ADS - Alliance Data Systems

[glorysk87]

Sees Forever 21 is mulling bankruptcy. Checks to see if they are a client.
Of course they are.

On the flip side, BURL reported sales up 11% today

[kab60]

Signet is also in the gutter, Gamestop not exactly doing stellar either. Some of their clients are really struggling, but they've got 150 plus and some high fliers as well. Not exactly getting a lot of love at the moment though. Glad they didn't blow the full buyback at once.

From last CC:

Daniel Perlin

Melisa, now that you've taken over, and I'm sure you guys have done another deep dive in terms of looking over the core portfolio, are there any retailers that are on your watch list that could surprise in the card business that we should be at least mindful of as we think through this transition right now?

Melisa Miller

Yes. Dan, that's a good question. There are some brands within our core portfolio that have struggled certainly with their top line growth. We are in constant contact with the senior level individuals within these brands, meet often to understand what their plans are. The great news is there are none that are of size, that if some sort of event were to occur, that we would expect there would be any impact to us.

I might just be drinking the management kool-aid, but wouldn't a new CEO usually use the opportunity to downplay expectations/kitchen sink somewhat instead of surprising negatively a couple of quarters down the road? Unless ValueAct have told her to be really agressive (so they can dump their position - but that hasn't really worked out either).

[frank87]

Signet is also in the gutter, Gamestop not exactly doing stellar either. Some of their clients are really struggling, but they've got 150 plus and some high fliers as well. Not exactly getting a lot of love at the moment though. Glad they didn't blow the full buyback at once.

From last CC:

Daniel Perlin

Melisa, now that you've taken over, and I'm sure you guys have done another deep dive in terms of looking over the core portfolio, are there any retailers that are on your watch list that could surprise in the card business that we should be at least mindful of as we think through this transition right now?

Melisa Miller

Yes. Dan, that's a good question. There are some brands within our core portfolio that have struggled certainly with their top line growth. We are in constant contact with the senior level individuals within these brands, meet often to understand what their plans are. The great news is there are none that are of size, that if some sort of event were to occur, that we would expect there would be any impact to us.

I might just be drinking the management kool-aid, but wouldn't a new CEO usually use the opportunity to downplay expectations/kitchen sink somewhat instead of surprising negatively a couple of quarters down the road? Unless ValueAct have told her to be really agressive (so they can dump their position - but that hasn't really worked out either).

We really have to stop mistaking the stock price of these retailers for its impact on Alliance Data. As long as the retailer stays in business, revenues are all that matters. People think L Brands is a goner because of where its stock price has gone, yet their revenues have been flat to up slightly and they're still profitable.

[abitofvalue]

I might just be drinking the management kool-aid, but wouldn't a new CEO usually use the opportunity to downplay expectations/kitchen sink somewhat instead of surprising negatively a couple of quarters down the road? Unless ValueAct have told her to be really agressive (so they can dump their position - but that hasn't really worked out either).

she's hardly new management.. she ran the card division before being made CEO....  but hey today's underperforming retailers are tomorrows discontinued programs..  thye'll just say - active receivables will be 'spooling' higher..   

it's cheap and not in terminal decline but doesnt have much else going for it imo...  i could see this bouncing to trade in-line with COF, DFS.  dont think it can achieve its historical multiple (rightly so). 

[kab60]

I might just be drinking the management kool-aid, but wouldn't a new CEO usually use the opportunity to downplay expectations/kitchen sink somewhat instead of surprising negatively a couple of quarters down the road? Unless ValueAct have told her to be really agressive (so they can dump their position - but that hasn't really worked out either).

she's hardly new management.. she ran the card division before being made CEO....  but hey today's underperforming retailers are tomorrows discontinued programs..  thye'll just say - active receivables will be 'spooling' higher..   

it's cheap and not in terminal decline but doesnt have much else going for it imo...  i could see this bouncing to trade in-line with COF, DFS.  dont think it can achieve its historical multiple (rightly so).

