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Tupperware Brands (TUP -2.86%)
Q2 2022 Earnings Call
Aug 03, 2022, 8:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


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 instruction] Alexis Callahan, you may begin your conference.

Alexis Callahan -- Vice President of Investor Relations

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 Mariella 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 3rd, 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.

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Please review the forward-looking statements disclosure on page three 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 comparisons 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 -- President and Chief Executive Officer

Thank you, Alexis. And 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 remaining. Next, we need to fix our capital structure to enable the turnaround time to succeed. We took aggressive, rightsizing actions in 2020, and folded up in late 2021 with the refinancing of our credit facility and a very favorable terms.

All of these steps enabled us to free up necessary investment dollars for our term run planned 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 equipment to our systems and processes, and to attract new talent that can help us successfully take the Tupperware Brand to our consumers wherever they shop. This investment growth is often common, but for us is necessary. With these efforts, we're building a new company within our 76 year old direct selling company.

We said that a turnaround would take three years, but with the global headwinds of the pandemic, inflation, and stronger dollar, that time has flipped. We also said that the financial recovery of the company would be bumpy any case, 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 for use 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're navigating the company through difficult global events, general inflation, and currency headwinds. All while executing a multi-year 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. These revenue declines were partially offset by out-performance in South America.

Inflationary pressures continued to weigh in on our margins, but were partially mitigated by widespread pricing actions taken during the quarter. Together with tighter control cost controls, which resulted in sequentially higher profitability compared to the first quarter. Second quarter performance was also impacted by [inaudible] 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 Tupperware market.

In the U.S,. and Canada, we made drastic but necessary changes to our business model, and we increased prices 10% each quarter. This was the first time we've taken pricing actions in quite some time. As a result of these changes, world sales we're down 24% in the quarter, operating profitability improved 200 basis points, and we further expect expansion in the second part of this year.

The investments and changes we're making were not easy to do, but we knew they were necessary to increase profitability and create a more sustainable business. Well, these changes had an emotional impact that caused our active sales force to declining 10% compared to the first quarter. These changes had the desired effect of productivity improved 23%, and resulted in better service levels toward the end of the quarter. The net result was an improvement in multiple profitability across the quarter, which was both encouraging, and confirming that we made the right changes, From this smaller, but much more profitable and sustainable base, we believe that we're very well positioned for a more profitable growth in the future.

I should also note that we will be hosting our annual [inaudible] recognition event this week in person, something that we have not done for more than two years. As you know, the direct selling industry from person to person business, we believe the lack of in-person meetings, cool recruiting, and selling activity over the past year. And we're 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 continue to the second quarter, and we believe that the sales growth of 1% could have been higher had those issues not persisted.

Relaunch initiatives to address those issues, things like back order [inaudible], and began to see slight improvements toward the end of the quarter. These service issues, however, have caused a reduction in number of active sales 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-digit declines.

The growth was driven by improving service level, [inaudible] for commercial campaigns, and an increase in in-person gatherings. Well, we have no is impossible mentioned that appears to be building in the market as evidenced by a 12% increase in average active sales force compared to the first quarter. We also note that upcoming events, including the presidential election and the World Cup, may cause distraction of all activity 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 store locations, and introducing new product offerings, only an effort to upgrade the brand in the eyes of consumers. The reason we believe these investments will prove a great return is that the newly upgraded studios are showing an increase in productivity of over 20%.

Well, we cannot predict the timing and severity of the further lockdowns. We believe the investments that we're making now are important to made and eventually will pay off when e-commerce begins to normalize. Excluding China, our Asia-Pacific business was down 8%, with markets like Indonesia driving the decline. Particularly in countries with low [inaudible] 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 the first in-person event in relation to nearly three years. Asia is a key region for us with a lot of opportunity to grow. We are hopeful that a return to a more in-person gathering, as well as more attractive promotional programs, a new product offerings will help to incentivize selling behavior, generally momentum and drive long term sustainable growth. On the business expansion site, we're 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 and Beyond,and HomeGoods in the US [inaudible] As you're aware, this is new territory for us. We're testing, pricing and merchandising strategies at this retailers from a very limited number of products in order to help us assess what resonates with today's consumers. We're also working closely with our direct selling force to ensure we create a healthy ecosystem for our entry into new channels, provides them with customer leads, and raises a brand awareness for [inaudible].

