Bread Financial reported a sharp decline in credit volume and an uptick in account delinquencies during the second quarter, but some other bright spots drove Bread’s stock up by about 7% on Thursday.
Bread’s credit sales during the quarter that ended June 30 declined 13%, to $7.1 billion, from $8.1 billion a year earlier, which management attributed to inflation and rising interest rates. Lower credit sales also reflected the sale of the BJ’s Wholesale Club credit-card portfolio during the first quarter of this year, the company said.
The Columbus, Ohio-based financial services company has spent the last three years “de-risking” its private-label portfolio away from its previous reliance on mall-based fashion retailers, and that strategy is starting to pay off, said Ralph Andretta, Bread’s president and CEO, when discussing results with analysts.
For example, Bread announced a new partnership with PC giant Dell Technologies on Thursday. Bread will provide a private-label credit card program and introduce 6- and 12-month financing via Dell Pay. Bread will also take on Dell’s existing credit-card portfolio in a deal set to close during the fourth quarter.
That move builds on Bread’s expanding mix of diversified merchants in the technology, travel and beauty sectors versus the specialty-apparel arena, which has been soft and prone to seasonal crashes.
During the second quarter, Bread also reduced its unsecured debt by more than $500 million, including refinancing Bread’s term loan and its revolving line of credit. Combined with nearly $5 billion that flowed in from Bread’s direct-to-consumer deposits, the company is now funding one-third of its loans in-house, up from 22% a year ago, according to Perry Beberman, Bread’s chief financial officer.
Bread will continue to tighten credit underwriting, Andretta said. Credit card delinquencies during the second quarter were 5.5%, up from 4.5% during the same period a year earlier. Bread’s net loss rate was 8%, about 100 basis points higher than it would have been if not for an account-access glitch last year that required Bread to make costly accommodations to customers.
“These [economic] headwinds tend to disproportionately impact moderate-income Americans, including our customers’ spending decisions,” Andretta said, adding that Bread’s path to profit will depend on carefully managing credit lines while keeping its own cost of borrowing low.
Bread also expects its loss rate to abate in the second half of the year as the company moves past the one-year anniversary of its outage.
Asked about the growing possibility that the Consumer Financial Protection Bureau will impose new rules capping credit card late fees — possibly as early as this fall — Andretta said the company is looking for ways to offset a potential loss of revenue, including changing its cards’ interest rates and possibly charging an annual fee.
Loans at the end of the period were $18 billion, up 1% over the same period a year earlier. Non-interest expenses rose 12%, to $57 million, and adjusted revenue rose 7% to $952 million. Net income was flat at $48 million.
Equity analysis firm William Morris said Bread’s results beat its expectations. “Favorable trends in delinquencies should support lower loss rates in 2024, barring a more severely challenged macro environment,” the firm said in a Thursday note to investors.