Improving economic trends that significantly lowered its credit card charge-offs and reduced its provision for losses helped card issuer and loyalty-services provider Alliance Data Systems Corp. to report a sharp rise in first-quarter profits.
Net income for the quarter ended March 31was $86.4 million, up 85% from $46.7 million a year earlier. Revenue was up 11.6%, to $740.4 million from $663.5 million.
Private Label Services and Credit unit revenue was up 8.8%, to $368.9 million from $339.2 million. LoyaltyOne unit revenues totaled $217.7 million, up 9% from $199.7 million. Epsilon unit revenue rose 8.8%, to $368.9 million from $339.2 million.
Net credit card receivables as of the end of March were $4.37 billion, down 3.1% from $4.51 billion. Average receivables for the quarter were $4.97 billion, down 4.2% from $5.19 billion, caused by a 210-basis-point increase in customer payment rates to 18.8% and the run-off of terminated credit card programs, the company noted in its earnings release. The increase in payment rates primarily reflects cardholder payment behavior returning to pre-recessionary patterns.
Credit card sales volume totaled $1.95 billion, up 5.4% from $1.85 billion. Air Miles rewards miles issued totaled $1.11 billion, up 6.7% from $1.04 billion, driven by positive growth in consumer credit card spending, an indication that discretionary spend is accelerating in Canada, promotional activity is increasing in the grocer sector and gas prices are higher, according to the release. Reward miles redeemed rose 10.7%, to $988.6 million from $893.2 million, because of increased travel rewards and modifications to the company’s rewards program, Alliance Data said.
Looking ahead, company officials said they expect redemption growth to moderate and trend to low single-digit year-over-year increases for the rest of the year.
During the quarter, Alliance Data’s LoyaltyOne operation announced a long-term contract renewal with Sobey’s, a leading Canadian grocer and retailer. It also announced an agreement with The Children’s Place, North America’s largest pure-play children’s specialty apparel retailer, to participate as a national sponsor in the Air Miles Reward Program.
Gross yield for the quarter increased to approximately 28%, which the company attributed to changes in cardholder terms made throughout 2010 and to the anniversary of the negative impact to gross yield in the first quarter last year associated with the implementation of the Credit Card Accountability Responsibility and Disclosure Act of 2009, or CARD Act.
The provision for loan-loss expense declined 23.1%, to $68 million from $88 million, as a result of lower credit card receivables and improving credit trends. The principal charge-off rate for quarter was 7.9%, down from 9.4% a year earlier. Delinquency rates improved to 4.9% of principal receivables as of March 31, down from 5.6%.
During the quarter, the Private Label unit signed a new, long-term agreement to provide private-label credit card services to J.Jill, a leading multichannel fashion retailer. The unit also purchased J.Jill’s existing file of private-label credit card accounts with approximately $40 million in receivables.
During a conference call with analysts April 21 to discuss the results, Ed Heffernan, Alliance Data president and CEO, said the company has “three or four” additional new private-label credit card deals in the pipeline.
Alliance Data also plans to squeeze incremental growth from existing retail clients, Heffernan noted. That includes extending limited credit lines of $150 to $200 to “thin-file,” or subprime, borrowers, “and then grow them as the payment history grows over the next 12 to 15 months.”