These steps are not yet large scale, but instead more like partners to help us see how consumers react to approach and this in these new channels. These tests are also helping us to refine our supply chain to better serve the retail channel, and since this is a new milestone for us. In addition, we've made meaningful progress with leading 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.

A [inaudible] approach will begin to appear in new channels, including retail shops and online. For competitive reasons, we're not planning to provide any details until our products are actually in these channels. We're excited to update you further in the next earnings call. Our direct selling channel 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 challenge to our direct selling business in the quarter, including changing the business models and distribution arrangements in various markets to boost service levels, and attract and retain more people, or which we believe will yield growth and higher profitability. We also believe that not hosting in-person events for over two years in most developing markets has had a negative effect in our direct selling business, resulting in lower sales force engagement, lower recruiting, and unpredictable sales. But with the opening of travel, we're beginning to host events again. I mentioned in hosting one in Asia 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. We believe this activity will help us set up a positive momentum as we head into 2023. We also continue to implement the global direct selling best practice, including using more data driven approach to make better decisions, segmenting how we look at ourselves first and our customers, to personalize their experience with Tupperware. Each addition preferred customer loyalty programs is our biggest market, and sharing detailed 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 are seen significant improvement in recruiting and retention twice as high as the legacy program in the first month. As we continue to add data on cabinets and selling models with further improvement. And speaking of detail, I'd like to provide a technology object. As I mentioned before, technology has to be foundational to our future business, and we're continuing to work to upgrade and centralizing systems.

During the second quarter, we continue to enhance our direct selling systems across the globe, while carefully balancing change management. We'll stabilize our direct selling order and platform in the US, which was a painful 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% the same period of last quarter.

We plan to accelerate these efforts in the second half of the year, bringing even more products into the market. One recent and highly successful example was the launch of a portable blender in Asia Pacific, which did much better than expected and indicates a significant potential that exists as we accelerate new product selection efforts. We're also testing new materials such as glass doors in a few markets. We believe there's tremendous opportunity to expand into new categories where consumer give our brand permission to compete.

On the branding front, we launched two collaborations during the quarter that drove conversation around our Tupperware Brand, and showcase our marketing capabilities to 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 scene was featuring the newest Minions movie, The Rise of Gru, we collaborated with Universal Pictures to create a limited edition medium themes product. On the [inaudible] front, our very purpose has a sustainability mission to design and build environmentally friendly, reusable product.

We're continuing to work toward the easy targets we established for the first time last year, and we recently pledge our commitment to the Ellen MacArthur Foundation to promote a circular economy. We also anticipate publishing our next ESG report soon. We're proud of our contribution to a more sustainable world, and continue to make progress in this important area. Let's turn to organizational updates.

During the quarter, we made the difficult organization decision to streamline and delay organization, and began a new brand of rightsizing given the crude rate of our direct selling business. But as importantly, we continue to work toward [inaudible] that can help us achieve our business expansion goals. We hired 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 local manufacturing distribution and in leading complex global organization.

We also hired a new SVP of the US, and Canada Omnichannel Expansion, Jonathan Schipper, who previously worked for Spectrum Brands, and who brings the leadership necessary to accelerate expansion and branding efforts in North America. Lastly, we strengthen 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 industry, and in leading global businesses going through transformations. Expertise will be particularly helpful to us as we continue our omnichannel expansion plans. I encourage you to read the press release we issued this morning for more details.

In summary. We are all beginning to see encouraging trends in many of the markets as a result of efforts that we've been making. We really the extreme volatility in Europe, and China has adversely impacted us in the near-term and expect the 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. We believe we remain on track to further penetrate retail channels later this year, which will be the milestone in our omnichannel evolution and provide a needed catalyst for long-term growth. We acknowledge the challenges we have in front of us to transform this business. However, we have unwavering commitment that we're on the right path and execute the right strategy that will ultimately succeed in making the business as big as our iconic brand.

I will now turn the call over to Mariella, who will cover our second quarter performance in more detail.

