A month has gone by since the last earnings report for Alliance Data Systems . Shares have lost about 3.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Alliance Data due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Alliance Data Q2 Earnings Beat Estimates, Decline Y/Y
Alliance Data's operating earnings of $1.86 per share for the second quarter of 2020 beat the Zacks Consensus Estimate of $1.84. However, the bottom line plunged 51% year over year.
The soft performance was attributable to lower revenues as a result of a decline in volumes due to the COVID-19 pandemic. However, lower expense limited the downside.
Behind the Headlines
Alliance Data reported total revenues of $979 million, down 27% year over year. The downside was due to lower revenues from Card Services as well as LoyaltyOne segment. The top line missed the Zacks Consensus Estimate by 21.2%.
Operating expenses decreased 20.4% year over year to $804.6 million. Operating income decreased 48.2% year over year to $174.7 million largely due to lower revenues.
Adjusted EBITDA (net of funding costs) declined 50% year over year to $156 million.
LoyaltyOne: Revenues totaled $151 million, down 40% year over year attributable to fewer short-term loyalty programs due to the impact of COVID-19 as well as divestment of Precima. Adjusted EBITDA decreased 11% to $45 million.
AIR MILES reward miles issued decreased 26% reflecting a decline in discretionary spending, including credit card spend and delays in promotions by sponsors. AIR MILES reward miles redeemed declined 42%, reflecting the impact of the pandemic on travel-related categories, partially offset by strength from merchandise redemptions.
BrandLoyalty revenues decreased 44% or $70 million due to a decline in programs.
Card Services: Revenues were $828 million, down 24% year over year attributable to lower sales volumes and increased fee waivers due to COVID-19. Adjusted EBITDA was $127 million, down 56% year over year, attributable to lower revenues. However, decline in operating expenses and the $7 million year-over-year decrease in the provision for loan loss limited the downside.
Expense Reduction Programs Update
Expense reduction programs achieved about $140 million in cost savings in the first half of 2020. The company estimates additional cost savings of more than $100 million in second half of 2020.
As of Jun 30, 2020, cash and cash equivalents was $4.9 billion, up 28% from Dec 31, 2019-level.
At quarter end, the debt level was up 12.3% from 2019-end to $3.2 billion.
Cash from operations decreased 2% year over year to $1.1 billion in the first six months of the year. Capital expenditure at Alliance Data declined 71.7% year over year to $26.1 million in the same period.
The board of directors approved quarterly dividend of 21 cents to be paid out on Sep 18 to stockholders of record as of Aug 14, 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -39.07% due to these changes.
At this time, Alliance Data has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Alliance Data has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.