Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Tupperware Brands (NYSE:TUP)

Q1 2013 Earnings Call

April 24, 2013 10:00 am ET

Executives

E. V. Goings - Chairman, Chief Executive Officer and Chairman of Executive Committee

Michael S. Poteshman - Chief Financial Officer and Executive Vice President

Analysts

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Olivia Tong - BofA Merrill Lynch, Research Division

Constance Marie Maneaty - BMO Capital Markets U.S.

Sofya Tsinis - JP Morgan Chase & Co, Research Division

Dara W. Mohsenian - Morgan Stanley, Research Division

Linda Bolton-Weiser - B. Riley Caris, Research Division

Michael A. Swartz - SunTrust Robinson Humphrey, Inc., Research Division

Gregg Hillman

Operator

Good morning. My name is Dawn, and I will be your conference operator today. At this time, I would like welcome everyone to the Tupperware Brands Corporation First Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Rick Goings, Chairman and CEO, you may begin your conference, sir.

E. V. Goings

Thank you, Dawn, and thank you, everyone, and good morning. I'm here in Orlando. It seems like this is the first time in 2 years for earnings release that I'm actually here at headquarters with Mike, our CFO, and Teresa Burchfield, our Head of Investor Relations.

As always, you know some of our discussions will involve forward outlooks of the business, so you know the drill on this.

Getting into the first quarter, once again, you see that we're really at Tupperware brands an and story. And by and, I mean, we're an established market and an emerging markets story as our portfolio of Tupperware and Beauty businesses both contribute to top and bottom line growth. And while we performed well in the first quarter, the emerging markets were, as they will continue to be, the driver of the quarter. Remember, emerging markets are 87% of the world's population. Our established markets were down modestly, but included a number of established markets with increases.

We are pleased with the results for the quarter, however, we also have a number of markets that need improvement. And frankly, being very candid as I've had one-on-one talks with many of you over the years, our experience suggests that this is likely to be the case always as we move forward, that with so many markets, there is likely to be disruption somewhere in the world at any given moment. I think what's most important is the results of the blended portfolio and being able to meet progress and not only sales but profits. And secondly, it's knowing what to do, management's obligation here and responsibility, when there is a problem market. Someone once said to me years ago, you don't drown when you fall on the water, you drown if you stay there. And I've been very pleased with their strength in management team getting better at solving problems sooner in markets.

Now a brief market review. Our top performers in the quarter included a number of emerging markets. I'll cover those first. In Europe, our Tupperware business in Turkey was up 41%, which was 10 points higher than last quarter's sales increase. Our Beauty business in South Africa, Avroy Shlain, was up 8% in the quarter. And in Asia, we continued to see stellar performance in our Indonesian business, our largest Tupperware market. We were up about 40%. I was there in -- not only in Jakarta but Borneo the week before last. And I'm also pleased to report we had a team from the NGO Global Fairness Initiative there on the ground with me and we have funded some important research to show the impact of having these 170,000 women in Indonesia in our business. And we'll report those results out to you just like we did in Mexico.

Still in Asia. Our businesses in India, Malaysia, Singapore and China were all up over 20%. And, by the way, India, China and Indonesia together account for almost 40% of the world's population, so expect more from them and more runway in the future. We are, in these markets, in a sweet spot as Tupperware brand is already recognized as a premium brand. When there's household formation, our categories are also near that sweet spot. And the expected growth of the middle class in these countries will provide a lot of white space. Again, the belief is they'll move from little more than 0.5 billion in middle class today to, in 7 years, 1.7 billion. By the way, that leads us to higher price point products and we're already seeing our ability to migrate some of our European, more unique products into the urban centers to middle class in Asia-Pacific.

Wrapping up our best-performing units -- emerging units. In South America, we saw continued double-digit growth. In Brazil, it was up 22%. Venezuela, too, was up 10%. While we had lowered growth rate than in past quarters, that really reflected the devaluation of the bolivar.

Now let me scan a number of our established markets of the world. In Europe, I'm pleased to say that Portugal, Belgium, Austria were all up double digit. You'll remember, we had some issues for a couple of quarters in Austria, but that's back on track again. Italy, I was there last week. It -- impressive moves there. We have made it back to flat in the quarter. It's a market, Italy, with a large population. Loves direct sales and we've never had a dynamic business there. I think we've put together the right management team and the right strategy. So more to come, but I think it's going to be good news in Italy. Interesting also, even our small Greek business was up mid-single digit in the quarter.

Was not so pleased with what happened in our big German business which, for Tupperware, this was our biggest in Europe. We've grown there consistently over the past 3 years quarter-by-quarter, but we had a tough quarter in Q1. We were down 10%. Simply stated, the product and promotional package in January and our -- we have a real push period there, it didn't give us the expected results. And then when we put in the recovery packages to really deliver the quarter, it was really undermined and disrupted due to a 15-year record snow. When I was in Germany last week, it's all they talk about was they had never seen snow like this in recent history. We did the close the quarter with a sales force advantage in Germany, though. And that sets up a good baseline to leverage as we move forward. Also, it's good to see that in the first few weeks of April, for Germany, we see a trend improvement in our key performance indicators. So Mike and I were just talking about it. We expect to see some strengthening trends in Germany as we get into the second quarter.

We're also pleased in Q1 to see a change in the direction of a number of our markets for the better, I might add. France was up 10% in the quarter. You'll remember, the disruption last year occurred during the -- really, stalling of consumer spending, during the pre-election months, and during and after the election. We've mitigated some of that now. A portion of our 10% increase was due to timing of shipments. But the rest was organic, and as I mentioned, we don't need to make any structural changes or strategy changes in that market. And we did close the quarter in France also with a year-over-year sales force size advantage, and just like Germany, that's a good platform to grow in the second quarter.

Tupperware South Africa, was there earlier in the month. We also had a sales increase in the quarter, which was a significant trend change from Q4. It goes through -- we're working kind of the pig going at -- working its way through the python on these counterfeit product issues. And our takeaways, we could have been more proactive in introducing new product to mitigate some of the impact of this early on. And we're taking those actions now. The sales force size is up and we brought in the new products we needed, as well as introducing new colors and some new decorated products.

Turning to Tupperware Australia. We've had our second consecutive quarter of sales increase in Australia. And while the trend increases are still what we would call soft, it's promising to see consecutive increases. You'll remember, that market was our country of the year 3 of 5 years. So we still have a very strong and a very profitable business in Australia.

Looking to Tupperware Mexico, a business where we achieved double-digit growth this last year. Sales were down a bit in the first quarter. I just got back from Mexico last evening. I was there with Pablo Munoz, our Group President, Americas; and Simon Hemus, our President and COO. And with -- this is a regular routine review we do of both of our businesses down there. Frankly, it just confirmed the decline was mostly due to, not externals, but internal missteps as we change the structure of our January promotional offers and as well as the qualification levels for sales force incentive trips. I think we, too -- we exacerbated these changes by simply making too many management changes as we shifted around some very high potential people into new roles. And we do a lot of that because that's how we develop our leadership, and why we don't have to recruit much on the outside. But I think we did too much.

Now, let me move on to some units where we continue to have challenges. Regarding the U.S. and Canada, yes, I'm cautiously optimistic with both of these business units, which were about even in sales with the last quarter -- last year in the quarter. But it's a difficult consumer environment. We do see lots of opportunity for growth, especially in our Hispanic markets. But we've got more work to do on our model and our execution.

