Synchrony Financial is predicting that good times in its store-branded credit-card business will continue throughout 2016.
After the Stamford, Conn.-based company beat earnings expectations for the fourth quarter, top executives argued that the firm's run of strong profitability, which has been aided by the steady decline in the U.S. unemployment rate, is sustainable. It helps, too, that Synchrony has forged a partnership the country's largest online retailer.
"We expect we will continue to grow sales volume at two to three times broader retail sales," Chief Executive Officer Margaret Keane said Friday during a conference call with analysts. "We see unemployment in a good place, and we feel that's going to continue."
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Keane's outlook for 2016 is more bullish than that of many industry observers, who worry that collapsing oil prices and turmoil in China and other global markets could weigh on the U.S. economy and stymie bank profits. Indeed, many banks reported poorer-than-expected earnings in the fourth quarter due as a result of slow revenue growth and weakening credit quality.
Synchrony, though, is thriving. Reporting its earnings for the first time since completing its separation from longtime parent General Electric, Synchrony recorded net income of $547 million in the fourth quarter. That was up 3% from the same period a year earlier. Earnings of 65 cents per diluted share exceeded the expectations of analysts.
By any number of measures, Synchrony's lending business is currently showing strength. The company has been riding a broader rebound into the store-branded card sector, which tends to grow during periods of economic expansion and contract during recessions, when many more borrowers often stop making payments.
Synchrony's quarterly purchase volume — essentially card use — rose by 8% to $32.5 billion in the fourth quarter. Its loan receivables grew by 11% from the fourth quarter of 2014 to $68.3 billion. The company's net interest income and its net interest margin also showed improvement.
At the same time, credit quality remains solid. The percentage of Synchrony loans that were at least 30 days past due was 4.06%, down from 4.14% in the same period a year earlier.
Shares in Synchrony were up nearly 4% in midday trading Friday, to $28.77. Since the company's initial public offering in July 2014, its stock price has risen by 26%.
Now the question is: how long will Synchrony's hot streak last?
Keane and Chief Financial Officer Brian Doubles made the case Friday that it will continue for at least the next year. Their projection rests on an assumption that the U.S. unemployment rate, which now sits at 5.0%, will remain at its current level or improve slightly.
"In terms of credit," Doubles said, "we believe our net chargeoff rate will continue to be relatively stable."
Mark Palmer, an analyst at BTIG Partners, said in a research note Friday that Synchrony's upbeat outlook has credibility, given that the firm managed to remain profitable throughout the financial crisis of 2008 and 2009.
In the fourth quarter, Synchrony's results were bolstered by 23% growth in e-commerce sales.
The firm's top brass declined to say how much of that boost came from a partnership with retail giant Amazon — Synchrony issues a card that offers 5% back on all purchases to Amazon Prime members — but it was undoubtedly a significant factor. Amazon accounted for about half of all e-commerce growth in the U.S. last year, according to one estimate.
"Amazon continues to be a great partner," Keane said. "Obviously they had a great holiday, and we were glad to be part of that."
More than a third of the Synchrony's credit applications are now coming from online and mobile channels, according to Keane. She added that the company saw a 73% increase, year over year, in applications from mobile devices.
"Mobile and online is the way people are shopping today," she said. "Our view is, this is where the industry is going, or the consumer is going, and we need to be in the forefront of that."
Synchrony hopes soon to start returning capital to its investors. Company executives said Friday that they hope to hear back from the Federal Reserve Board in June regarding those plans.
"Now that we are fully separated from GE," Keane said, "we will look to return capital this year through the establishment of a dividend and share repurchase program, subject to board and regulatory approval."
