BREAD FINANCIAL HOLDINGS, INC. Q4 FY2024 earnings call

In 2024, Bread Financial made significant progress, adding iconic brand partners like Hard Rock International, HP, and Saks Fifth Avenue, with over 85% of loans secured through 2026 and 9 out of top 10 programs secured through at least 2028. The company adapted to macroeconomic and regulatory environments, strategically tightened credit, and strengthened its balance sheet by reducing parent-level debt and improving capital levels. In the fourth quarter, it opportunistically repurchased $44 million in principal amount of convertible notes and $44 million of common shares. It focused on operational excellence and technology advancements, achieving positive operating leverage with lower expenses than the original 2024 full-year guidance. For 2025, key focus areas include responsible growth, leveraging credit management processes, optimizing the balance sheet, strengthening risk management, and accelerating operational excellence initiatives.

For the full year 2024, credit sales totaled $27 billion, a decrease of 7%, and average loans stood at $18.1 billion, a decrease of 1%. Revenue was $3.8 billion, down $451 million or 11%. In the fourth quarter of 2024, credit sales reached $7.9 billion, a 1% year-over-year increase, while average loans were $18.2 billion, a 1% decrease. Revenue for the quarter was $0.9 billion, down 9% year-over-year. Direct-to-consumer deposits surged to $7.7 billion at quarter end, accounting for 43% of average total funding.

Bread Financial expects the full-year 2025 net interest margin to be modestly higher than that of 2024. It anticipates the net loss rate to be in the range of 8.0% to 8.2% for 2025. The company expects to generate nominal full-year positive operating leverage in 2025, excluding portfolio sales and the 2024 convertible note impact. The full-year normalized effective tax rate is expected to be in the range of 25% to 26%.

Uncertainty exists regarding the macroeconomic and regulatory environments, such as the outcome and timing of the CFPB late fee rule. There is also uncertainty in consumer spending and potential impacts from legislative and monetary policy changes that could affect inflation.

Q: Sanjay Sakhrani from KBW inquired about the path to medium-term targets.

A: Perry Beberman responded on the path to medium-term targets, mentioning elevated losses, improvement in delinquency, and CFPB late fee mitigation playing through.

Q: Vincent Caintic from BTIG asked about NIM and mitigants rollout.

A: Perry Beberman updated on mitigation progress, brand partner conversations, and medium-term guidance.

Q: Jeffrey Adelson from Morgan Stanley asked about first quarter NIM pressure.

A: Perry Beberman said the first quarter should be seasonally slightly up from the fourth quarter.

Q: John Pancari from Evercore ISI asked about linked quarter loan yield change.

A: Perry Beberman explained factors like Fed cuts, lower big-ticket sales, and product mix shift.

Q: Bill Carcache from Wolfe Research asked about co-brand vs private label and return profile.

A: Perry Beberman said it aligns with Investor Day guidance and discussed product mix and risk-adjusted yields.

Q: Mihir Bhatia from Bank of America asked about capital returns and credit.

A: Perry Beberman talked about capital deployment, funding growth, and credit underwriting.

Q: Terry Ma from Bank of America asked about revenue growth cadence and credit.

A: Perry Beberman discussed revenue growth factors and credit roll rates.

Q: Dominick Gabriele from Compass Point asked about mix shift and efficiency.

A: Perry Beberman talked about gradual mix shifts and focus on efficiency.

Q: Reggie Smith from JPMorgan asked about Fed rate assumption and APR increases.

A: Perry Beberman discussed Fed rate cuts, APR increase variability by partner, and how they are applied to consumers.