In the Headlines – November 13th, 2015

In The Headlines

Men’s Wearhouse Discovers Customers Don’t Forget a Good Deal

Men's WearhouseShoppers will not part easily with their beloved deals, as countless retailers have found out the hard way. Men’s Wearhouse is the latest to learn that painful lesson. The clothier recently reported that comparable sales at its Jos. A. Bank chain of stores fell 14.6% in the quarter ended October 31, a result it called “far below” its forecasts.

The culprit behind the steep selloff? Jos. A. Bank’s now abandoned classic “buy one, get-three-free” sales events. The company held its last such sale in October and called the aggressive pricing strategy “unsustainable” in its bid to turn Jos. A. Bank into a billion-dollar retailer.

Dialing back the intensity of the promotions without dropping them altogether is a key part of Men’s Wearhouse CEO Doug Ewert’s strategy to update a 110-year-old brand that is not drawing younger men. Jos. A. Bank, which Men’s Wearhouse bought in 2014 for $1.8 billion, is adding big-and-tall options, slim-fit styles, and a shoe collection to expand its clientele. “Jos. A. Bank is a brand that just needs some updating, and we’re updating that brand as aggressively as we can,” Ewert said in a recent interview. “There’s a lot to talk about besides just price.”

But for now, customers are still clearly focused on deals. The company expects the declines to worsen in the current quarter, forecasting comparable sales will fall between 20% and 25% as fewer shoppers come in and customers adapt to the shift in the promotional strategy. Analysts at Jefferies were surprised by the dramatic drop in sales. The firm downgraded shares of Men’s Wearhouse to “hold” from “buy.”

Men’s Wearhouse is learning a lesson many of its retailing peers have learned in recent years: weaning shoppers off of discounting is hard. While Jefferies said that transitioning away from the Buy-One-Get-Three Free promotion is still the correct strategy, “We’ve seen the movie before where a major change in tactics takes a long time to resonate.”

J.C. Penney saw sales fall 25% in 2012 after former CEO Ron Johnson jettisoned the coupons and constant discounting shoppers had come to expect. The department store is still reeling from that decision. Coach, trying to restore some luster to its once upscale aura, saw huge double-digit percentage drop-offs when it eliminated many of its online sales last year.

Still, Ewert insists the strategy is a winner long term. “Despite these results, we continue to believe that transitioning away from the unsustainable promotional strategy we inherited from Jos. A. Bank and accelerating our new promotional strategy is the right thing to do,” Ewert said in a statement. Shoppers are hard to retrain. Men’s Wearhouse is just the latest retailer to realize that.


1. – Fortune
2. – CNBC

Can the U.S. Postal Service Learn Something from the Japanese?

U.S. Postal ServiceJapan Post went public this week and managed to raise $12 billion, making a national mail carrier responsible for this year’s most successful initial public offering. That is a lot of money at a time when mail is disappearing and the U.S. Postal Service, the world’s largest deliverer of letters and parcels, is awash in red ink.

Much of the American commentary about the Japan Post Holdings IPO has noted how differently the Japanese run their postal service. In 2014, for instance, mail delivery accounted for only 12% of Japan Post’s revenue—and 74% came from such non-delivery businesses as life insurance sold at 24,646 post offices. Another 14% flowed from banking operations. Japan Post sold shares in the three businesses and plans eventually to spin them off as separate companies. By contrast, 95% of USPS sales come from transporting mail. And unlike their Japanese counterparts, American letter carriers make their appointed rounds in aging white trucks rather than red scooters.

But there is an important similarity between the Japanese and American postal services: Both organizations have endured sharp declines in their mail volume. In the fiscal year ended March, Japan Post delivered 18 billion pieces—or 3 billion fewer than in 2007—and that helps explains its ongoing transformation into a package delivery company. Earlier this year, Japan Post paid $4.6 billion for Toll Holdings, an Australian logistics company, which made the postal service more attractive to investors.

That’s a proven strategy. In the first major postal privatization, Deutsche Post conducted a successful IPO after purchasing 50% of DHL, the international parcel delivery company. Deutsche Post shares went on to attract considerable attention for investors during the 2000 IPO. At the time, USPS also talked about going private. But postal worker unions and their allies in President Bill Clinton’s White House did not want to hear about it. And there has been no talk of privatizing the American postal service.

Perhaps the successful Japan Post IPO will get people in Washington thinking more seriously about privatization again. Last year, the USPS delivered 155 billion mail pieces, or 27% fewer than the peak reached in 2006. The package segment was the only part of the business that increased by volume, up by a healthy 8%.

Naturally, the USPS is trying to transform into more of a package delivery operation, too. But its white trucks are 25 years old, and they were designed when the USPS transported more letters than anything else. The USPS hopes to replace its fleet of 190,000 vehicles—at a likely cost of $5 billion. The government agency, which had a $5.5 billion net loss last year, just does not have that kind of money.

