- Key insights: Bread Financial beat Wall Street estimates on revenue and earnings in the third quarter.
- What's at stake: The credit card issuer added two programs with home goods retailers Raymour and Flanigan and Bed Bath and Beyond during the quarter while also increasing its stock buyback allocation and dividend payouts.
- Forward look: Bread hopes to increase its dividend payout on an annual basis.
Bread Financial added two new home goods retailers to its credit card portfolio in the third quarter as the issuer tries to diversify its portfolio amid strong consumer credit and increased spending.
Bread will be the private label credit card provider for Bed Bath and Beyond as well as Raymour and Flanigan with the launch of two de novo card programs, which minimizes Bread's initial capital investment because there's no portfolio acquisition, Chief Financial Officer Perry Beberman told American Banker. Promotional financing will be offered on both programs.
"They understand credit, how important credit is to their business, and how to sell credit at the point of sale," Beberman said.
For the third quarter ended Sept. 30, revenue landed at $971 million, down
Net interest margin was 18.8% for the quarter, flat with the same prior-year reporting period and above last quarter's figure of 17.7%.
Net income hit $188 million, or $3.96 per diluted share, nearly double analysts' estimates of $95.09, or $2.02 per diluted share. Expenses fell 17% to $476 million, primarily because of a one-time debt repurchase expense incurred in the same period last year.
Period-end loans fell 2% to $17.7 billion as prepayments increased. Credit sales increased 6.5% to $6.8 billion, thanks to back-to-school shopping, a "notable" improvement in apparel and beauty, and increases in spending frequency, Bread CEO Ralph Andretta said on a call with analysts Thursday morning.
"Amidst these favorable results, we continue to monitor changes in monetary and fiscal policies, including tariff and trade policies, and their potential impacts on consumer spending and employment overall," Andretta said.
Consumer credit health was a "bright spot" during the quarter, according to Keefe Bruyette and Woods analyst Sanjay Sakhrani. Delinquencies and net losses fell 40 basis points to 6% and 7.4% of the portfolio, respectively, driving provisions for credit losses down 19% from the same period last year to $299 million.
"We think the credit quality trend line is consistent with our view that the card issuers (and specifically Bread Financial in this print) remained prudent underwriters and remain relatively incubated from the recent weakness seen across other subprime consumer lending segments," Sakhrani said. "Loan growth remains elusive still, but we'll take better credit quality over this phenomenon."
Bread doesn't have
"I don't want it to further be a thought that there's going to be a watershed moment where there's going to be this great opening of the barn doors and credits going to also unwind," Beberman said. "It's going to be very gradual … the idea is to give them a little lower line assignment when they come in the door, and grow them over time as they demonstrate responsible behavior."
KBW was also "encouraged" by Bread's capital management. Bread's board on Thursday approved an additional $200 million of share repurchase authorization following a $200 million share repurchase authorization in August. Bread purchased 1 million shares during Q3 and into October for $60 million, according to the company. Quarterly dividend landed at 23 cents, up 10% from
The increased dividends and stock buyback outlook comes on the heels of a ratings upgrade by Moody's in October, which will help Bread refinance some of its debt next year.
"We've got a pretty expensive senior note on the books right now that has a call option in mid March of next year at 9.75%," Beberman said. "If everything we do is demonstrating a stronger company – that's our inaugural bond that we put out there – that means we should be able to get something with a much lower interest rate and pricing. There will be more investor interest in our company with a better bond rate."
