Bread Financial beats on revenue, misses on earnings

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Bread Financial's revenue didn't fall as much as analysts had expected for the third quarter, but the financial services company came up short of earnings expectations due to repurchase agreements for $262 million of convertible notes. 

The Columbus, Ohio-based credit card company logged revenue at $983 million for the three months ended Sept. 30, down 4.7% year over year and ahead of analysts' estimates of $977.06 million, according to S&P Capital IQ.  

Revenue fell "primarily due to lower late fees resulting from our gradual shift in product mix leading to a lower proportion of private label accounts and reduced merchant discount fees resulting from lower big ticket credit sales," Bread said in a press release Thursday.

Net income came in at $2 million, below analysts' estimates of $90.4 million. Diluted earnings per share was 5 cents, under analysts' expectations of $1.85, according to S&P Capital IQ.

Net income and diluted earnings per share fell due to a $96 million impact from two privately negotiated agreements to buy back a portion of Bread's outstanding convertible senior notes due in 2028, according to the earnings release. 

Credit sales softened in the third quarter, falling 3% to $6.5 billion, "reflecting moderated consumer spending and ongoing strategic credit tightening, partially offset by new partner growth," Bread said. Average loans ticked up 1% to $17.8 billion reflecting "stabilized consumer spending." 

Bread logged a 10-basis-point increase in delinquencies to 6.4%, while the net loss rate jumped 89 bps to 7.8%.

President and CEO Ralph Andretta said consumer spending patterns "remained consistent with the second quarter as consumers made more frequent shopping trips with lower transaction sizes."

"Spending continues to be more heavily weighted toward non-discretionary purchases, which are enabled by our expanded co-brand and proprietary products, along with back-to-school items at apparel and discount stores," Andretta said in the earnings release.

"With inflation continuing to normalize, gas prices declining, growth in real wages, and a steady labor market, we are starting to see signs of stabilization in credit sales and expect a gradual economic recovery," he said.

2024 guidance was unchanged in the third quarter, assuming no impact from the Consumer Financial Protection Bureau's late fee rule. 

"Our 2024 outlook reflects slower sales growth as a result of continued moderation in consumer spending and our proactive strategic credit tightening, both of which are pressuring loan and revenue growth and the net loss rate," according to the earnings release. "In addition, our outlook assumes ongoing interest rate decreases by the Federal Reserve, which will pressure total net interest income."

In the second quarter, Bread increased its full-year revenue guidance on the assumption that the Biden administration's hotly contested credit card late fee rule — which would cap credit card late fees at $8 — wouldn't take effect until 2025. Bread in its July earnings call said it would increase its APRs and institute fees for customers who opted for paper statements as a way to offset lost revenue from late fees. 

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The credit card company has been preparing for the CFPB's late fee rule since at least the first quarter of the year, when the lender's earnings continued to be weighed down by slowing consumer spending and an increase in charge-offs. 

Other credit card issuers have been battling slower consumer spending and an increase in charge-offs in the third quarter. Synchrony Financial, one of Bread's main competitors in the co-branded credit card space, said in the third quarter that 30-plus-day credit card delinquencies rose 38 bps year over year to 4.78%, and its purchase volumes fell 4% to $45 million. 

Discover Financial also logged a decline in credit performance in the third quarter, with net charge-offs increasing 125 bps year over year to 5.28%. American Express tallied an uptick in percent of net write-offs for card payments that were 30 days or more past due, which rose to 1.3% from 1.2% a year ago. JPMorgan Chase, the largest credit card issuer in the United States by volume, forecasted more credit headwinds in its card business.