In Tupperware Japan, I was very disappointed. We were down mid-teens in the quarter, and although the sales force size was up, productivity was down as we continued to implement the changes in the unit. And frankly, I don't think we've got the right formula there yet, and this is a market that is sensitive to having the perfect formula. So we're going to really be doubling up our efforts to get this figured out. It is a tremendous direct selling market. And during my time here, it's never been a great market for Tupperware.

At BeautiControl, we were able to partially close the gap in our sales force size and we ended the quarter down 2% compared with down 6% at the end of the Q4. However, we weren't able to translate that into sales increase during the quarter. Moving this business back to a more seller and an opportunity-driven model for mostly hobbyists and kind of customer sellers is proving painfully -- a painfully slow process. But we believe we have the right leadership in place. We've done the right things with the product line and we are committed to continued execution.

Finally, let me turn to Fuller Mexico, our big Beauty business in Mexico. We're the #2 beauty company there. Again, I said, we were there Monday and Tuesday of this year. Was happy to see some progress there. We're even with last year in the quarter, and it was worthwhile seeing the steps that we've taken. The adjustments we're making to this market are really beginning to pay off, and we saw some positive shifts in trends.

There are 2 primary drivers that we're focusing on. The first is a marketing lever, where we've begun to better capitalize on our premier Armand Dupree sub-brand, which is already an established and known brand and aspirational in Mexico. And by the way, to think of the positioning of our Armand Dupree, think of General Motors and think of the positioning of the Cadillac brand within there. It's their premium brand, and it lifts General Motors. That's generally what Armand Dupree does. And so more and more, you're seeing us really move the identification of our business there more towards the Armand Dupree. And under Armand Dupree, we're going to continue market and promote our fragrance products under Armand DuPree.

And by the way, relative to competition, which generally uses about 7% compound concentrations in fragrances, which means they wear off very early in the day, we'll move -- we're at 9% to 12% in our concentration. So the public perceives this is higher quality. It commands higher price points. And what this gives our sales forces the opportunity to do, is move to the emerging middle class in these, a more upscale consumer. By the way, this is what Natura has done in Brazil. And what we're doing with Armand Dupree is we're moving beyond fragrance to skincare and other categories. So that's lever #1.

The other area of focus in lever has to do with the sales force and sales management. Here, firstly, we're focusing with our sales force on building also super sellers to really contribute more. We've added new programs where they are recognized more significantly. We've heightened compensation, where the more they do in a month, the heightened level of commission they get. So that's one lever under sales and sales management. The other lever has to do with our management, sales management. We have about 3,000 field sales managers. We had a big problem with turnover. It was very significant double-digit. And our research indicated the high level of turnover didn't really have to do with the experience of the job. It was negatively impacted by too low a base compensation as they started and were learning the essential skills of the business. We've upped that and we're already seeing that start to drop. That means more consistency with these field sales managers managing the sales force.

Secondly, field sales managers report in to district managers, and we have little more than 300 of those. We're now -- added a bonus program for field sales managers where they are incented to reduce the turnover of field sales managers. So district managers have never been incented for this in the past. We think this is going to have impact. So what you -- what I want you to feel is there -- we're doing things on the marketing side of the business and we're doing in sales and sales management. None of it is a silver bullet, but together, I think it's going to have the right effect and we're already starting to see pay off in the first quarter.

Looking at the Mexican macroeconomic environment and what we're likely to see there. We, and I personally, have close relationship with senior members of the new government, have known them prior to the election, and I am pleased to see, and I'm hearing it in Mexico as well, the positive steps this new administration is having and taking. First, there's a focus in Mexico, primarily by the PRI-ed opinion Nieto government, on what's good and what great about Mexico. Leveraging culture, the natural resources and the need to focus on education. So there's really been an attitude and sea change there.

Now, secondly, it doesn't mean they have forgotten the issues with regard to security, but during the Calderon administration, that's almost all the focus. So it was on the negative every time -- every day when you woke up. They have not forgotten the security issues, but how they've taken a different approach is they have -- they're going across political lines to get the 3 political parties together. In the past, you would have some kind of effort in Tijuana, for example, and the local government wouldn't be contacted because they were a member of another political party. Today, everybody is in it for the future of Mexico. That's a big change.

Third, they've taken on, really, the corrupt unions. And if you've been reading the papers, you've probably seen what's happened. The first took on the head of the teachers union. She's in prison now. And perhaps, you've been reading about it because this has been known as one of the most corrupt unions in that country. And finally, what we're starting to see them do is break up the monopolies of telecommunications and broadcast. It's no strange reason why Carlos Slim is the richest man in the world. They turned over the whole telecommunications industry to him. And so now, they're starting to make it more driven by public markets. Anyway, I think the administration will make this a better time for us and that's where our business -- biggest businesses are located.

So in summary, solid quarter for the company.

I'm going to turn it over to Mike, and then we'll open it to Q&A. Michael?

Michael S. Poteshman

Thanks, Rick. First, having a look at where we varied significantly versus our expectation in first quarter sales. We were above what was built into the high end of our range in Indonesia and Turkey, where we expected very good growth, but not the approximate 40% increases we achieved in each of these markets. We also outperformed in France, where we swung to plus 10% in the quarter versus minus 6% last quarter. And I will highlight that there were some positive timing in the comparisons in these units.

Our more significant drags versus what we had assumed to come in at to reach the high-end of our range, overall, were in Germany and Tupperware Mexico. Both of these units were down after being up in the mid- to high-single digits in the fourth quarter. Both units ended the second quarter with modest sales force size advantages versus 2012. As Rick said, we don't see fundamental issues in these units and we're working to really leverage the sales force size advantages that we have.

Since I know many of you look at 2-year stacked local currency sales comparisons, I will highlight here that our 3% local currency sales increase in the first quarter of 2012 was negatively impacted by 2011 having one more week than 2012 under our fiscal calendar. We noted in our first quarter 2012 release that this was a drag on the comparison estimated at 5 points. So on a run-rate basis, our local currency increase in the first quarter of 2012 was 8% and our 2-year stacked growth in 2013 was therefore 14%. This compares with a 2-year stacked growth rate in the fourth quarter of 2012 of 13%, and also with 13% in the second quarter of 2013 using our high-end outlook for sales.

Our diluted earnings per share without items at $1.18 was $0.04 above the high end of our range and 19% over last year in local currency. Our results above our guidance was even with a $0.02 drag that was -- $0.02 more of a drag from foreign exchange rates and we had included in our outlook. The good result reflected, most significantly, a good contribution margin on our higher-than-expected sales in Asia, particularly in Indonesia. We had reasonable contribution margins in Europe and Beauty North America in the quarter, but lag what we would have liked to see for North America and in South America. In Tupperware North America, this primarily reflected some elevated promotional spending and margin concession in the United States and Canada business that paid off in better sales results in the back half of the quarter following a slow start.

In South America, we had some higher product costs in Brazil, an issue we think we've now worked through, and some issues with matching pricing and programs with the cost environment in Venezuela, including in light of the currency devaluation there. While we think we'll be able to run reasonably in Venezuela in local currency going forward, assuming no further significant devaluation, our profit will be worth less due to the lower exchange rates, and this approximate $0.03 impact on the full year is built into our updated guidance.

When we look at our pretax return on sales without items for the whole company, we improved 60 basis points in the quarter versus 2012 to 12.8%. Versus our first quarter guidance, we also had an almost $0.01 benefit from our tax rate being 23.9% versus the 24.5% we had in our forecast. We still foresee a full year rate of 24.5% without items, which is what we said in January.

