Alliance Data Systems(BFH) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net income of $188 million and adjusted net income of $191 million for Q3 2025, with earnings per diluted share at $4.02, excluding a $3 million post-tax impact from repurchased debt expenses [4][5] - Tangible book value per common share increased by 19% year over year to $56.36, and return on average tangible common equity was 28.6% for the quarter [4][5] - Credit sales rose by 5% year over year to $6.8 billion, despite a decrease in average loans by 1% year over year to $17.6 billion [11][12] Business Line Data and Key Metrics Changes - Revenue decreased by 1% year over year to $971 million, impacted by lower billed late fees and higher retailer share arrangements [11][12] - Total non-interest expenses decreased by $98 million, with adjusted total non-interest expenses down 1% year over year [12][13] - The company experienced a decrease in net interest income by 1% year over year, attributed to lower billed late fees and a shift in risk and product mix [13][16] Market Data and Key Metrics Changes - The delinquency rate for Q3 was 6.0%, down 40 basis points year over year, while the net loss rate was 7.4%, also down 40 basis points year over year [20][21] - Direct-to-consumer deposits grew to $8.2 billion, accounting for 47% of average funding, up from 41% a year ago [17][18] - The CET1 ratio improved to 14.0%, up 100 basis points sequentially and 70 basis points year over year [18][19] Company Strategy and Development Direction - The company is focused on responsible growth and executing its business strategy while investing in technology modernization and product innovation [6][7] - New brand partnerships in the home vertical, including Bed Bath & Beyond and Raymour & Flanagan, are expected to drive future growth [9][10] - The company aims to maintain expense discipline and operational excellence, with a commitment to returning value to shareholders through increased dividends and share repurchases [8][10] Management's Comments on Operating Environment and Future Outlook - Management noted that consumer financial health remained resilient, with strong credit sales and lower delinquencies despite ongoing inflationary concerns [4][5] - The outlook for the remainder of the year remains unchanged, with expectations for credit sales trends to continue positively [6][24] - Management expressed confidence in achieving full-year positive operating leverage and maintaining a net loss rate within the guided range of 7.8% to 7.9% [24][25] Other Important Information - The company announced a $200 million increase to its share repurchase authorization and a 10% increase in its quarterly cash dividend to $0.23 per common share [8][20] - A credit rating upgrade and positive outlook from Moody's were recognized, reflecting improvements in financial resilience and risk management [10][18] Q&A Session Summary Question: Signs of weakness in the portfolio - Management indicated that consumer metrics have been surprisingly resilient, with stable macro conditions and no significant signs of weakness in their portfolio [28][29] Question: Loan growth expectations - Management expects loan growth to pick up as credit quality improves and new partnerships are established, indicating a healthy consumer environment [34] Question: Trends in credit sales and holiday shopping - Management noted that credit sales are currently positive, with expectations for aggressive retailer promotions during the holiday season to attract consumers [46] Question: Impact of discounts on Bread Financial - Management anticipates that retailers will likely push discounts earlier in the buying cycle, which could influence consumer spending behavior [71] Question: Underwriting standards and growth - Management confirmed that underwriting remains prudent and focused on profitability, with gradual adjustments based on improving credit quality and macroeconomic conditions [75][76]