Mariella Matute -- Chief Financial Officer

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 and were sold and held for sale beauty and personal care businesses as discontinued operations consistent with our strategy to fix our core. Our comments today, therefore result 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 weakness in Europe and lockdowns in China, partially offset by strength in South America. Next, I will discuss sales by region, including the specific performance of our largest markets. Net sales in Asia declined 16%, and China declined 32%, driven primarily by continuing lockdowns in that region.Severely 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 healthcare systems. And therefore, even when lockdowns totally instant people remain more hesitant to mitigate In general. The lack of in-person gatherings for the past two years has had a cumulative negative effect on the all sports activity.

As we have 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 events 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 loyalty programs, sale declined by 25%.

European consumer confidence is very low. Consumer budgets are shifting toward basic needs like food and infant protection. In response to inflation, consumers are beginning to spend less and save more, and they are also switching to lower priced products. Germany, which is one of our largest markets in the regions, had the largest decline due to services issues that negatively impacted force sale 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, and apart from service [inaudible]. 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 are intentionally building some shipments in an effort to reduce single item shipping cost, which improved profitability, but the result slipped into lower sales. Profitability was [inaudible] 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 manage 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 opening 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 recent sales contributed to relative weakness, as inflation is causing 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 successful investment campaigns, social media efforts promoting the business opportunity, as well as price increases which in average were 17% for the quarter. Brazil, one of the world's 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 PNL 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 cost, and quantity and product mix, partially offset by price increases taken in the quarter. As pricing 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%.

Continue down the PNL, SG&A expenses were $187 million in the second quarter or 54.9% of 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 [inaudible] 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 bringing the ending charges related to organizational changes, primarily in Europe to reduce fixed cost 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 benefits for substantial entity losses in countries, including the U.S.. Concurring with the recent organizational changes and market volatility, we continue to refine our supply chain and tax planning strategies to achieve a lower tax rate. I should also note that for the full year with pat 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 the factors previously discussed, including approximately $0.06 of unfavorable offering currency translation.

Turning now into cash flow. On a reported basis, year to date, operating cash flow net of investing activities was -$64 million compared to -$1 million last year, driven by lower earnings, together with an increase in working capital for preparation of our omnichhannel expansion. 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 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 a medium term given where we are, our stock price has trended. We believe that this will be highly effective 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 share repurchase we announced in the first quarter, our capital allocation priorities shifted toward the pay down the debt, which we review the balance by nearly $110 million, ended with a total debt of $702 million.

At quarter end, our consolidated net leverage ratio was 3.1. In summary, second quarter net sales decline 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.

Questions & Answers:


[Operator instruction] And your first question comes from the line of Jason Bender with Citi. Your line is open.

Jason Bender -- Citi -- Analyst

Great. Thank you. Good morning, everyone, and thanks for letting 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 three year plan, how do you think the timeline has changed?

Miguel Fernandez -- President and Chief Executive Officer

Good morning, Jason. Nice to talk to you. So basically, our term plan is kind of divided in two. One is fixing our core business, and the second part was to meet the consumers where they shop in various parts of the world, which is our omnichannel strategy.

And obviously,we had a three year plan, but there were a few things to 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 hitting most importantly, China, which is one of our most important markets. So what are the milestones that I'm looking at? First, were you going to be able to see it in some of our markets.

When you see the popular brand pretty much in your everyday life, which basically is being translated when you see it online and where you see it on the shops and that's getting closer and closer day in day by day. And as you heard the script, you're going to see a lot of those examples and real life, examples toward the end of Q3, a lot more in Q4, and even more in Q1 of next year. The other part of the strategy and you know, you already see these in some parts of the world, you already see a lot of these presences in in Europe with our essential brand and the expansion that we've been having with a lot of our loyalty programs that we have there, and 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 really only variable for us, which little by little we're seeing easily in many parts of the world. So we believe that every time we have the environment that we want to create in a market, we see growth and we see accelerated growth. So to answer more specific the timeline, I say obviously, this headwind that we had probably delay everything. 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 releases on, China becomes normal then that accelerated things, or if Europe turns around quickly, then we can turn right around just as fast. And 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, the direction that we want to create, we see growth. And every time we approach retailers and they're open up,they open up with all the lack of brands and so on.

So, that would be it.

Jason Bender -- Citi -- Analyst

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, 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.