She was running the business and seems to have done a good job. She wasn't responsible for the messed up communication - and probably didn't decide on their discontinued programs. That smells more like an invesetment banker-move to dress up the apperance, aka the former CEO, or a hedgefund who's been drawn to Cash EPS metrics before, aka ValueAct. As I said, I might be drinking the management kool-aid. I agree discontinued ops looks disingenious, so does guiding for 20B receivables when it's unclear how much will be from organic growth or portfolio buys. Dont think anyone is banking for a historical multiple.

[adhital]

Searching for their potential new clients, I found these examples to help offset and/or increase ADS's future receivables. I remember a while back they were saying $50Billion potential portfolio is out there and only 40% is captured by ADS so far. Looking at the revenue trend of ULTA, Wayfair and Williams sonoma's, I tend to agree with them. There are other structural issues for sure but at this price, and if my math is accurate assuming 15% of client's revenue flows though their receivables,  even with 10% receivable decline yoy (i.e. average 3 to 4 clients bankruptcy/year)  for the next 5 years and sale of this company at 8 to 10 times 2024 EBIDTA is a close to  15% IRR for stockholders. Remember, even  Cintron's short report was assigning card business $100/share with 2015 $12.5 Billion receivable numbers.

Bloomin Brands Inc
Boyd Gaming Corp
Burberry Group
Lululemon
Sally Beauty Holdings Inc
Tiffany & Co
Urban Outfitters
and many others..

[decko]

Q3 $5.05 misses the average analyst estimate of $5.25 and falls from $5.37 in the year-ago quarter.

ADS now sees 2019 core EPS of $16.75-$17.00, assuming no further rate cuts by the Fed; compares with consensus of $19.30.

Cites recent prime rate changes, an adjustment to the value of certain held-for-sale credit card receivable portfolios, and lower average receivables.

 thoughts ??

[KCLarkin]

Q3 $5.05 misses the average analyst estimate of $5.25 and falls from $5.37 in the year-ago quarter.

ADS now sees 2019 core EPS of $16.75-$17.00, assuming no further rate cuts by the Fed; compares with consensus of $19.30.

Cites recent prime rate changes, an adjustment to the value of certain held-for-sale credit card receivable portfolios, and lower average receivables.

 thoughts ??

I haven't listened to the call yet but this seems like the kind of situation you want to sit out and wait until there is some business or stock price momentum. Every quarter, it looks like they have finally reached rock bottom...

[kab60]

New CFO basically said he was proud of the tender. Bah.

Their guidance doesn't include rate drops (though market expects two), so setup for another bad surprise. Bah.

What matters longterm is whether or not they bring value to their clients, and judging by wins in recent years and commentary from their customers it seems like they do.

We're basically at around 4x2020guidance, but it's such a bummer that these guys didn't reset expectations at the last quarterly call. Ed had a huge credibility problem, and these guys aren't exactly having a great start.

I really don't give a shit about whether EPS hits 15 or 20 or 25, I need to know their model works longterm, and who'd really take what they say at face value now? (I did and have sit on a large loss).

Hate to reiterate what they say, but 4x2020 earnings plus growth and plus 30 pct ROE is silly. Would probably be valued higher if they shed 40 pct of biz (like old Apparel vintages), but nobody believes these people, and CC didn't give much confidence. Probably time to looking at liquidation value to find a floor.

Oh Yeah, and ValueAct jumped ship.

[AzCactus]

New CFO basically said he was proud of the tender. Bah.

Their guidance doesn't include rate drops (though market expects two), so setup for another bad surprise. Bah.

What matters longterm is whether or not they bring value to their clients, and judging by wins in recent years and commentary from their customers it seems like they do.

We're basically at around 4x2020guidance, but it's such a bummer that these guys didn't reset expectations at the last quarterly call. Ed had a huge credibility problem, and these guys aren't exactly having a great start.

I really don't give a shit about whether EPS hits 15 or 20 or 25, I need to know their model works longterm, and who'd really take what they say at face value now? (I did and have sit on a large loss).

Hate to reiterate what they say, but 4x2020 earnings plus growth and plus 30 pct ROE is silly. Would probably be valued higher if they shed 40 pct of biz (like old Apparel vintages), but nobody believes these people, and CC didn't give much confidence. Probably time to looking at liquidation value to find a floor.

Oh Yeah, and ValueAct jumped ship.

Will be interesting to see what Arlington did here.  They've been in the position for a few years and are certainly in the red.