Amex CEO responds to Citi, Chase premium plays

Stephanie Keith/Photographer

Analysts on Friday peppered Amex about Citigroup and JPMorgan's quests to win high-value premium card consumers, which come as Amex is planning its own card refresh.

"Anybody who thinks we're refreshing because of what our competitors are doing is crazy," Amex CEO Steve Squeri said during Friday's Amex earnings call, saying the company regularly updates its premium cards and the current refresh is not related to the banks' moves.

Later this year, Citi plans to launch Citi Strata Elite, a card designed to compete with premium cards from Amex, Capital One and Chase. Chase recently refreshed its Sapphire card with new travel, fitness and experience perks, and higher fees.

"The competition for premium customers has heated up, especially over the past decade," Squeri said. "That's been good for us. We benefit from strong interest in the category."

Amex's refresh

Amex recently said it would make its "largest investment ever" in a credit card refresh program, covering both U.S. consumer and business Platinum cards. Work on the refresh is ongoing, with releases scheduled for the fall.

The company updates are usually with a mix of site and card redesigns. The cost also includes new or updated financial incentives requiring Amex to spend more on the program.

Amex has at least three dozen refreshes underway. While the company has hedged the refreshes and other product campaigns as depending on market conditions, Amex's management also noted it has not halted card refreshes during prior crises such as the COVID-19 pandemic.

Squeri did not provide details of the latest refresh, including any fee increases. Amex said fees are increased based on services when consumer cards expire. As part of the 2021 Platinum Consumer card refresh, American Express raised the annual fee by 26%, to $695; yet it grew the number of accounts by 60% by 2023, while spend per new account grew 18%, profit per account rose 28%, and billed business retention was 99%, according to William Blair analysts.

"If we increase the fee it's to add incrementally more value," Squeri said, answering an analyst question about the impact of the bank premium cards on Amex's ability to increase fees. "Pricing power is tied to the value you provide."

Amex has built a network of more than 27,000 restaurants and entertainment venues for incentive marketing, and access to more than 30 Centurion lounges as well as access to all Delta lounges, a strategy designed to fit a move in premium cards from cash back and travel points to consumer experiences.

The focus on experiences has "worked well for us," Squeri said, noting the company's three previous card refreshes resulted in double digital account growth. High-income consumers have also helped Amex improve its credit metrics, he said.

Read more about earnings. (Corporate Earnings News | American Banker)

"The upcoming Platinum product refresh should be a tailwind to customer growth and engagement," analysts at William Blair said in a research note following Amex's earnings release, adding it has affirmed its "outperform" rating for Amex. Amex's refresh has focused on targeting younger consumers to expand relationships over time, a strategy that is succeeding, analysts said.

"We continue to believe the Gen-Z/millennial cohort will represent strong ROI for Amex over the long term," William Blair said, noting that in the June quarter, this demographic represented 35% of U.S. consumer billings, with Generation Z making up 5% of U.S. consumer billings, up 39%; and millennials (30% of U.S. consumer billings) up 10%.

"The data suggest Generation Z and millennial cohorts are more engaged, give American Express a higher share of wallet, and have lower servicing costs versus other cohorts; higher incomes and the transfer of wealth should serve as tailwinds," William Blair analysts said.

Amex's earnings by the numbers

American Express posted strong earnings Friday morning, showing little signs of impact from economic volatility.

For the quarter ending June 30, Amex reported earnings per share of $4.08, compared to $4.15 the prior year, and revenue of $17.85 billion, compared to $16.30 billion the year before. That outdid analyst estimates of $3.88 and $17.70 billion, according to Capital IQ. Net income was $2.88 billion, compared to $3.05 billion the prior year.

The company affirmed its full-year outlook of 8% to 10% revenue growth and EPS of $15.00 to $15.50 "subject to the macroeconomic environment." Amex's stock was down 3% in midday trading.

Amex released its earnings amid broader economic uncertainty over the impact of President Donald Trump's tariffs and renewed inflation, an issue that has worried payment company investors for months. While banks have reported relatively strong consumer performance and solid earnings this week, economic data shows some potential weakness, officials have warned.

Federal Reserve Gov. Adriana Kugler this week said recent data such as consumer and producer price indexes from the Bureau of Labor Statistics show increases in core goods prices, which she attributed to higher import costs and portends more price increases.

The company has also long held that its relatively high-end consumer base makes it better protected from economic weakness than other lenders. Amex got a bit of good news ahead of its earnings report, as its co-brand partner Delta Airlines reported earnings per share of $2.10 on revenue of $15.5 billion, better than FactSect analyst expectations of $2.06 EPS and revenue of $15.5.

More importantly, Delta said it expects full-year EPS between $5.25 and $6.25, lower than its January outlook of $7.35 but ahead of analyst estimates of $5.38. Delta also pulled its full-year guidance in April, shortly after Trump initially imposed tariffs. Analysts said the airline's decision to put out full-year earnings guidance now was a signal that a tariff-related travel slowdown may not be as bad as initially feared, at least in the premium segment.

In a research note prior to Thursday's earnings report, analysts from Jeffries said Amex's recent credit metrics were "generally flat," with delinquencies of 1.3% as of June 25 steady month over month, with little change year over year. Net charge-offs of 2.10% were also flat over the prior month and year.

"Card spending volume was stronger than expected, an encouraging sign the higher-end consumer remains strong," Jeffries analysts said in a note issued after Amex's earnings release.

Amex's other activities during the second quarter include introducing a co-branded card with Coinbase. The cryptocurrency exchange is offering 2% to 4% in bitcoin rewards for purchases based on the amount of cryptocurrency the customer holds. The incentives are directly deposited into the user's Coinbase wallet. The partnership with Coinbase enables Amex to provide on and off-ramp services, Squeri said, adding Amex is monitoring stablecoins but thinks they are an added option and not a replacement for existing payment methods. "What we have today is not broken," he said

Among other large payment companies, Visa and PayPal are scheduled to report earnings July 29, Mastercard July 31 and Block August 7.