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 of $4.2, excluding a $3 million post-tax impact from debt repurchase expenses [3][4] - 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 [3][4] - Total sales for the quarter were $6.8 billion, a 5% increase year over year, driven by new partner growth and higher general purpose spending [10][11] Business Line Data and Key Metrics Changes - Credit sales increased by 5% year over year, supported by strong back-to-school shopping, particularly in apparel and beauty [4][10] - Average loans decreased by 1% year over year to $17.6 billion, influenced by higher payment rates and elevated gross credit losses [11][12] - Non-interest income decreased by $7 million year over year, primarily due to higher retailer share arrangements [13] Market Data and Key Metrics Changes - The delinquency rate for Q3 was 6%, down 40 basis points year over year, while the net loss rate was 7.4%, also down 40 basis points year over year [20] - The reserve rate improved to 11.7% at quarter end, reflecting better credit metrics and higher quality new vintages [21][22] Company Strategy and Development Direction - The company is focused on responsible growth and executing its business strategy, with ongoing investments in technology modernization and product innovation [6][8] - A $200 million share repurchase program was initiated, with a 10% increase in the quarterly cash dividend to $0.23 per common share [7][19] - The company aims to leverage its full product suite and omnichannel customer experience to extend category leadership while expanding into new verticals [9][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of consumer financial health, despite ongoing inflationary concerns and a stable job market [4][5] - The company anticipates a gradual improvement in credit metrics and expects to achieve a full-year net loss rate in the guided range of 7.8% to 7.9% [24][25] - Management remains cautious about macroeconomic uncertainties, including inflation and consumer sentiment, while monitoring these trends closely [23][30] Other Important Information - The company received a credit ratings upgrade and positive outlook from Moody's, recognizing its progress in financial resilience and risk management [9][16] - Direct to consumer deposits accounted for 47% of average funding, up from 41% a year ago, enhancing the funding mix [16][17] Q&A Session Summary Question: Have you seen any signs of weakness in your portfolio? - Management noted that consumer metrics have been surprisingly resilient, with stable gradual improvement across all credit bands, and no significant cracks observed in the portfolio [30][33] Question: What is the outlook for loan growth? - Management indicated that with credit sales moving in the right direction and new partnerships being signed, loan growth is expected to pick up going forward [39][40] Question: How do you expect credit sales to trend in Q4 and into 2026? - Management expects credit sales to remain positive, with retailers likely to offer discounts and promotions to attract consumers during the holiday season [56][57] Question: What is the company's approach to AI and automation? - The company views AI as an opportunity to enhance operational excellence, improve efficiency, and drive growth, with over 200 machine learning models already in use [88][90]