Turning now to our outlook. We're reiterating today our expedition for a local currency sales increase in the 5% to 7% range for full year 2013 and 6% to 8% in 2014 forward. The 2013 guidance includes a small increase in Europe, although double-digit to low-teen increase in Asia, about even to down slightly compared with 2012 in the 2 North America segments, and a mid- to high-teen increase in South America.

Versus our previous segment level guidance, there are improvements in Asia and South America, and lower guidance in the North America segment, all of which reflects the first quarter 2013 actual results and the trends we expect going through the rest of the year.

While our outlook is $0.10 lower than in January, it is important to note that this is coming from FX and shares. We've included in our outlook versus 2012 a 1 percentage point improvement in ROS in Asia, a small increase in Europe and decreases of about 50 basis points in the other segments.

On EPS without items, you've seen in our release that our full year range is $5.52 to $5.67. This would be up 11% to 14% in local currency and in dollars. In the outlook, there is no impact from foreign exchange rates on the comparison now with 2012. Underneath this, on top of our 5% to 7% local currency sales increase, at the high end of our range, we continue to expect the same 50 basis point improvement as in January and a return on sales at the operating margin line. And continue to take a partial offset from higher interest expense associated with getting to the new leverage target that we announced in January, which is 1.75x debt to EBITDA as defined in our credit agreement. Our [ph] interest expense, in part, reflects our issuance of $200 million of notes in March. Netting all of this out, we now expect our forecasted pretax return on sales for the year without items at the high end of our guidance range to continue to be 14.4%, which is what we said in January. This compares with 14.2% last year.

As I said a minute ago, we continue to include in our outlook a full year tax rate excluding items of 24.5%, although we were slightly below this at 23.9% in the first quarter. Unallocated expenses of about $65 million are $1 million higher than our previous outlook, an interest expense of about $39 million is not changed from what we included in January. Rolling forward, our EPS forecast from our previous guidance without the $0.01 from a lower-than-the-expected tax rate, we have a $0.05 local currency upside in the first quarter, actual results that's flowed through versus the high end of our guidance. This is offset by a $0.03 operating hit from the devaluation of the Venezuelan bolivar, a $0.05 hit from changes in other foreign exchange rates and a $0.07 hit from more diluted shares.

In our previous outlook, we assumed a $75 share price for the $400 million of open market share repurchases in our 2013 outlook. This assumption was made when our stock was trading in the $60s. Our first quarter actual cost per share was $77.88 for the $100 million that we repurchased in the open market, and our assumption for the rest of the year is that our cost per share will be in the low $80s. This change in assumption bumped up our full year diluted shares in the outlook by $700,000 or 1.3%. We expect to make $100 million of open market repurchases in the second quarter and the remaining $200 million included in our outlook, of course, in the second half, with a bit more of a weighing in the fourth quarter given the timing within the year of the cash flow generation.

A few more words on Venezuela. You have seen in our release that we recorded costs in the first quarter, which we've characterized as "Item". These relate to the impact of the devaluation on our net Venezuelan bolivar monetary position inventory in nonrecurring deferred tax positions on our balance sheet when the devaluation occurred. We estimate another $0.5 million of pretax cost associated with the inventory flow-through will be recorded in the second quarter as an Item. Our outlook assumes that the bolivar exchange rate that we'll use to translate our financials will remain at the current 6.3 bolivars to $1. However if the bolivar had devalued further to 23 as at the beginning of April, our estimate is that our incremental amount that would be recorded as an item related to our net monitory assets and inventories would be $17 million. On a 12-month basis, at this rate, there would be an incremental negative impact on our operating results of $13 million. Of course, this hasn't actually happened. Our first quarter actual results included a pre-tax drag of $300,000 from translating our ongoing results at the lower exchange rate following the devaluation.

Looking at our second quarter outlook. You've seen in our release that we foresee a local currency sales increase in the 5% to 7% range, which bands our first quarter actual performance of plus 6% and our EPS range without items is $1.41 to $1.46. On the 5% to 7% sales increase, it would give us an 8% to 10% increase in EPS without items in dollars, including a $0.02 benefit from foreign exchange and an increase of 6% to 10% in local currency.

Looking at our balance sheet and cash flow. We had a good quarter. Normally we've had an outlook in the first quarter in cash from operating activities net of investing activities, with last year coming in at a $43 million outflow on this measure. This year, we came in at $5 million positive, primarily reflecting less of an outflow from payables and accruals and lower capital spending. Also included is about $9 million associated with our issuance of notes during the quarter. The notes were issued at a premium and with accrued interest, and GAAP says this gets reported as an inflow in operating activities. We expect to give some of this $48 million first quarter upside versus 2012 back during the year, but are raising our full year -- our previous full year outlook for cash flow by $5 million to $245 million to $255 million in light of the inflow from the debt issuance that was not considered in our previous outlook. This compares with $234 million actually achieved for full year 2012. We continue to include in this outlook a range for capital spending of $70 million to $80 million.

On resin costs, we now expect to include in cost of sales full year cost for products we produce of about $170 million. Our outlook includes a $5 million hit from local currency changes in resin cost. Our guidance in January was $1 million benefit for the full year and our estimate of what we included in the first quarter of 2013 actual results was a hit of about $2 million. Most of the remaining downside we expect for the rest of this year would be in the second quarter based on our outlook.

Now before I turn it over for questions, I would like to say a few things related to our total and active sales force size comparisons.

Much of this is also reflected in notes on the first attachment to our earnings release, if you'd like to see it laid out that way. You can see that we ended the first quarter with just a 1% advantage in total sellers versus March 2012. This is clearly not what we would like to see, and it's not in line with the message that we give to our units that we should see at a minimum a 10% year-over-year sales force size advantage. People often ask us if we're concerned about where we are with our sales force size comparisons, and the answer is that we do look at this very closely on a unit-by-unit basis. There are times where the reasons for a poor comparison are acceptable and others where they indicate that we have something to work on.

For instance, looking at the 8 units in which we had more than $100 million in sales in 2012, which were Germany, France, Tupperware United States and Canada, both Mexican units, Brazil, Indonesia and Malaysia/Singapore, 5 had advantages at the end of March, and 3 had disadvantages. Germany and France were both up modestly, which isn't our objective, but isn't necessarily a surprise given the dynamics of these markets. Indonesia and Brazil were both up around 30%, which has been supporting our very good growth in these markets even though they are building from high sales bases. And Tupperware Mexico had a small advantage that was not as good as where we've been operating in the recent past. This is something that is a problem and is an area of focus for us.

Among the down units, Malaysia/Singapore traditionally has had a very large and growing sales force but one with a relatively low level of activity. In this unit, we've strengthened our qualification criteria for remaining in the sales force, and this has led to a low double-digit percentage total sales force deficit at the end of March. Still, active sellers in the first quarter were up close to 30% and sales were up over 20%, so while we would of course rather have a total sales force size advantage, we do not see an overriding issue in this unit. Fuller Mexico had a high-single-digit sales force deficit at the end of March. And here we've used tighter qualifications than in the prior year in order to win recruiting prices. This has impacted our numbers. And while we're not happy that -- with this aspect of what we've done, we do think we've made the right move and are working to accelerate recruiting and to get back to an advantage in total sellers.

Finally, at Tupperware U.S. and Canada, we continue to run a sales force size deficit, and we're down 5% versus 2012 at the end of March. This was a sequential improvement from the fourth quarter, but that is not to say that isn't something that's an area of continuing concern and focus for us. It is. Worth noting as well on this topic is that we had a poor comparison in our number of total sellers in India which, while not having more than $100 million in sales in 2012, is an important unit for us and one that has a relatively large sales force.

