Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bread Financial Holdings Inc (BFH, Financial) reported a net income of $133 million and earnings per diluted share of $2.66 for the second quarter of 2024.
- The company's tangible book value increased by 25% year-over-year to nearly $49 per share.
- Direct to consumer deposits grew by 20% year-over-year to $7.2 billion, marking 14 consecutive quarters of growth.
- BFH announced a new partnership with Saks Fifth Avenue and completed the conversion of the existing Saks portfolio.
- The company achieved its long-term double leverage ratio target of less than 115%, reducing parent-level debt by 53% over the last three years.
Negative Points
- Credit sales decreased by 7% year-over-year, reflecting moderating consumer spend and strategic credit tightening.
- Revenue for the quarter was down 1% year-over-year due to reduced merchant discount fees from lower big-ticket credit sales.
- The net loss rate increased to 8.6% for the quarter, up from 8.0% in the second quarter of 2023.
- The company anticipates a slow, gradual improvement in the macroeconomic environment, indicating ongoing economic pressures.
- Total noninterest income decreased by $8 million year-over-year, driven by lower merchant discount fees on big-ticket purchases.
Q & A Highlights
Q: Can you discuss the purchase volume trends and the impact of inflation on different income segments?
A: (Ralph Andretta, CEO) We are still seeing consumers, regardless of their income level, moderating their spending, particularly in discretionary and big-ticket items. While we anticipate a gradual improvement, high inflation and interest rates continue to impact spending power. (Perry Beberman, CFO) The top third of consumers are not showing signs of stress, but lower and middle-income Americans are feeling the pressure from prolonged inflation and higher interest rates.
Q: What is your outlook for credit losses as you enter 2025?
A: (Perry Beberman, CFO) Our credit actions will peak in the second half of this year, with benefits continuing into 2025. We expect a slow, gradual improvement in consumer behavior due to the prolonged period of high inflation and interest rates. While we anticipate improvement, returning to a 6% loss rate quickly would be challenging.
Q: Can you clarify the revenue guidance change and the impact of the CFPB late fee rule?
A: (Perry Beberman, CFO) The modest change in our outlook reflects only two expected Fed rate reductions and a more confident view of second-half loss rates. We have also incorporated early CFPB mitigation actions, though they are not material to the full-year guidance.
Q: How are you monitoring consumer health and what indicators are you looking at?
A: (Perry Beberman, CFO) We monitor payment trends, including the number of customers making no payment, minimum payments, and multiple payments. While we see fewer customers at zero pay and more making minimum payments, the environment remains strained. We expect a slow, gradual improvement in consumer health.
Q: What is the status of your mitigation efforts for the CFPB late fee rule, and how are partners responding?
A: (Perry Beberman, CFO) We have had discussions with all brand partners, and each is unique in their approach. Some are opting for APR increases, others for promo fees or policy changes. We are rolling out these changes thoughtfully to avoid unintended consequences.
Q: Can you provide an update on your funding strategy and deposit growth?
A: (Perry Beberman, CFO) Our direct-to-consumer deposits are at 40% of total funding, and we aim to reach 50%. We recently reduced some deposit pricing and expect stable costs. We will adjust as needed based on market conditions to ensure we attract deposits effectively.
Q: How do you see the potential for additional portfolio acquisitions or new partnerships?
A: (Ralph Andretta, CEO) We recently announced partnerships with Saks Fifth Avenue and HP, adding to our strong portfolio. Our business development team is active and successful in securing new deals, and we remain selective to ensure strategic fit and strong returns.
Q: What is your view on the potential delayed charge-off effect due to COVID-related financial support?
A: (Perry Beberman, CFO) We have seen the impact on lower and moderate-income Americans, who have depleted their savings. We do not expect a new wave of charge-offs but anticipate a prolonged period for losses to return to pre-pandemic levels due to ongoing economic pressures.
Q: With your CET1 ratio close to the target, is it reasonable to start modeling buybacks?
A: (Perry Beberman, CFO) Our first constraint is achieving a total risk-based capital ratio above 16%. We also need to account for the final Cecil phase-in in January 2025. Once these are addressed, we can consider other capital opportunities, including buybacks.
Q: Can you discuss the progress and impact of your CFPB mitigation actions?
A: (Perry Beberman, CFO) The mitigation actions, including APR increases and new fees, are progressing as expected. While not immediately impactful, they will gradually contribute to revenue. We are rolling these out thoughtfully to avoid negative consumer behavior changes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