Congress has to come up with a plan to upgrade the postal fleet, but some experts believe this is a moment to think bigger. Many believe it is time for the USPS to pair up with an airfreight company and turn itself into a global package delivery business, just as Deutsche Post and Japan Post have done. This time around the American postal worker unions may not be a problem. Declining mail means fewer jobs. Since 2006, the USPS has eliminated 30% of its full-time employees. Privatization is frightening—but continuing with the status quo may be scarier.


1. – Bloomberg
2. – CNN Money

The Good News Is . . .

Good News• U.S. job growth surged in October and the unemployment rate hit a 7 ½ -year low of 5.0%. Nonfarm payrolls increased 271,000 last month, the largest rise since December 2014, the Labor Department said on Friday. In addition, average hourly earnings rose 9 cents. The payrolls jump followed modest gains in August and September. The unemployment rate now stands at its lowest level since April 2008 and is in a range many Federal Reserve officials see as consistent with full employment.

• Cardinal Health, Inc., a leading healthcare services provider, reported earnings of $1.38 per share, an increase of 38.0% over year earlier earnings of $1.00 per share. The firm’s earnings topped the consensus estimate of analysts by $0.28. The company reported revenues of $28.1 billion, an increase of 16.6%. Management attributed the company’s results to strength in its pharmaceuticals segment.

• The Irish drug maker Shire announced that it had agreed to acquire the American biotechnology company Dyax Corporation in a deal worth as much as $6.5 billion. Under the Shire offer, Dyax shareholders would receive an upfront payment of $37.30 a share in cash. Shareholders would also receive an additional payment of $4 a share in cash, or about $646 million in total, if the company’s leading treatment in development, DX-2930, were to be approved by the Food and Drug Administration before the end of 2019.


1. – Reuters
2. – CNBC
3. – PR Newswire
4. – NY Time Dealbook

Planning Tips

Guidelines to Investing in Mutual Bank Conversions

Piggy BankPutting your money in a mutual bank before it goes public can be very profitable. For years, small depositors have made good return when their local mutual bank converted to a stock-owned bank. That is because they typically get their shares at a steep discount to the bank’s book value. While such conversions are fewer now, investors can still find profitable investment opportunities in mutual banks that are in various stages of the conversion process. Before making any investment, consult your financial advisor to fully understand the risks and determine if it is appropriate for you.

What is a mutual bank? – A mutual bank is a bank that is owned by its members, as opposed to a conventional bank, which is owned by shareholders. Profits from mutual banks are typically returned to members in the form of lower rates on loans and higher rates on deposits. There are about 500 mutual banks in the United States. They are a holdover from a bygone era when wealthy industrialists set up banks for their workers.

What is a mutual bank conversion? – Sometimes mutual banks decide to convert to regular, stockholder-owned banks. They can do this for a variety of reasons:

• They are looking to get access to capital to expand their operations.
• They want to be able to attract and retain quality employees through stock incentives.
• They want a “public currency” with which to purchase other companies.

Advantages of mutual bank conversions – Mutual bank conversions create an attractive opportunity for depositors, who get the chance to purchase shares in the new bank before they go on sale to the general public, typically at 50-60% of book value (assets minus liabilities). As a depositor, your money is insured by the Federal Deposit Insurance Corporation (FDIC) while you are waiting for the conversion. Your funds are also liquid and can be easily withdrawn.

Restrictions on investing in mutual bank conversions – Mutual banks sometimes impose rules on which depositors are eligible to participate. For instance, the bank may require a depositor to have been a member for more than a year or reach a certain threshold in deposits. Deposit amounts could determine how much stock you end up getting allocated if the offering is oversubscribed. And sometimes you may need $5,000 or more to get a full allocation of shares. Finally, some mutual banks may require depositors to reside in a certain city or county.

Different mutual bank conversion investment strategies – To get in on the ground floor of a conversion is simple. Generally, for as little as $50 on deposit, you can subscribe to a mutual bank’s stock offering. An investor with a single deposit account may buy up to $150,000 worth of stock, depending on demand. The “ground floor” approach is not the only way to invest however. Some mutual banks convert in steps. They will sell a minority stake to the public and then later do a so-called second step offering. Second-step offerings can be attractive, as they typically offer shares below book value, too. Banks may offer the shares to depositors through a subscription offering. Any remaining shares can be offered to the public.

Shares of partially converted mutual banks can be purchased on the open market like any other stock. If you do this, you should look for shares trading below book value and target banks with good growth and clean loan portfolios. Also, a fully converted mutual bank can sell itself to a larger acquiring bank once it has gone three years past its conversion. That gives investors/depositors another chance to reap more gains from any merger-and-acquisition premium. About one third of all converted mutual banks have been acquired by larger banks.


1. – Bankrate
2. – SEC
3. – Reuters
4. – Barron’s
5. –

Please don’t hesitate to give us a call if you need help with any component of your financial planning.

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