Alliance Data Systems(US:BFH)2022-01-27 20:29Financial Data and Key Metrics Changes - Credit sales increased by 15% year-over-year to $8.8 billion in Q4 2021, driven by strong consumer spending [33] - Revenue for Q4 2021 was $855 million, an 11% increase year-over-year, while income from continuing operations was $61 million [33] - For the full year 2021, credit sales rose by 20% to $29.6 billion, with revenue at $3.3 billion and income from continuing operations at $797 million [35] - Diluted EPS from continuing operations improved to $15.95, driven by a lower provision for credit losses [35] Business Line Data and Key Metrics Changes - The company introduced a new proprietary card that grew to 1 million cardholders with nearly $650 million in outstanding balances by the end of 2021 [12] - The company reported strong performance in the beauty and jewelry verticals, with holiday sales up more than 30% in each category [19] - The company successfully added new brand partners, including the NFL and Michaels, enhancing its vertical diversification efforts [21][24] Market Data and Key Metrics Changes - Consumer activity remained robust, with notable improvements among millennials and Gen Z during the holiday season, exceeding pre-pandemic spending levels [19] - The company observed a year-over-year increase in in-store transactions in Q4 2021, indicating a recovery in physical retail [20] Company Strategy and Development Direction - The company aims for long-term financial targets of $20 billion in average receivables for 2023, focusing on responsible growth and financial discipline [10][9] - The spin-off of Loyalty Ventures was completed, strengthening the balance sheet and allowing for a sharper focus on future growth plans [11] - The company plans to invest over $125 million in 2022 for technology modernization, digital advancement, and product innovation [51][52] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth outlook despite the non-renewal of the BJ's contract, emphasizing a robust business development pipeline [9][76] - The company anticipates a normalization of credit metrics throughout 2022, with a projected loss rate in the low to mid 5% range [53] - Management remains vigilant regarding the competitive landscape, particularly in the buy now, pay later segment, and is prepared to adapt to regulatory changes [57][64] Other Important Information - The company has secured nearly 90% of year-end receivable balances under contract through 2023, providing clarity for future growth [27] - The company is transitioning its financial reporting to align more closely with traditional bank holding companies, enhancing transparency [36] Q&A Session Summary Question: Dynamics of the competitive marketplace - Management acknowledged the competitive nature of the business, highlighting a greater number of wins and renewals compared to losses in 2021 [56] Question: Regulatory pressures on buy now, pay later - Management noted that merchants are beginning to understand the implications of buy now, pay later models and emphasized their compliance and underwriting capabilities [57] Question: Long-term ROE targets - Management indicated that while they do not plan to provide EPS guidance, they are targeting mid to high 20s ROE in the long term [60] Question: Economics of the Ulta renewal - Management stated that the economics of the Ulta renewal were fair for both parties, with a focus on growing the overall portfolio [62] Question: Future non-renewals - Management confirmed that 90% of receivables are secured through 2023, indicating limited risk of additional non-renewals [76] Question: Loan growth targets - Management confirmed that growth will be a mix of organic and inorganic, with a focus on net positive growth overall [84] Question: Expense management and efficiency ratio - Management expressed a goal of improving the efficiency ratio over the long term while allowing for flexibility in investments [86]