Bread Financial had a strong first quarter that exceeded analysts' forecasts for revenue and profits. At the same time, it's pulled back on portions of its guidance issued at the top of the year as uncertainties around tariffs, the Federal Reserve's monetary policy and consumer sentiment and spending continue to linger.
The credit card issuer trimmed its outlook on average loan growth and revenue, but maintained its target for net loss rates. Bread
Average loan growth is expected to be flat to slightly down compared with 2024. At the beginning of the year, Bread said it expected average loan growth to be flat. The changes were largely attributed to expected impacts on consumer spending, Bread's ongoing credit tightening actions, elevated gross credit losses and pipeline visibility, according to the earnings statement.
Revenue outlook, excluding gains on portfolio sales, also was pared back to flat to slightly up, compared with an expectation of an increase in the low-single digits in January. The lender did not change its outlook for the net loss rate for the year, which it still expects to land in the range of 8% to 8.2%.
"We had a certain set of macro variables that we were working with when we set the plan for this year back in December of last year," Bread's Chief Financial Officer Perry Beberman told American Banker in an interview following the company's earnings call. "Roll it forward 90 days, and a lot has changed.
"One of the things I've been focused on … is rebuilding this company's credibility, and the best thing you can do is share your current thinking and not hide from the current situation," Beberman said. "Ultimately, investors don't want surprises."
Bread's 2025 outlook assumed no late fee reduction impact due to the CFPB's credit card late fee rule, which was
President and CEO Ralph Andretta said he was "pleased" with the decision to throw out the late fee rule on a call with analysts Thursday morning, calling the court's opinion "logical" and "consistent" and saying he doesn't expect a similar rule to resurface anytime soon.
"Any administration would have a tough time reinstituting a late fee," Andretta said.
'Solid' quarter
The tweaks to Bread's guidance comes against the backdrop of a strong quarter that beat analysts' expectations.
Keefe, Bruyette & Woods Analyst Sanjay Sakhrani said Bread reported "a solid quarter where most KPIs were stronger than our expectations."
Revenue came in at $970 million, down 2% year over year but ahead of analysts' estimates of $954 million. Revenue dropped primarily due to lower finance charges and late fees resulting from lower average prime rates, lower delinquencies, and a gradual shift in risk and product mix that lead to a lower proportion of private label accounts, according to the lender's earnings release.
Profits tallied $138 million, or $2.78 per diluted share, an increase of 3%. Those figures also came in ahead of analysts estimates of $112 million, or $2.22 per diluted share.
Net interest income hit $1 billion — down 4% — representing a net interest margin of 18.1%, a decrease of about 60 bps due to a lower average prime rate and mix shift toward co-branded products, according to the earnings release.
Noninterest expense ticked down 1% to $477 million.
Bread is exposed to those levies, according to JPMorgan analyst Reginald Smith.
"Specialty Apparel, Home, Technology and Jewelry accounted for ~44% of Bread's 4Q24 credit sales," Smith wrote in a research note. "We think as much as 20% percent (sic) of goods within these verticals, worth more than $2bn (~10%) in annual card volume, could be imported from China and most exposed to the first-order impact of tariffs."
End-of-period credit card and other loans were down 2% to $17.8 billion, attributed to tighter underwriting standards, higher gross losses and lower consumer spending in 2024. Loan growth was a "little stronger" than KBW's estimates, Sakhrani said.
Bread spent much of 2024 tightening its underwriting standards and is now looking for the opportune time to open its credit box up more.
"Right now we are in a pretty tight credit posture," Beberman told American Banker. "Our approval rates in our private label business are down about 400 basis points from where they were. We're putting on some of the highest risk score vintages that we ever have in this environment. We have maintained really low amounts of credit line increases. It's now delaying when we can unwind some of these actions that we're taking."
Credit metrics have improved on the heels of credit tightening actions. Delinquencies and the net loss rate both dropped 30 bps to 5.9% and 8.2%, respectively.
Provisions for credit losses landed at $296 million, down 8%. Improved credit results, offset by weaker economic scenarios, led to a reserve rate of 12.2%, a "slight improvement" on a year-over-year basis and comparable to Q3 2024, according to the earnings release.
Bread is waiting to see how current policy uncertainty impacts inflation, Beberman said.
"The consumers we serve are really more middle America — middle to lower income Americans in that near prime to prime space — and we've said that they've been living in their own personal recession for the past three years," Beberman said. "What the policy of this current administration is doing is now creating not only uncertainty, but with what has been announced, will increase prices in the future."
Creeping into crypto
Bread Thursday morning also announced a co-branded Visa credit card with Crypto.com, which allows customers to earn CRO rewards. CRO is Crypto.com's cryptocurrency token, also called Cronos.
The card will have five reward tiers ranging from 1.5% to 5% back on purchases, to be paid in CRO. Higher reward tiers require customers to stake their CRO.
The partnership comes as Bread looks to diversify its brand partnerships and cement itself as more of a "pure play" financial services company, Beberman said.
"Over the past five years since Ralph Andretta became CEO [and] I joined about four years ago, we've been really focused on transforming the company into a tech-forward financial services company, where we provide simple personalized payment, lending and saving solutions," Beberman said.
"Crypto.com is another piece of that pie," he said. "With our tech stack, we were able to go compete for this [because of] our ability to integrate in their app that they offer to their customers and our flexibility to work with them such that consumers can earn CRO points."
There are only two other credit cards in the market that offer crypto-related rewards, according to Nerdwallet. Venmo's credit card allows customers to automatically purchase crypto with their cash-back rewards, and crypto exchange Gemini's co-branded credit card allows customers to receive rewards in bitcoin or more than 50 other currencies.
