Bread Financial has been fighting one challenge after another since the pandemic shut down many of its mall-based retail co-branded credit card partners, including its own
But there may be one bright spot on the horizon for the company — the Consumer Financial Protection Bureau's final rule capping fees,
The CFPB's rule would mandate a cut in credit card late fees to $8 for all issuers, from the current maximum of $32 for the first late payment and $41 for subsequent late payments. Bread told analysts Thursday that after deeper analysis of the final rule, plus a recent flurry of discussions with its retail credit card partners about mitigation strategies, the firm will see a 20% loss of revenue during the fourth quarter of this year, versus a 25% hit, which it
But even with this improvement, other factors still weighed on Bread's earnings. It reported significant declines in first-quarter net income and revenue due to slower consumer spending and rising charge-offs amid a tougher economic environment.
The revised forecast regarding the CFPB action "highlights the continued progress we have made since the final rule was released as a result of discussions with our brand partners regarding customer pricing actions and clarity on the timing of the actions," Perry Beberman, Bread's chief financial officer, told analysts during a conference call to discuss earnings. He said the firm may even find ways to drive the 20% hit lower, noting there is still "ongoing negotiation" with merchant partners.
Toward the end of 2023, Bread removed a "soft cap" of 29.99% and increased the spread of its APRs on some cards above the prime rate index, Beberman said. In coming months, Bread will begin increasing APRs on various co-branded credit cards and changing fees and policies, but he did not provide details of those changes.
"The team is feverishly working nonstop, with [retail card] brand partners, coming up with other policy changes and other things," Beberman said.
The loss of the BJ's Wholesale Club card portfolio to Capital One, which was announced in 2022 and took effect last year, continues to be a drag on Bread's numbers, Beberman said.
First-quarter revenue was down 23%, to $991 million, from $1.3 billion during the same period a year earlier. Income declined 71%, to $134 million, from $455 million during the first quarter of 2023.
Credit sales were $6 billion, down 18% compared to the same period a year earlier, as consumers cut spending on discretionary and big-ticket items, making more frequent visits to stores with smaller overall purchases. Average loans during the quarter were $18.5 billion, down 4% year over year, he said.
Charge-offs during the first quarter rose 150 basis points from the same period a year earlier, to 8.5%, up 50 basis points from the prior quarter. Bread's delinquency rate during the first quarter was 6.2%, up 50 basis points from the first quarter of 2023, but 30 points lower than the most recent quarter, which Beberman said shows positive results from recent credit-tightening maneuvers.
If macroeconomic conditions hold steady, Bread's charge-offs are on track to peak in May of this year at about 9%, ending the year at about 8%, Beberman said. As a result of Bread's ongoing discipline in controlling and restricting credit limits on borrowers, the firm now has a higher overall percentage of customers with Vantage credit scores above 660 than before the pandemic, he noted.
Bread's direct-to-consumer deposit flow continues to be healthy, now totaling $7 billion, which accounts for 36% of the firm's loan funding mix, he said.
Bread's overall financial outlook was worse than previous corporate guidance, said analysts at JPMorgan Chase in a Thursday note to investors.
"On a brighter note, management has begun implementing mitigation strategies and now sees late-fee regulation as a mid-teens-percentage headwind for the fourth quarter of this year, compared to the [earlier forecast] of 25%, and continues to expect the financial impact to lessen over time," the analysts said.
