Bread Financial’s Earnings Call: Mixed Sentiment with Strategic Growth

Bread Financial Holdings Inc ((BFH)) has held its Q2 earnings call. Read on for the main highlights of the call.

Bread Financial Holdings Inc. recently held its earnings call, revealing a mixed sentiment. The company showcased strong adjusted earnings and credit sales growth, alongside successful strategic initiatives such as share repurchases and new credit card program launches. Improvements in credit metrics led to a better net loss rate outlook. However, challenges like a decline in revenue, decreased average loans, and increased noninterest expenses painted a balanced picture of the company’s financial health.

Strong Adjusted Earnings

Bread Financial reported an impressive adjusted net income of $149 million and adjusted earnings per diluted share of $3.15. These figures exclude a $10 million post-tax impact from debt repurchase expenses, highlighting the company’s robust financial performance.

Credit Sales Growth

The company experienced a 4% year-over-year growth in credit sales during the second quarter. This growth was fueled by new partner growth and increased general-purpose spending, indicating a positive trend in consumer activity.

Improved Net Loss Rate

Bread Financial successfully reduced its net loss rate to a range of 7.8% to 7.9%, down from the previous range of 8.0% to 8.2%. This improvement reflects better-than-expected advancements in credit metrics.

Successful Share Repurchase and Debt Tender

The completion of a $150 million share repurchase program and a $150 million tender offer for senior notes exemplifies Bread Financial’s efforts to optimize its balance sheet and enhance shareholder value.

Growth in Direct-to-Consumer Deposits

Direct-to-consumer deposits saw a significant increase, reaching $8.1 billion at the quarter’s end, up 12% year-over-year. This growth contributes to an improved funding mix for the company.

Renewal and Launch of New Credit Programs

Bread Financial extended its long-term relationship with Caesars Entertainment and launched new credit card programs, including a co-brand credit card with Crypto.com. These initiatives are expected to drive future growth and customer engagement.

Revenue Decline

The company reported a revenue decline to $929 million, down 1% year-over-year. This decrease was primarily due to lower finance charges and late fees, posing a challenge to overall financial performance.

Decreased Average Loans

Average loans decreased by 1% to $17.7 billion, influenced by macroeconomic challenges and elevated gross credit losses over the past year, indicating areas of concern for the company.

Higher Noninterest Expenses

Total noninterest expenses increased by $12 million or 3% year-over-year, mainly driven by debt extinguishment costs. This rise in expenses presents a challenge to maintaining profitability.

Forward-Looking Guidance

Looking ahead, Bread Financial maintains a positive outlook with strong financial results, including an adjusted net income of $149 million and a return on average tangible common equity of 22.7%. The company expects the net loss rate to remain within the improved range of 7.8% to 7.9% for the full year. Despite challenges, the company continues to invest in technology and manage inflation and wage pressures while growing its direct-to-consumer deposits and launching new credit card programs.

In conclusion, Bread Financial’s earnings call presented a balanced view of its current financial standing. While the company demonstrated strong earnings and strategic growth initiatives, challenges such as revenue decline and increased expenses remain. The forward-looking guidance suggests a cautiously optimistic outlook, with continued focus on strategic partnerships and financial optimization.