Mariella Matute -- Chief Financial Officer

Hi, Jason. It's Mariella. Yes. We have not priced in more than three markets throughout the course of Q2, and it varies from 3% price increase to 56% price increase depending on the country and inflation conditions.

And with that, we are analyzing the effects on volume. We see in some countries that, yes, some groups of sales force they buy ahead of the price increase, in other markets is 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 expect to learn more in the next price rounds we're going to be throughout the year.

Jason Bender -- Citi -- Analyst

Great. Thank you. I'll pass it on.


Your next question comes from the line of Anthony with Sidoti. Your line is open.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Good morning, and thank you for taking the questions. So, I guess as for us 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?

Mariella Matute -- Chief Financial Officer

Anthony, hi. It's Mariella. Resins continue to be in an inflationary environment, primarily due to the situation in Europe, and in our PNL in Q2 we receive a cost increase between 9% and 13% for resin costs and in a similar fashion increase for freight and distribution cost. For the rest of the year, we are predicting the same inflationary environment for resin rate.

The good news is that we don't see further increases from what we already have reflected in our PNL.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Got it, 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?

Mariella Matute -- Chief Financial Officer

Yeah. So we, we negotiated with the banks an amendment to create more flexibility and be able to invest in our turnaround plan initiative. So we will continue to restructure, restructuring parts of our direct selling business, mainly in Europe. And as far as the covenants, we have plans to continue using our debt capacity, and being within the debt to EBITDA covenant ratios that we have with it with the bank.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

You got it. Thanks. And then as you look to continue to transform Tupperware and into the new sales channels, I know you've made some strategic hires. Miguel, are you satisfied with 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 these new sales channels? 

Miguel Fernandez -- President and Chief Executive Officer

So, I think we're good now, mostly in Americas, I feel very good in some parts of the rest of the world, probably in India, we might bring a couple more new executives. But it's not only bring in that [inaudible], but also the teams that actually execute on that, on the strategy and they operate under those circumstances. So they know what looking good looks like.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Got it, thanks. Okay. And I guess, lastly, your tax rate has been kind of all over the place. Any sort of any thoughts about how should we think about the tax rates for the back half of the year?

Mariella Matute -- Chief Financial Officer

Yeah, Anthony. The description all over the place. That happens when you have more than 50 different tax rates and growth 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% reported in Q1, but higher than what we reported to last year of 34%.

And their dynamics with corporate were is that the mix of earnings shifted from countries where we can take a deduction on a higher tax rate to countries where we have a loss. Unfortunately, at this point, we cannot take those losses as credits 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 in countries  we have yet to put our tax planning initiatives.

And we expect that the tax rate will continue to be high in the short term. And we are working on that complete a net income basis to understand what are the prioritie,s and where are the countries that we can execute a tax initiative to lower the tax rate over the long-term.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Got it. Okay. Thank you. And best of luck.

Mariella Matute -- Chief Financial Officer

Thank you.


Your next question comes from the line of Linda Bolton-Weiser with D.A. Davidson. Your line is open.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Yes. Hi, and welcome, Mariella. Thank you. 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?

Mariella Matute -- Chief Financial Officer

Yes, Linda. Actually, that was one of the reasons why I join Tupperware, I do enjoy and modernization with technology and use and digital tools to make their job a forward that excel in workforce more full. [inaudible] that is a multi-year plan that I am working right now to be presented to the board. And these will map, will be designed with data to enable digital era in this direction to sell in China, as well as enable the company to sell in retail.

So we expect that the investment will be approximately between 50% and double of what we spend today. Over the next year once we have the plan together to take the company to a digital era.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. Thank you. That's helpful. And then, 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 -- President and Chief Executive Officer

So in one word, all of the above. Right. We would expect and one of our values in the company is that we always improve. But more specifically, we've been, obviously facing huge headwinds.

And you've got to believe that sometime they're going to they're going to lower. And we are prepared and we are obviously maneuvering through them. But I see a progression in the top line and the bottom line and everywhere in between for us.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK, 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 costs or the investment in the PNL 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 the investment is going to increase, but also revenue is going to hit. So it's going to come because we so far, we only invested, but we haven't got any revenue or meaningful revenue. But starting toward the end of Q3, and Q4, and go ongoing, we're going to have a lot more investment around obviously merchandizing strategies and activations and brand activities, but also the revenue is going to be going to compensate for that.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. And you touched on your 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-ove- year?