The negative comparison reflected a few structural and tactical decisions that we've made. And when we look at the situation versus 2012, on what we see is a more comparable basis, we see ourselves in a plus. As with Malaysia/Singapore, we had a nice increase in the quarter in this unit in terms of both active sellers in sales, and we believe we're on the right track. Still, when you look at our sequential total sales force size for the whole company going from plus 5% at the end of 2012 to plus 1% at the end of the first quarter of 2013, the 2 main contributors to the decrease were Malaysia/Singapore and India.

So with that, we're going to turn the call now over to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Jason Gere with RBC Capital Markets.

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Obviously, I'm glad you guys are a portfolio because you have a lot of pluses in there to offset some of the challenges. I guess, going back to kind of the age-old question we've asked on Beauty North America, for the last couple of years, we've been trying to figure out when it's going to turn. When you look at the trends this quarter, even though the active reps are still kind of down, it looked like it got a little bit better sequentially. So can you just flesh that out a little bit more? I mean, as you look at the environment out there and what you're doing, is more investment needed in this business? Just going forward sacrifice a little bit more margin, in order to kind of stabilize or try and get to a point of stabilization.

E. V. Goings

Thanks, Jason. Firstly, no incremental investment is required. It's just a question of time. But I have to first bifurcate these into 2 businesses, firstly, the large Beauty business we have in Mexico, Fuller and, secondly, BeautiControl. And by the way, the Fuller cosmetics business in Mexico, which I've commented on extensively, is about triple the size of our BeautiControl business. It has very strong double-digit margins in it. And since we did that acquisition, we've made a lot of money out of that business. I think what we had the issue with is failure over 18 months or the last 2 years to contemporize certain pieces with regard to the product line, with regard to how we manage the sales force, not only from the sellers but the sales management team. That's why we put in a -- one of our most talented Latin heads to run that business, and that's -- as we did the reviews yesterday, he has taken the bold steps. Initially, some of the problems we had had to do with competitors, particularly in direct sales and what they were doing. That's kind of diminished now. Now it's a question of us simply executing on the new strategies. And I left Mexico yesterday afternoon with a lot of confidence in not only the new management team -- they're fresh, they're young and their strategies are focused and simple, and I do believe they can be replicated. Now turning to the U.S., it's a much more difficult consumer marketplace. There, our business had become almost 80% customer representative, casual, hobbyist sellers, and we have had to invest. But I don't think any -- at any more levels than we have. So we got that business down to the point a little less than breakeven but marginally less than -- I don't think we need to -- there, it's just going to be a question of time. The difference in these 2 environments, too, Jason, that's very important is the recruiting pool in Mexico, where you have a per capita income of about $6,000 a year, and you have a per capita income in the U.S. of about 7x that, she's not -- it's harder to find people looking for opportunity in the U.S. Easier in Mexico. You also have in Mexico lack of a well-developed retail infrastructure once you get out of the major cities. That makes it an easier operating environment for us. In the U.S., it's a very well-developed retail infrastructure and a difficult recruiting pool. We're committed to our BeautiControl business, but there, it's going to take time. I hope we make progress this year. We're seeing it quarter by quarter. But I do believe, back to Mexico, that the second half of the year -- I'll be very disappointed if you don't see pluses in the second half of the year with that business there. Forgive the long answer, but they're really 2 business -- different businesses and different markets.

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Okay. And then just one other question, and then I'll hop off the call. But just as you look at the businesses that are a little bit more challenged or were challenged in the first quarter, some obviously -- you've seen some continuation from last year, some obviously, seem like a little bit onetime. But just there's so much information and I just don't type as fast as you guys can read the prepared comments. I'm just wondering if you could just give us maybe a 1-minute overview of what are the businesses that you actually see the improvement kind of coming in into Q2 and the rest of the year and the other ones where maybe it's going to take a little bit longer. And if you could do that, I'd be really appreciative.

Michael S. Poteshman

Sure, Jason. Trying not to go to deep, then. When we look at Europe, the one that was a blip versus what we expected in the first quarter was really Germany. It's a large business for us, and we said we were down after being up last quarter. So we went in with a sales force size advantage, and that's really what we're working to leverage. So I don't, we don't really see that as...

E. V. Goings

That's not a turnaround.

Michael S. Poteshman

A fundamental problem. It was the way the January promotion went and things like that. So that was the one that stood out, I would say, the most in Europe. The other larger markets, you heard that France did better, so that's one that we've been working to see better results starting from towards the beginning of last year. In the bit more intermediate term, we've struggled a bit in Italy, but that's started to do better now, left a hard comparison but better profitability. South Africa, we talked about, is probably a little bit longer. In Asia, Rick talked about Japan, and that's been a long-term project and that's probably not one that's going to turn real quickly. It's not one that we've assumed. The one that has turned to at least modest growth now is Tupperware Australia. And we didn't say too much about Nutrimetics Australia, but that's been another one that's been a longer-term turn that we needed to make. And things really haven't changed there a lot, I wouldn't say. Rick, I think, covered Beauty North America pretty well, and he talked about Tupperware U.S. and Canada. In Tupperware Mexico, we didn't have a great quarter in the first quarter. That was a drag on the overall segment. And there, too, we don't see a fundamental issue, really. How we ran our promotional activity in the first quarter and some of our incentive trips, we think, could have been done better. And so we're -- we'll iron that one out going forward. In South America, Brazil has continued to operate well, and that's really the -- clearly the biggest market there and the big driver. And then Venezuela is continuing to do well. There really haven't been laggards there, Venezuela, from the externals, but in a local currency basis, that's fine.

E. V. Goings

Jason, let me put that back through the wine press on -- because your key question was which are the ones that you think are long term? I'd say there's 3. BeautiControl, North America, this is going to take us time to work our way through, and a lot of that has to do with externals but also the nature of our sales force. Second, Japan, that we haven't figured it out in my 20 years here, and we're not giving up on it because it's a great market. And third is Nutrimetics Australia. The others are tactical issues. A quarter at a time, some quarters better than others. But we may be guilty here in giving you more information than your need or want, but what I hope that displays is how close we are to these business units and the levers in these business units.

Operator

Your next question comes from the line of Olivia Tong with Bank of America Merrill Lynch.

Olivia Tong - BofA Merrill Lynch, Research Division

Appreciate the detail on the sales force activity. But you mentioned concern across a couple of different markets, but you really didn't say much about how you're going to remedy it. So can you give a little bit more color on what initiatives you're taking to remedy the sales force issues there?

E. V. Goings

Which markets, Olivia?

Olivia Tong - BofA Merrill Lynch, Research Division

Particularly in the U.S.

E. V. Goings

Oh, in the U.S. Okay, first, I want to put it into perspective. The U.S. is 5% of the world's population. Does it matter to us? Yes, it's high -- a high per capita income, but it's a tough direct selling market out there because you have almost 70% of the women who are employed outside the home, that means a more difficult recruiting pool. You have the most well developed retail infrastructure in the world. And you have as -- I remember my famous Walmart comment on our -- when we did first quarter. I'm not going to reiterate that, but consumers where it's -- it's much more difficult to get consumers to trade up to quality in this market than it is, for example, Europe. So those -- that's going to be the wind in our face in the U.S. The biggest opportunity under that is not to attack it as a macro market but to segment it out there. And the sweetest spot is the Hispanic American and, particularly, the Mexican-American market. We have 31 million people that we can work on there, and 21 million are in about 6 states. That is where we ought to get our most dynamic growth. The other area where we're getting our most dynamic growth, because their recruiting's easier, is in Canada and particularly Eastern and French Canada. So the way we're attacking this is not a "one size fits all" but really segmenting the marketplace. Now how we've changed that is how we do sales management. Now all of the Hispanic markets will report into Hispanic sales leaders, and the Anglos into others. They have different demands with regard to products -- needings [ph] out there and even communications. So we've started to segment it better. So I think we're going to get -- make progress out there, but is it ever going to be as easy as China, India or Indonesia? Not a chance.

