• Adjusted Net Income: $93 million.
• Adjusted Diluted Earnings Per Share (EPS): $1.83.
• Tangible Book Value Per Share: $47.48, increased 12% year over year.
• Common Equity Tier One Capital Ratio: 13.3%, increased 40 basis points year over year.
• Credit Sales: $6.5 billion, decreased 3% year over year.
• Average Loans: $17.8 billion, increased 1% year over year.
• Revenue: $1.0 billion, down 5% year over year.
• Adjusted Total Noninterest Expenses: Decreased 5%, excluding $96 million pretax impact from repurchase of convertible notes.
• Net Loss Rate: 7.8% for the quarter.
• Loan Yield: 27.4%.
• Net Interest Margin: 18.8%.
• Direct to Consumer Deposits: $7.5 billion, accounting for 41% of average funding.
• Delinquency Rate: 6.4%.
• Reserve Rate: 12.2%.

• Warning! GuruFocus has detected 2 Warning Sign with BFH.

Release Date: October 24, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Bread Financial Holdings Inc (NYSE:BFH) demonstrated a commitment to growing responsibly by repurchasing $262 million of convertible notes, which improved their balance sheet.
• The company reported an adjusted net income of $93 million and adjusted diluted earnings per share of $1.83, excluding the impact of the convertible notes repurchase.
• Tangible book value per share increased by 12% year over year, indicating strong financial health.
• BFH successfully launched new credit card programs with Saks Fifth Avenue and Hard Rock, expanding their portfolio and partnerships.
• The company has a diversified product suite and industry verticals, which provides stability and helps achieve long-term financial targets.

Negative Points

• Credit sales decreased by 3% year over year, reflecting moderating consumer spending and strategic credit tightening.
• Total revenue for the quarter was down 5% year over year, primarily due to lower late fees and merchant discount fees.
• The net loss rate increased to 7.8% for the quarter, up from 6.9% in the third quarter of 2023.
• Loan yield decreased by 120 basis points year over year, impacted by a shift in product mix and higher credit losses.
• The company faces potential regulatory challenges with the CFPB's final rule on credit card late fees, which could impact future earnings.

Q & A Highlights

Q: Are you close to peak losses right now, and will 2025 losses be better than 2024 losses if the macro stays stable? A: Perry Beberman, CFO, stated that the outlook depends heavily on the macroeconomic environment. While delinquency rates are stable, any improvements in losses will be gradual, reflecting the prolonged impact of high inflation and interest rates. The expectation is for slow, gradual improvements in consumer behavior over several quarters.

Q: What mitigants are already in the market for late fees, and how much benefit are you getting from them? A: Perry Beberman explained that Bread Financial has been working with brand partners on mitigation strategies, including APR increases and paper statement fees. These actions are not intended to over-earn before the rule's effective date. The benefits from these mitigants will gradually build, with some impact expected in the fourth quarter.

Q: How do you expect delinquency trends to evolve, and will credit tightening positively impact credit metrics next year? A: Perry Beberman noted that credit actions have stabilized delinquency rates more than peers. The expectation is for gradual improvement in credit metrics, aided by economic stabilization and the effects of credit tightening. However, the pace of improvement will be macro-dependent.

Q: What is your perspective on the fourth quarter holiday sales season? A: Ralph Andretta, CEO, expects consumer behavior to remain consistent with previous quarters, with more frequent visits and smaller baskets. The holiday sales season is anticipated to be moderate, reflecting the current macroeconomic environment.

Q: Can you discuss the decision to repurchase convertible notes and its impact on capital strategy? A: Perry Beberman explained that the repurchase of convertible notes was part of a broader strategy to deleverage and improve the capital stack. This action reduces future dilution risk and aligns with the company's capital priorities, given expectations for share price appreciation.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.