Mariella Matute -- Chief Financial Officer

Yes, Linda. In Q2, our cash [inaudible] was better than in Q1 of the 70 or so million of cash of operations plus investing about $60 million was that you think you too. And what is driving their uses of cash a`re our margin erosion. As you know we decline our gross margin from 400 basis points year-over-year.

So that took some cash. On the second item was investments in this SG&A. We also went from about 51% adjusted last year to 54%. Those are the two main products of cash.

And we had indeed a benefit in inventories between Q1 and Q2. We're working very hard to put forward incentive plan as well as our development cycle so that we monitor where it for better. So we we have that in our eyes and plan to continue and it read that you got to use an inventory as a as a source of cash. in addition to that, and what you'll see in our free cash flow for working capital is an investment to prepare for that retail expansion.

So you will see what AI, [inaudible] increasing to enable them would be channel strategy.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. And then when you mentioned the pricing averaging 15% increase for the year, 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?

Mariella Matute -- Chief Financial Officer

Yeah. 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 that benefit come in in Q3 and Q4.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Ok. And then on the retail initiative in the U.S., you mentioned initiatives at HomeGoods and Bed Bath and Beyond. Are you talking about online initiatives or are there actually products that we can see in the stores at this time and those in those brick and mortar stores?

Miguel Fernandez -- President and Chief Executive Officer

So, as I mentioned in the script, those were what I call pilots and tests for us to make sure that our pipeline is working, supply chain, our systems and everything. Right. I think the product that we sold to them in, let's say in HomeGoods, I think it's already gone. I think they already sold all of it.

The Bed Bath and Beyond it was online. And I think they pretty much it's all gone by now. But what are you going to start seeing in Q3 and more importantly, in Q4 toward the end of Q3 and Q4, is our products on the shelf and online in the major retailers.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. 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 the 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?

Mariella Matute -- Chief Financial Officer

Yes, Linda. EBITDA is suspected to be true, 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 a more decline in revenues than originally anticipated, as well as in Asia. So, you will see some cash required to restructure parts 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 the lockdowns in China and the situation in China. Obviously, we are all everybody's suspected to COVID becoming an a 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 agreements so that we have the flexibility to execute both the, the turnaround of the direct selling market as well. Our expansion in retail for our brand.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. Thank you. That's very helpful. And then one last one, on your share repurchase.

Just can you clarify what your stand is right now? So you've completed the accelerated share repurchase in terms of what you're going to do going forward. Is it your focus on debt reduction? Or could there be some further share repurchase on a opportunistic basis? Or are you prevented from that temporarily under the terms of the credit agreement?

Mariella Matute -- Chief Financial Officer

Yeah. Well, first we did finish the share we purchased a in May, and we repurchased 4.9 million shares. That had an effect of $0.09 to EPS. And then, uh, we have a still remaining 150 million in capacity for additional of 250 million.

And but at this time, we do not anticipate additional share repurchases 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 flows closely on a monthly basis.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. Thank you so much for answering all my questions. I really appreciate it.

Mariella Matute -- Chief Financial Officer

Thank you, Linda.


There are no further questions at this time. Mr. Fernandez, I turn the call back over to you.

Miguel Fernandez -- President and Chief Executive Officer

Thank you. In closing, while we're not pleased with our second quarter results. They were in line with our expectations. We're pleased to see the sequential improvement in profitability as a result of the changes we're making to our core direct selling business.

Our our omnichannel expansion plan remains on track. We look forward to the future penetration into retail channels later this year, We acknowledge that there's plenty of work still remains ahead of us to transform this business. But this quarter marked incremental progress toward our goal of making this business big of our iconic brand. Thank you for your time today.

We look forward to talking to you again soon.


[Operator signoff]

Duration: 0 minutes

Call participants:

Alexis Callahan -- Vice President of Investor Relations

Miguel Fernandez -- President and Chief Executive Officer

Mariella Matute -- Chief Financial Officer

Jason Bender -- Citi -- Analyst

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Migueal Fernandez

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