Olivia Tong - BofA Merrill Lynch, Research Division

I guess a second follow-up. I mean, if you go region by region, it looks like the active sales count would have still lagged organic sales growth even after adjusting for the measurement changes. So how do you think about that? I mean, it looks like, based on those numbers, that you're expecting more and more out of your distributors.

Michael S. Poteshman

Olivia, the -- there's a 12-point gap, obviously, from a minus 6 on the active sellers to 6%-plus on the restated sales increase. And a bit over half of that is this change in the way that we measure activity. In the U.S. and Canada, that was 2 points of the 12, and another 5 having to do with mix of which particular units we were getting the sales from. So we kind of put that aside. When we look at where we're getting the big productivity improvement, it mainly shows in -- first, in Asia where we're getting more sales from the Tupperware focus markets and high-order-size markets in Indonesia and Malaysia and less from the Philippines. So that -- the productivity in those big markets is showing through. That has to do with good systematic increases of qualification levels and so on in businesses that are doing well. So it's really showing through running the direct selling fundamentals well. So we're comfortable with that kind of approach. In South America, as well, Brazil has continued to get good productivity increases, which in that one, it reflects, to some extent, some pricing, although that's an element of South America in general, less so on it. And then the average probably in Brazil. But there as well, with the way that the business is running so well and the way that our -- the top end of our sales force is doing so well with it, we've also been able to improve the qualification levels there. So it's not to say that in every instance there is nothing to work on. I don't think that's the case. But I do believe that a lot of that difference, well, clearly, is explainable between the mix and the productivity-led increases in markets that are operating well.

Olivia Tong - BofA Merrill Lynch, Research Division

Typically, year after year, how much does productivity help in terms of -- usually, at least if we've looked in the past, I think that the active sales force and the -- and organic sales growth are -- move pretty closely together. So are you expecting more productivity going forward out of your distributors? Generally [indiscernible], not just market.

E. V. Goings

And the answer is, as you expand a sales force, the first thing you try to do is not have any loss in productivity out there. The hardest thing to change is what the average consumer order is and what the average party is, for example. The easiest thing to change is the size of the sales force, and then the 2 levers under that is how active are they as a sales force and then what happens with regard to the party. I think what we have learned the last several years, as we've created a -- we call it the strategic blueprint of how to run a direct selling business, and it really came out of our Asia businesses. They have found that a very formal regimen of how to manage within a distributorship leads to productivity increase. And when I was in Borneo a week before last, on this distributorship -- on the wall of that distributorship, I saw, "Here's what the requirements are, the 6 steps, if you're a sales representative. Here's the requirements if you're a unit manager. Here's the requirements if you're a team leader." That's the kind of stuff you would have only seen years ago in direct selling in a market like in Germany, for example. But it's showing that you can implement those in lower-context, less-affluent emerging markets, and it starts to have a significant delta on productivity. What I'm seeing is the Europeans are picking up on that and getting more aggressive on these because what they deliver is -- it doesn't so much grow the sales force, it grows the productivity. So I'm feeling better at us having exposed a formula to enhance productivity. And I think it's an important question.

Olivia Tong - BofA Merrill Lynch, Research Division

Got it. And then on a couple of specific markets. On Germany, can you just provide some color on what happened on the initial promo there? I get the follow-on with the poor weather. But just on the initial promo, what happened there? And then on Fuller, are you surprised that sales were only flat given the changes to competition that you've made there? And what are your expectations about Fuller going forward?

E. V. Goings

Yes. Firstly, I'll answer the Fuller. No, I'm not surprised because what they didn't do is invest any margin with a bunch of promotional actions. We asked them to don't do a fix for the quarter. Do a contemporarization of this business for the future of the business. Don't respond to competitive actions out there. So the kinds of things that what they did weren't quick-fix kind of things, but I do think they're permanent fix. The issues with regard to shifting from lower-cost toiletries and color cosmetics, which consumers aren't particularly dedicated to. When you go most to any woman's lip and nail drawer in any place in the world, and you'll find multiple brands there. But you go into fragrance and skincare, there's a high level of dedication. So that shift isn't something that I would expect to happen a quarter. And the shifts with regard to what we did in the sales, the sales force and sales management, those aren't 1 quarter. Although we did see a drop in the turnover levels there, but I want to see it work its way through this. So firstly, I feel good about the Fuller business going forward. I think we're going to have about the same kind of second quarter. I'm not expecting a big kick in the second quarter, but I expect progress under the surface there. And I said I'm going to be greatly disappointed if you don't see a plus second half of the year in year-over-year comparisons. Back to Germany, again, how we run Europe -- and think of the U.S. in January -- the old days when department stores really were a force in the U.S., they used to run white sales. And why they ran white sales in January is they took a staple item out there and they found it as a way to break the log jam to get the consumer start spending money again. We have had an approach in Europe for, goodness, the past 20 years that -- it's the old Greek saying, as the morning goes, so goes the day. To get them out there and try to get -- goodness, what percentage of sales did we try to get in that push period, Mike, in -- of the first quarter?

Michael S. Poteshman

In -- yes, in the first 5 weeks, it's probably 35%, something like that.

E. V. Goings

Yes. Or more, in some of these markets. And they build up their sales force. They try to get 100% activity. Well -- and it's driven promotionally by, "Here's the specials. Get everybody to hold a party." Well, the promotional items, even though they were tested, they just weren't picked up as well in that quarter. And usually, what you can do then is you can change the dials, pick it up a little bit more as you go through the quarter. Well, so what they did was they modified that, but then March, they're hit with a 15-year record snowfall. What it led to was party cancellations. And by the way, that's a big source of recruits. I was pleased that they still ended the quarter with a 2% sales force size advantage. But I would call the issue in Germany a tactical issue during the quarter. Doesn't mean they made a mistake on the promotions. Some days, there's diamonds, and some days, there's stones. It just didn't work as well. It worked in other markets.

Operator

Your next question comes from the line of Connie Maneaty with BMO Capital.

Constance Marie Maneaty - BMO Capital Markets U.S.

I have 2 questions. It seems as though there was a pickup in business in China. I'm not sure if that's true, but I think sales in 2012 rose more than 10%, and in this quarter, they were more up more than 20%. So was there an acceleration, and why would that be?

Michael S. Poteshman

Yes, Connie, we had a bit of a blip in the fourth quarter, in particular, last year where we had good sell-through from our outlets. We operate under a retail model there. But the distributor ordering wasn't in line with that so we had an even quarter with the prior year in the fourth quarter. And we knew and saw and, I think, even talked about, to some extent, that we would see a more normal relationship this year. So we have something like a high-single-, low-double-digit advantage in the number of outlets there. And we certainly said before and continue to expect a double-digit increase in sales in China this year. So it was more that the fourth quarter comparison was tough.

Constance Marie Maneaty - BMO Capital Markets U.S.

Okay. And then back to Fuller Mexico. How big is Armand Dupree as a percentage of their sales? How fast is it growing? And what's the difference in profitability between the Armand Dupree line and the regular Fuller line?

