Here is our US Bank Failure Chart (1), updated for Wamu...
This bank failure chart includes Washington Mutual transaction. The JPM purchase was "facilitated" by the FDIC, which acted as receiver after the bank was closed by the Office of Thrift Supervision yesterday. The FDIC press release explicitly states “FDIC Facilitates Transaction that Protects All Depositors and Comes at No Cost to the Deposit Insurance Fund” in its headline.
By comparison, the last similar purchases brokered by the FDIC were the acquisitions of First National bank of Nevada and First Heritage Bank by Mutual of Omaha in late July. In those transactions Mutual of Omaha assumed all deposits –both insured and uninsured, and purchased the majority of the two failed bank’s assets. The FDIC did commit capital in those instances however, purchasing $862 million of the combined $3.6 billion held by the acquired banks outright, whereas the entire purchase cost of Washington Mutual fell on JP Morgan. As such, the WAMU may not end up officially listed by the FDIC in their closing and assistance transaction list, the list that all other data points on this chart were drawn from -but it’s inclusion here still serves to illustrate the scope of the crises facing the US banking system currently.
Keith McCullough and Andrew Barber
Research Edge LLC
With the numbers I’m seeing out of FINL, my conviction continues to grow in the margin levers as the product cycle turns in favor of the athletic specialty retailers – despite stress in the global footwear supply chain. For the quarter, comps accelerated on a 1, 2 and 3-year basis (+4.7, 0.0%, -2.2%), while gross margins were up 230bps, SG&A down in absolute dollars despite a 3% sales increase, and a 12 day improvement in days inventory on hand – despite facing the toughest yy compare in inventories. Check out the quad chart below. Looks golden.
Going forward, the product cycle should start to improve more meaningfully this fall – thanks to Under Armour stimulating the competitive fires at Nike, K Swiss, New Balance, Asics, and Adidas. This industry competes on product – not price. So a product cycle inherently helps retail in its early stages (i.e. 2001/02). Nike’s US footwear futures and ASP growth support this beginning. I think that we’ll see both traffic and ticket pick up at FINL – ending a 3-year slump in comps. With Paiva gone, Man Alive being downsized, and apparel under control, FINL is focusing back on its core. Good timing. Inventories remain bloated relative to history, and SG&A still has room to come down. I think that this company has the potential to get to a 5-6% EBIT margin within 2 years. Not bad given a 2% print in FY08.
Why do I prefer this one over Foot Locker (i.e. a change of tone for me)? First is that FL’s international exposure concerns me with recent moves in the dollar. Second is that with FINL, you actually get a little square footage growth – albeit low single digits. Lastly, this is a management team that I can actually trust – unlike FL.
Full disclosure: since reading the footnote, I reached out to management, but have not heard back. I will post more details as I get them.
As I said earlier this week (“MCD – The Cost of Capital Is Rising and Access to Capital is Tighter), however, I continue to be concerned about the franchise system’s cash flows as they are forced to make a fairly big investment to convert their restaurant for the specialty beverage rollout at the same time costs are rising. And the Dollar Menu can’t be helping either!
- MCD has consistently achieved a positive net CFFO/net income ratio, which measures the proportion of earnings yielding cash.
- And the cash keeps growing......
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