now disconnect.
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