E. V. Goings

Connie, firstly, we don't break that out for competitive reasons. But I will tell you that the primary category in Mexico of Armand Dupree as a category has been fragrance, and fragrance operates north of 75% gross margins. It is one of the best -- fragrance and skincare are, in CFT, the 2 best categories out there. And it's a category that consumers tend to be very dedicated to their brands. So that's why we're letting that spread across the whole product portfolio there and making -- allowing a sub-brand to become the master brand.

Constance Marie Maneaty - BMO Capital Markets U.S.

What's the time frame on that happening? Is that, like, 5 to 10 years?

E. V. Goings

No. I think it's more 3 to 5 years. As a matter of fact, if you see one of our Fuller brochures right now -- you know, I'll call you. You -- it says right under it, "Armand Dupree." I'd call your attention, Connie, here in North America, when the acquisition of Hertz trucks was -- who did -- yes, Roger Penske did it. On the first year, it said Hertz on it. The second year, it said Hertz-Penske, and it took about 5 years, now it's just Penske. But you do it and before it happened, nobody noticed it. And that's what we're trying to do is -- I mean, suddenly, brochure by brochure, the name "Armand Dupree" is becoming bigger. So it's not going to be a big shock factor there. And so the brochure evolves to higher -- I saw it yesterday, higher stock paper that you're using, more lifestyle photography in it, more glossy covers of it and more products in there that say, "Armand Dupree." And so you really shift. That's why it is interesting. When, I've seen, many companies that do the absolute shift overnight, "We're not known as this anymore. We're known as this," the consumers, they lose their brand awareness. I mean, that happened at -- what was it? Oh, goodness, the big consumer package goods company, that their international business became some other name here.

Michael S. Poteshman

Mondelez?

E. V. Goings

Yes, Mondelez. And you can tell I can't even remember the name. So we want -- Connie, we want to be very careful. Michael, how did you remember Mondelez?

Operator

Your next question comes from the line of Sofya Tsinis with JPMorgan.

Sofya Tsinis - JP Morgan Chase & Co, Research Division

I have 2 questions. The first one has to do with the quarter-to-date trends. And in Germany and Tupperware Mexico, you talked about the weakness in the Q1 and how you expect both of those markets to improve going forward. But I don't think you've touched upon how they're doing Q2 year-to-date.

E. V. Goings

Well, I commented on Germany that we've had much of April under our belt and we saw improvement in Germany there. Moving forward, I think you're going to see -- I said, with regard to Fuller, the same kind of a quarter, the second kind of flattish. But it's too early to really give the second quarter indication for the Fuller business even though we have great trendsetters down there. And I think you're going to see improvement with our business, our Tupperware Mexico business, in the second quarter because that was missteps that caused that and we don't expect to repeat those in the second quarter.

Sofya Tsinis - JP Morgan Chase & Co, Research Division

Okay. And then a question on gross margins. Can you reconcile what drove the decline this quarter?

Michael S. Poteshman

Sure. The -- we were down 30 basis points on gross margin, and that page is on a GAAP basis. And part of the Venezuela "Item" was in gross margin for the inventory coming through the historical cost. So that was about 20 basis points. We also had about a $2 million hit across the company from the resin, so that's also a 20-, 25-basis point impact. Some of the better results there were in places, a couple of markets in Europe, like Italy and South Africa, Tupperware South Africa, where we were investing heavily last year, that didn't recur.

Operator

Your next question comes from the line of Dara Mohsenian with Morgan Stanley.

Dara W. Mohsenian - Morgan Stanley, Research Division

So sorry to linger on this sales force issue, but -- and the country detail you gave us this helpful, and I understand the variances in terms of the active sales force number, but even the total number was up only 1%. So I just wanted to get some clarity in an overall sense on how concerned you are from an overall standpoint by the gap between organic sales growth and sales force growth. How much pricing is contributing to that gap? And also, the productivity that you're seeing here, how sustainable do you think it is? You mentioned Asia and South American productivity in response to Olivia's question. But is that sustainable, given that it seems that in general, in the CPG space, we've had slowing consumer spending in emerging markets over the last couple of quarters here even though your business has held up well?

Michael S. Poteshman

Sure, yes. On the total sales force, so we were up 1% overall, and walk through the 2 big drivers, at least versus the fourth quarter coming down from plus 5% at the end of the fourth quarter where in Malaysia, Singapore and India, and in both cases, we had still very good active seller comparisons in those units. So that -- those were not really a concern. The ones that we would like to see better are places like the U.S. and Canada where we had the sequential improvement, but we're still down about 5% in the total sales force size. The advantage of Tupperware Mexico had come down and we mentioned that and that's clearly not what we're looking for there. And then Fuller Mexico, although it was a bit because of the way we ran the program, we went up from a mid-single to a little bit more in terms of the sales force size deficit. So those are really the ones that I would say are more of a concern. In terms of being able to get the productivity going forward and this -- the price increases, the place where we can see it most clearly, because price also changes when you put in new products and things, it would -- it gives you less visibility but, really, is in South America. And we probably got 1 point of an advantage for the whole company based on the price increases in South America. So 1 out of the 6 there. Do we think we can keep getting productivity? I think that we do tend to see that when -- also when we have less active sellers, so the ones that are there are going to be more productive when we're successful going forward, as we think we will be. And having more active sellers, we're probably, and Rick was talking about this, going to get a little bit less productivity out of them or at least not as much of a bump. So there -- I think we would just normally expect to see that kind of trade off over time if that's how things pan out. So we continue to be confident in the 5% to 7% growth this year we reiterated today, but also said that we think we'll improve to the 6% to 8% range going forward that we've been on for a while.

E. V. Goings

Dara, let me add to that. I think why it was important that Mike went through, as part of our prepared remarks, the -- what happened with sales force around the world is the problem with grossing up our sales force is they're not all equal. A party in Indonesia is $105 less than that in India. In Belgium, it's $800 and throughout most of Europe about $400, and if you distill down, that -- a typical distributor may have from 250 to 1,000 sales force, you start to look at that and do the math out there, they're not all worth the same. So most of the movement where -- you will see where there's these big deltas, tend to be in these markets where there's not a high percentage of working women. The retail marketplace is generally less well developed. And the impact of a recruit is not as likely to be that great. It's easy for them to come in and they go out fairly easy as well. So there's a lot of noise with them. It's almost the difference between the clarity of an FM station and an AM station. If you got to Europe, it's FM. And it's a bigger barrier to get in, serious training to get in and they tend to produce more. In India, not so much.

Dara W. Mohsenian - Morgan Stanley, Research Division

Okay, that's very helpful. And then I was just hoping you could touch on your long-term return on sales goals, Rick. You guys have obviously made a ton of progress over the last 5 years here. But some of your geographic segment margins are now in the high teens range or even above 20%, and in the past, sometimes the margins have gotten too high. We've seen it's created some competitive risk. So is there a certain ROI, ROS level that you think you top out at longer term at the corporate level or in some of these individual regions?

E. V. Goings

Well, Mike and I spent a lot of time talking about that. And he's added that we -- the increase is 50 basis points on pretax income per year. I'll tell you -- the difficulty is in -- just like the sales force, grossing it up on the world, it depends on the contribution there. We can get -- in some of these emerging markets of the world, you can get the margins in the mid- to high-30s on there. And when we -- as -- they have -- 2 things, the advantages there. They have a lot of runway left because there's this dramatic middle class there and tend to have -- we tend to have a lower cost with regard to the infrastructure that -- in those kinds of markets. So that would say as they grow and contribute more, it takes away some of the limits. You get to the U.S. and Western Europe, there are more competitive pressures with regard to pricing there so that you tend to -- if you move your gross margin, it's more expensive to do business there. You move your gross margins up too much, that, as you mentioned, as you were stating the question, you had some issues there about pricing yourself and we want to build the brand in those markets. So we're going to know more as we go forward. It's continued to impress me how we've been able to capitalize in these emerging markets of the world, which again, has 87% of the world's population. There's not much of a retail infrastructure out there, how to continue to grow it. And this was -- somebody asked me earlier, "Well, if we invested more, could we grow faster?" I'd say, "Absolutely not." We're investing what we need to, and I don't think we're starving any one of our businesses out there. How high can it go? Well, again, as we have more of this runway for the next 5 to 10 years, we're going to be an emerging market story. That's why I sent out to many of you Fareed Zakaria's The Post-American World: The Rise Of The Rest. A lot of runway left in these markets and it could amaze us.

