Reflecting continued growth in all three of the company’s business specialties, including private-label card services, Alliance Data Systems Corp. on July 21 reported double-digit increases in both second-quarter revenue and profit.
Net income for the quarter ended June 30 was $69 million, up 46.8% from $47 million during the same period last year. Revenue was up 10.6%, to $740.5 million from $669.8 million.
The Dallas-based company’s Private Label Services and Credit unit generated $350.7 million in revenue, up 2.2% from $343.3 million a year earlier. Credit card sales were up 9.5%, to $2.43 billion from $2.22 billion, as consumer spending accelerated, Alliance Data noted in its earnings news release. Average receivables for the quarter were $4.85 billion, down 2.8% from $4.99 billion, because of a 160 basis-point increase in customer payment rates to 18.3% and the run-off of terminated credit card programs, which negatively affected growth by 3%, the company said.
During the quarter, finance charge net income increased $13 million, or 4%, the company noted. A higher gross yield added about $23 million to finance charge net income, while a decline in average card receivables lowered net finance charge net income by about $10 million. Transaction revenue dropped about $6 million primarily because of reduced merchant fees, the company said.
The company’s loan-loss expense dropped 36%, to $60 million, because of reduced credit card receivables and improving credit trends, according to the release. The principal charge-off rate for the quarter was 7.2%, down 180 basis points from 9% a year earlier.
“Eventually we believe our charge-off rates will localize below the 6% range,” Charles Horn, Alliance Data chief operating officer, told analysts during a July 21 conference call to discuss earnings.
Ed Heffernan, Alliance Data president and CEO, noted during the call that the recession has left the company with a “very pristine” credit file, despite continued high unemployment.
Historically, unemployment and card charge-off rates have virtually mirrored one another, but analysts have cited a change in that trend following this most recent recession.
“What you have left is a situation where the long-term relationship between unemployment and credit losses has broken out,” Heffernan said. “And we see no reason for that relationship to reestablish itself in the near future.”
Before the recession, Hefferan noted, when unemployment might have been 5%, perhaps a percentage point of that was long-term, chronic unemployment. “What you have today is an unemployment rate of 9%, but some folks are suggesting anywhere between 4 to 5 points of that rather than one point has to do with the long-term structural unemployed,” which no longer are included in Alliance Data’s credit file, he said.
“So, it’s a very interesting and unique situation, and I frankly have never seen such a complete decoupling between” unemployment and card charge-off rates, Hefferan said.
Air Miles reward miles issued during the quarter totaled 1.22 billion, up 4.3% from 1.17 billion, while miles redeemed totaled 817 million, up 2% from 801.1 million.
“The growth (in miles issued) was a balance of credit card spending, high frequency and specialty retail growth, and the return of some promotional activity in the grocery store,” Horn said during the call. “Routine changes made to the miles-reward program during the first quarter of 2011 dampened collector redemption during the quarter.”
LoyaltyOne unit revenue was up 6.1%, to $203.1 million from $191.5 million, while the company’s Epsilon unit earned revenue of $188.5 million, up 37.6% from $137 million.
In May, Alliance Data announced that its LoyaltyOne unit will play a key role in Banco do Brasil’s recently announced national rollout of Dotz, a broad payment card-based loyalty program (
A month earlier, Alliance Data expanded its Epsilon marketing business through a $345 million acquisition of Aspen Marketing Services, a West Chicago, Ill.-based agency that focuses on digital and direct-marketing services in the automotive and telecommunication industries (
The company also downplayed a large data breach sustained in March (
