Alliance Data Systems(US:BFH)2023-04-27 19:16Financial Data and Key Metrics Changes - Bread Financial's credit sales increased by 7% year-over-year to $7.4 billion, despite a decline in consumer sentiment and discretionary spending due to inflation [13][21] - Revenue for the quarter was $1.3 billion, up 40% compared to Q1 2022, driven by a $230 million gain from the sale of the BJs portfolio [22] - Total net interest income rose by 13% from Q1 2022, while noninterest income was $172 million, including the gain on sale [23] - The company reported a net loss rate of 7% for the quarter, with an increase in the reserve rate to 12.3% due to seasonality and the BJs portfolio sale [30][32] Business Line Data and Key Metrics Changes - Co-branded and proprietary spend now accounts for approximately 50% of total credit sales, with average loans increasing by 17% year-over-year [21] - The company experienced net positive inflows of deposit balances on its savings platform, growing by 3% from year-end [18] - The delinquency rate for Q1 was 5.7%, slightly up from the previous quarter, influenced by inflationary pressures [30] Market Data and Key Metrics Changes - The company noted a shift from discretionary to non-discretionary spending among consumers, impacting overall sales trends [13][74] - Direct-to-consumer average deposits grew by 70% year-over-year to $5.6 billion, representing 28% of the total funding mix [28] Company Strategy and Development Direction - The company is focused on sustainable, profitable growth, enhancing its capital position, and optimizing data and technology [14][36] - Bread Financial aims to continue diversifying its product offerings and partner base, with a strong business development pipeline [15][55] - The company plans to invest up to $30 million from the gain on sale to accelerate technology and digital transformation [40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate economic challenges, citing improved credit risk management and a diversified portfolio [17][35] - The outlook for 2023 remains unchanged, with expectations for mid-single-digit loan growth and consistent revenue growth [39] - Management anticipates that inflation will remain elevated but moderating, with a gradual increase in unemployment [43] Other Important Information - The company has significantly improved its capital ratios, nearly tripling its TCE to TA ratio since Q1 2020, and reducing parent-level debt by nearly 40% [11][36] - Bread Financial was recognized in Newsweek's list of America's most trustworthy companies for 2023, reflecting its commitment to integrity and governance [12] Q&A Session Summary Question: Perspectives on the economy and discretionary spending - Management acknowledged persistent inflation and its impact on consumer behavior, noting a shift towards non-discretionary spending due to diversified product offerings [48] Question: Business development and partner pipeline - The company reported a strong pipeline for new partnerships, with expectations for continued success in securing new contracts [55] Question: Update on loyalty ventures situation - Management confirmed their significant stake in loyalty ventures and expressed alignment with its interests, despite external economic challenges [63] Question: Flexibility to dividend excess capital - The company indicated that its high capital ratios at the bank level would allow for dividends to be paid up to the parent company to support debt restructuring [64] Question: Delinquency performance and outlook - Management discussed the elevated delinquency rates and the expected impact of transition-related items on future loss rates, expressing confidence in improved performance in the latter half of the year [68] Question: Trends in purchase volume and consumer behavior - Management noted a slight decline in consumer traffic but emphasized that those who visit retail partners are more intent on purchasing rather than browsing [74] Question: Share repurchase strategy - Management stated that the focus remains on strengthening the balance sheet and investing in growth rather than immediate share repurchases [99] Question: Performance of Bread Pay - Management clarified that Bread Pay is one of several products and continues to be invested in, despite not being the primary focus [101]