Operator

Your next question comes from the line of Linda Bolton-Weiser with the B. Riley.

Linda Bolton-Weiser - B. Riley Caris, Research Division

I have a question on Beauty North America, just kind of following on some of the earlier commentary. I mean, your return on sales margin has fallen pretty dramatically in that business over the last couple of years. And it actually was kind of better year-over-year in this quarter. And you mentioned how they didn't invest in margin and then the Armand Dupree is probably helping margins a little bit, et cetera. But if Fuller Mexico is still pretty profitable, then it strikes me that the decline in profitability there is largely the BeautiControl. And BeautiControl sales were really poor in the quarter. So, again, how -- I know I've asked you this, Rick, a million times over, but how much time are we going to give the BeautiControl? And what if Avon comes out, and maybe they don't say it overtly, but they may disinvest in their U.S. business because they don't see the growth potential. Is that going to change your opinion about BeautiControl? And just following on this, are we going to come to a point where maybe the sales performance will still be poor but the profit performance will be stabilizing a little because of mix in Armand Dupree and maybe cost cutting? Or is the margin still going to drop along with -- if the sales drop in BeautiControl?

E. V. Goings

Well, firstly on the first part of the question, the Fuller business is still very profitable, in the mid-teens. And we've operated that business normally north of 20% ROS, and I had every belief that we'll be able to get back to those points in short order in that business. The -- you isolated correctly, it's the BeautiControl business. The BeautiControl business, when we bought this -- I want to put it in context, though. It's less than a $100 million business in a portfolio that's pushing $3 billion. Would I exit it or sell it now? No. It's a good business. We got that business north of double-digit margins. Most of the problems with it -- I'd say 2/3 of the problems with it are the missteps we made on the business and the other third was the difficult external environment. So I feel very good about that business model going forward. It is just because of this external environment and that we got it to mostly hobbyists, it's like molasses making these changes there. So you hope this year we get it back to at least breakeven business and then we start -- when you start getting these kind of businesses right, you leverage it, and you can pop to double-digit profits quickly once you get that happen. So I'm still optimistic about it, but at the same time, does it keep me up at night? No, because I'm sitting here looking -- what used to keep me up at night, Linda, was in 1996 when we went public, 60% of our profits came out of Germany. Just looking at our portfolio, here's what it looks like now. In Europe, we have 5 businesses that drive it: Germany, France, Turkey, South Africa, Nordics. Those are the ones that matters most. If I turn to the Americas, it's Mexico, Brazil, Venezuela, USA and Canada. If I turn to China, it's Indonesia, Malaysia, Singapore, which we call as 1 market, India, Korea, Australia. I didn't even mention BeautiControl. Do I want to, from a business standpoint and a pride standpoint, get this thing going back the right direction? Yes. Do I think we can? Daisy Chin-Lor, we've got a great leader there. She used to be with me at Avon. And by the way on Avon, I'm not going to do anything here based on what Avon's doing. That is not the guide we want to follow.

Linda Bolton-Weiser - B. Riley Caris, Research Division

Okay, Rick. And can I ask Mike? Mike, can you just explain, how can EPS impact of currency in the quarter be worse than guided to, but yet the top line impact was actually a little better than guided to? How does that work, just mathematically?

Michael S. Poteshman

Yes, I mean, a couple of our midsized markets -- we've got a couple of businesses in Japan, a couple in Australia, and we don't make a lot of money in a few of those units. And so, you can get a bit of a mismatch from that. That's really the main impacts.

Linda Bolton-Weiser - B. Riley Caris, Research Division

Okay. And then, I'm sorry, I didn't catch what you said if you said it, Rick, but how did Russia do in the quarter in terms of the sales growth?

Michael S. Poteshman

We did okay on the retail side. We didn't as well on the company sales side. So we continue to work on that business on some of the changes we've made to really execute better. So it has to do with the group of the top level of the sales force, the distributors there and working at ways to have a good number of distribution points, but good profitable businesses for the distributors. So we think that the country is a good one for us and the model is leverageable but we're still working through making it all happen.

Operator

Your next question comes from the line of Mike Swartz with SunTrust.

Michael A. Swartz - SunTrust Robinson Humphrey, Inc., Research Division

I just wanted to touch on SG&A -- or DS&A, sorry. It looks like you had some pretty nice improvement there in the first quarter. I'm just wondering, what are maybe some of the driving forces behind that? Was there kind of a comp issue from investments last year? Was it may be mix of emerging versus established markets?

Michael S. Poteshman

Yes. You saw that our ROS improved most in Asia in terms of the segment and we were able to get leverage on -- the expected amount of leverage on the higher sales and so that came through on the fixed expenses. We also got some better performance out of what we did spend on -- promotionally in places like Indonesia, so also, an element of what was going on in Asia in Brazil. And then in Tupperware South Africa, again, I mentioned it on the gross margin line but also on the promotional spending side in the first quarter last year as we were struggling much more with the counterfeit and knocked off product issues, we did a lot promotionally and we're more in line with what we normally do there in the first quarter. We also spent a bit less in Fuller Mexico on some of the elements of DS&A. So that was really what gave us the improvement that you're seeing.

Michael A. Swartz - SunTrust Robinson Humphrey, Inc., Research Division

And, I mean, is there anything fundamentally different today in how you're running maybe some of those emerging markets in that you're able to leverage them faster than you were maybe 5, 10 years ago?

Michael S. Poteshman

Well, I think that what we're seeing versus 10 years ago is that we really weren't to scale in some of the ones that are doing very well right now. And so we might have been operating somewhere much closer to breakeven or a lower ROS. So we've been able to execute in a way that we've continued to invest the right amount in these businesses. And that -- and not take all of the potential contribution margin, but at the same time, get good leverage on the sales and have that come dropping through. So you've heard us say that on average, our contribution margin across our businesses is in the 40% range. We don't expect all that to come through and the 50 basis points is the part that we do. So you've seen year-on-year leveraging on various fixed costs, I think is the overriding theme.

Michael A. Swartz - SunTrust Robinson Humphrey, Inc., Research Division

Yes, I guess...

E. V. Goings

Let me add to -- a strategic piece to that as well. From -- I think a lot of it has to do -- all that is accurate, but what we've really felt growing confidence in over the past 10 years is the perfection of the repeater station model that works well and refining that model. It's interesting, I was telling a group in Indonesia that from my 20-some years on bank boards, including SunTrust, the biggest area of a new business loan we ever -- that they mostly don't make it, is within 5 years, the typical new restaurant start-up goes out of business. However, you'll rarely see a McDonald's go out of business and that has to do with -- not all their McDonald franchisees are great, but the model is really strong. And so, we've perfected our model down to 4 things. It is a product line that is ever introducing new and demonstratable dynamic products. By the way, that's the reason I believe why you just saw what's going to happen -- what's happening with Apple. Steve dies and the new product flow, boom. We've got to have 25% of our sales from new products. Two, you got to have a dynamic selling method so you can show the features and benefits. Three, it's got to be a sales force opportunity in structure where you can manage these markets around the world on a very close basis, almost think military structure down to the squad level. Fourth, direct selling fundamentals. How you recruit, train and motivate 2.7 million volunteers around the world. And what's happened is, in these emerging markets, it hasn't been, "Oh, try to see what works." It's implement the strategy, adapt and adopt it to your culture here and measure it, and go forward. And as you start to see that, along with what Mike talked about, that's the reason it gets better in these emerging markets.

