Bread warns political uncertainty could hinder its growth

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Bread Financial's earnings fell short of Wall Street's expectations, though its leadership is optimistic consumer strength will improve financial performance. One major complication is unpredictable politics and monetary policy, which could upend the payment company's already tepid conservative outlook. 

For the quarter ending December 31, Bread missed analyst expectations on most key metrics. Revenue landed at $926 million, down 8.9% year over year and below analysts estimates of $956.38 million. Net income, meanwhile, recorded a 83.7% decline to $7 million, or 14 cents per share, well below analysts estimates of $15.76 million, or 26 cents per share. 

Adjusted earnings per share clocked in at 40 cents per share, beating analysts estimates of 32 cents per share. 

Declines in net income was due to post-tax impact from an "opportunistic" repurchase of $44 million of the company's outstanding convertible notes during the quarter, according to the company. Bread repurchased 97% of its outstanding convertible debt last year. 

Noninterest expense was up 3.9% due to the repurchase and increases in employee compensation. 

Credit sales in the fourth quarter inched up 1% year over year to $7.9 billion thanks to increases in beauty, sporting goods and retail apparel verticals as well as millennial and Gen Z buyers. Spending continued to be more heavily weighted to nondiscretionary purchases, Chief Executive Ralph Andretta said during the company's earnings call.

"We are cautiously optimistic that credit sales improvement will continue in 2025 driven by new and existing corporate growth," Andretta said, but also stressed the company was monitoring "impacts from key legislative and monetary policies." 

Period-end credit card and other loans ticked down 2% to $18.9 billion in the quarter. 

Bread saw the fruits of its 2024 credit tightening actions come to bear. Delinquencies improved 60 basis points, or bps, year over year to 5.9% following an uptick in past-due accounts in the third quarter. That improvement came as approximately $10 million of potential losses were deferred to the second quarter of 2025 due to hurricane relief efforts in FEMA-identified zones. Net charge-offs in Q4 came in flat at 8%. 

"This gradual improvement provides an early sign of potential optimism for improved credit performance in the second half of 2025," Bread's Chief Financial Officer Perry Beberman said during Thursday's earnings call. "Delinquency performance over the next 90 days will help to shape our expectations for the second half of the year, as there's still potential volatility … driven by the changing administration, tax season and broader macroeconomic conditions." 

Credit loss provisions dropped 14% to $417 million, while the company's allowance for credit loss ratio, however, increased to 11.9% of the portfolio, compared to 8.3% of its portfolio in Q4 2023. 

Net interest income dropped 8% to $988 million, while net interest margin shrunk 1.8 percentage points to 17.8%, and loan yields dropped 2 percentage points to 25.7%, primarily due to lower finance charges and late fees. The timing, and rate, of interest rate reductions initiated by the Fed will shape the degree in which the company's net interest income is pressured next year, Beberman said. 

Bread Financial's 2025 guidance didn't stray too far afield from its 2024 performance, in line with its "cautiously optimistic" outlook for the year ahead. 

Average loans are expected to be flat at around $18.1 billion, and revenue is expected to be up in the low-single digits from 2024's $3.8 billion, with net interest margin coming in "modestly higher" than the prior year due to mitigation actions taken in response to the CFPB late fee rule. 

Bread's outlook assumes no late fee reduction "given the uncertainty surrounding the timing and outcome of the ongoing legislation," Beberman said. 

Net losses, meanwhile, are expected to hover in the range of 8% to 8.2%, marking a slight improvement over 8.2% at the end of 2024. 

"We also recognize that consumer impacts related to the new administration, legislative and monetary policies are unknown at this time." Beberman said.  

The results come on the heels of muted consumer spending and faltering credit in the third quarter. Bread's CEO brushed off softening credit sales on the company's previous earnings call, saying he expected consumers to "self-regulate." 

Bread's improvement in credit performance marked a split from one of its key competitors, Synchrony Financial, which posted a mixed bag in credit quality despite previous credit-tightening actions, with its 30-plus-day delinquencies ticking down and net charge-offs jumping.