Operator

Your next question comes from the line of Gregg Hillman with First Wilshire Securities Management.

Gregg Hillman

Yes. I was just wondering if Mike or Rick have talked about India. What happens -- what was happening there here in the quarter. And also, what has to happen for India to get in the 10-K? That's my first question.

E. V. Goings

I'll add one piece to that. Hi, Gregg. By the way, our India business has done very, very well. It took forever in India to get to a point where, as Mike said in his comment, just -- to the last question, to get to scale in India, and then all of a sudden, the business really started to pop. By the way, again, I was in Indonesia. Our business is 5x the size it was 7 years ago in Indonesia. Indonesia, we were in a number of years before India. So we haven't got at that huge pop point there, but it's very, very profitable for us. We have a sales force there almost the same size as we do in Indonesia. I think we're getting really close there. Great management team in place. We've adapted the product line to that culture. But it is -- I think, at the same time, it's a more difficult market to do business even in Indonesia. 60% of the population of those 13,000 islands in Indonesia are around the one island, Java. So you there have 4 basic kind of metropolitan areas, so you really -- you get a higher level of intensity. You've got, as you go to India, so many different cultures from north to south and so much geography, so it's much more difficult to do.

Gregg Hillman

Okay. And what -- then how long do you think will it take India to get to the 10-K level?

Michael S. Poteshman

Well, we've been getting a lot of good the growth. We said we were up over 20% again in the first quarter. So it's starting from a higher and higher base. I mean, we're not going to project when we get over $100 million by market, but it's been a good growing market for us. The active sales force size was up nicely even though the -- some of the comparison on the total wasn't as great. So we're running well there.

E. V. Goings

Certainty in the next 5 years, unless we crater.

Gregg Hillman

Okay. And then just 2 other things. Could you comment on like any new products of note that were -- that have been introduced in the last 6 months? And then finally, you indicated that you're trying to bring the higher level of products against [ph] developing world, like Williams-Sonoma at your doorstep in India with that catalog. And how are you doing that in other emerging markets and do you have an active separate catalog in other countries, sort of like India, for the higher end products in the emerging market, if you will, and how is that effort going in general?

E. V. Goings

Yes. You go -- well, I think it's going very well and I think one of the reasons we have done that effectively is we have a lot of cross pollinization through -- there's a global product council meeting right here in Orlando this week that has everybody from everywhere out there that are meeting. And they get a look at what everybody is doing out there and they have the opportunity to pick from the global buffet line of products. Which, by the way, is about 75% the same around the world. They can adapt and adopt the product and then do colors and some other kind of design features that are kind of on the surface that they could do to make it right for their market. They've done it in different ways. India has come out with a separate brochure, but other markets of the world like Indonesia, tend to do it by placing the products in their existing brochures and to feature it. Sometimes how they feature it is they give the higher priced products to sales force as incentives, and as hostesses. And so that starts to pollinate and raise the image of the product. And the whole world is in the process of urbanizing. I think it's been 2 years ago that the worm turned and more people lived in high-density urban markets than rural markets of the world, and then you start to have there, more middle class. So we're not going to -- as people say to us, "Well, my goodness, you're going to have the slowdown issues in a Indonesia like it had in a Europe." Well, we learned a lot in Europe of how to do urban markets. And so the -- you don't wait for that to happen. You introduce the product lines for that A and B socioeconomic group early on in those markets, and they're doing it in different ways. But I've been pleased. We even had one group, when I was in Asia this last -- about a month ago, and then we had all had our managing directors and marketing directors in Macau. There was a whole presentation on how to attack high-density metropolitan markets. And it dealt with what are the products that you sell, what is the party, how does it modify, how do you hold sales force meetings, and so, I'm just so impressed with our people on getting to that place before the world goes there.

Michael A. Swartz - SunTrust Robinson Humphrey, Inc., Research Division

And just finally, just name one new product you're excited about.

E. V. Goings

I would be killed if I mention it on this call. You would be -- forgive me, the investment community will be the last that finds out. Our sales force will be the first.

Michael A. Swartz - SunTrust Robinson Humphrey, Inc., Research Division

Okay. I mean, one that's not going to be introduced, but one that has been introduced that's a good product that you like that's important.

E. V. Goings

Well, yes, I will tell you what's happened out there is as we got into the food preparation business out there, and we introduced a product called Quick Chef just a number of years ago, we've gone to flanker products of that product that continue to amaze me. Again, in Indonesia, we just launched a larger version of this product to Indonesian women who, 50% of them, don't have electric power. She all of a sudden imagined she has her own "Cuisinart" in her home. She doesn't even have electricity. This changes her life. And as a matter-of-fact, I announced it on stage, the reaction of that, particularly to developing markets of the world. So this whole category called -- these products, which are food preparation, what they do is free her. They free her. And it changes her life. And boy -- and by the way, they're $50 price points. So that's what -- it's very exciting. Because we worried, would we still be selling primarily burping bowls? Let me tell you what we've done as a company. We gave away the core -- what Tupperware was created for, which was the basic food storage, give the -- we gave away commodity food storage. Give that to Gladware, to Chinese products, et cetera. Where we sell food storage now is our food's -- our FridgeSmart, which is -- doubles the shelf life of fruits and vegetables. It's high-tech food storage much more now. And then we've gone into these other flanker categories. 20 years ago, food storage was our business. Today, it's about 1/4 of our business.

Operator

And there are no further questions at this time. I would like to now turn the conference over to our presenter, Mr. Goings, for any closing remarks.

E. V. Goings

Well, I'm sure we've worn everybody out getting into so much detail on this. But it is important here that we are a global portfolio out there, and not all answers are a one-size-fit-all answers, so I hope you appreciate when we get granular on it. What would help, I think you'd appreciate, is how we're organized to manage that is there are 3 basic areas of the world. There's a group president over each of these areas, Asia-Pacific, the Americas and then Europe, Africa, Middle East. Every market has a managing director in it. And then if I dial it down into a market -- for example, in Germany, there's a head of that business there that are each of the functional heads, and there are, in fact, 130 distributors who are controlled by 8 regional managers. So each in there has about a little less than 20 distributors. We know right down to the distributor level what's happening. The typical distributor has 250 sales force. Has about 40 managers in it. So we get this data every single week, and if you ask questions about products, it's not the same at every market, but we learn where the levers are in those kinds of a market. And I think one of the keys to our success has been we're a multi-local business. And because it's, like at McDonald's, repeater station and how we're organized, we have visibility right down to what's happening there and great communication.

Anyway, I will tell you, a final point is that we believe that the real focus here with regard to what we're working on is global growth and cash back to our business partners who are our shareholders. We are not acquisitive. We're not building new factories, to speak of. We're -- 40% of our products are now outsourced. So I think we're in a wonderful position with regard to this dual action with our cash of continuing to look at repurchasing shares based on our cash and our needs. And to rethinking our dividend at the end of each year. Anyway, thank you for your time and your interest.

Operator

This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Tupperware Brands Management Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts