Alliance Data Systems Corp (ADS) Q4 2020 Earnings Call Transcript

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Alliance Data Systems Corp (BFH 4.76%)
Q4 2020 Earnings Call
Jan 28, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Alliance Data's Full Year and Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce Mr. Brian Vereb, Head of Investor Relations at Alliance Data. Sir, the floor is yours.

Brian Vereb -- Investor Relations

Thank you, Casey. Copies of the slides we will be reviewing and the earnings release can be found on the Investor Relations section of our website. On the call today, we have Ralph Andretta, President and Chief Executive Officer of Alliance Data and Tim King, Executive Vice President and Chief Financial Officer of Alliance Data.

Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statement. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Alliance Data has no obligation to update the information presented on the call. Also on today's call, our speakers will reference certain non-GAAP financial measures which we believe will provide useful information for investors. Reconciliation of those measures to GAAP will be posted on the Investor Relations website at alliancedata.com.

With that, I would like to turn the call over to Ralph Andretta. Ralph.

Ralph J. Andretta -- President and Chief Executive Officer

Thank you, Brian. And thank you all for joining the call this morning, I will start on Slide 3 with the key takeaways from 2020 for Alliance Data. First, we believe that the company's results reflected significant resilience in what was a very difficult business environment thanks to our ability to respond quickly and effectively to the changes brought on by the COVID-19 crisis. At the same time, we were able to reduce our fixed cost base by approximately $240 million in 2020 compared to where we stood in 2019. We optimized our workforce and our physical real estate footprint and gained operating efficiencies through process improvements including automation as part of our transformation program. Even more important than the progress we demonstrated in 2020 are the investments we made and the strategic actions we took to position Alliance Data for sustainable long-term future growth. We invested in top-tier talent to transform our Card Services business, added digital innovation expertise and strengthened our partner management and product development capabilities.

Turning to Page 4, I will cover key investments we made in 2020. But before I get there, I do want to mention our international LoyaltyOne businesses as they continue to adopt and invest in better positioning themselves for the marketplace through new offerings. First, turning to AIR MILES, the team has pivoted rewards portfolio to emphasize more non-travel options such as stay-at-home type merchandise to drive higher customer redemption rates during the pandemic. BrandLoyalty has developed a number of new concepts for programs based on pandemic related themes like bring the world to your home and health and hygiene and is providing sustainability focused offers using 100% recycled plastic through rewards like luggage and kids promotions.

Moving to the slide, you can see the major products and technology enhancements we've made in 2020 to improve our client experience and drive future growth. Our acquisition of Bread opens up new opportunities to leverage our digital offerings to capture incremental point of sale opportunities and to build strategic technology platform partnerships. Bread offerings and integration capabilities enhance the growth prospects of our Card Services verticals and increase the addressable market of small and medium-sized merchants. At the same time, Bread offers our existing partners a broader digital product suite and additional white label product solutions. With the transition of Card Services core processing to Fiserv, we will improve our brand partner conversions and speed to market, including the ability to quickly and seamlessly add new products and capabilities that benefit our partners and card members. The platform enables efficient integration in use of mobile wallets and virtual accounts while supporting our data and analytic capabilities and improving operational efficiencies.

We will also benefit from capital expenditure savings, which will be redeployed to fund growth initiatives. In 2020, we also announced the launch of our Enhanced Digital Suite. This digital application helps our brand partners capitalize on accelerated growth of e-commerce by attracting and bringing through more qualified applicants a higher average purchase value and a higher credit sales conversion rate. The suite creates a seamless process for customers to adapt, apply for and use our payment options. We are seeing improved year-over-year growth from our digital channels, and would expect this trend to continue as our partners and card members benefit from our digital solutions.

Finally, we were pleased with the response to the launch of our new proprietary credit card, the Comenity Card in 2020. We continue to see strong activation rates, engagement and cross category shopping especially among millennials. The Comenity Card allows Alliance Data to retain card member relationships and drive increased credit sales. These investments together with our streamlined cost structure underpin our confidence in Alliance Data's future prospects.

Slide 5 provides the financial highlights for the fourth quarter. We reported diluted EPS of $0.25 including discontinued operations. Net income from continuing operations was $93 million or $1.93 per diluted share. Total revenue for the quarter was over $1 billion. Credit sales improved 24% sequentially and both AIR MILES reward miles issued and redeemed improved from the third quarter of 2020. Overall, during the quarter we saw a pickup in our business due to holiday seasonal shopping and improved consumer spending.

Moving on to Slide 6, you can see the continued gradual recovery in credit sales for our Credit Card Services business. Active program sales, which provide a clearer view of underlying sales trends, improved from a 14% decline year-over-year in the third quarter to a 7% decrease in the fourth quarter of 2020, also 24% sequential total sales improvement from the third quarter of 2020 was better than the same period last year showing continued progress while adjusting for seasonal holiday increases. We continue to see more purposeful spending. While same-store traffic was down versus a year ago, when consumers shop-in-store they are spending more. Also I want to highlight the success we saw in our beauty, health and wellness verticals as both had an excellent holiday season with strong online adoption and sales performance.

Online sales made up 42% of total sales in the fourth quarter, up from the low 30s for the fourth quarter of last year. Please note that we include additional details on our sales by channel in the appendix of this deck.

Slide 7 highlights select partner additions and renewals and our new strategic technology partnership with RBC. In the fourth quarter, we added over 60 new online merchants and now have over 500 online merchants. Bread's innovative fintech approach and platform capabilities combined with Card Services funding, marketing, data and analytics and underwriting expertise provides new opportunities for growth and synergies. Our pipeline of digital partners is growing at an impressive rate as a result of bringing our two companies together. In addition, active cross-sell partner discussions continue with high levels of interest from our existing Card Services brand partners to augment existing programs with Bread solutions. We expect the integration of existing partners to start in the latter part of the first quarter. I would also highlight the addition of Famous Footwear, which will be fully integrated with the enhanced digital suite to take advantage of our digital capabilities in a single API integration. The strategic agreement that we have announced this morning with Royal Bank of Canada leverages Bread's leading platform technology and digital offerings in new ways. RBC is now utilizing Bread's white label platform to expand its payment solutions for its Canadian merchants. This accelerates Bread's platform growth and enables us to continue to bring next generation payments and checkout solutions to more consumers globally.

Let's turn to Slide 8 to review the performance for LoyaltyOne, which includes AIR MILES reward program in Canada and Netherlands-based BrandLoyalty. The segment's fourth quarter revenue benefited in part from higher seasonal spend when compared to the previous quarter. As I mentioned earlier and as displayed in the graph on the bottom of the slide, AIR MILES reward miles issued and redeemed continued to improve in the quarter, driven in part by the success of the expanded merchandise portfolio. Customer engagement continues to improve with the new offerings. Once travel resumes, the new offerings combine with travel options to provide a substantial growth opportunity. BrandLoyalty revenue improved 36% sequentially yet remains down versus the prior year. We continue to closely monitor the pandemic inspection rates especially in Europe and certain countries as they implement stricter COVID [Phonetic] measures.

Moving to Slide 9, our areas of focus remains consistent with the recover actions behind us, we remain focused on the rebuild and regrow elements of our plan. We will execute on these efforts in 2021 to position Alliance Data for sustainable, profitable and long-term growth. I will now turn the call over to Tim to cover the financials.

Tim King -- Executive Vice President and Chief Financial Officer

Thank you, Ralph, and good morning to everyone. I'll start on Slide 10 to review our results for the full year and fourth quarter of 2020. Starting with the full year of 2020, income from continuing operations was $295 million, down 48% from 2019. The reduction in revenue was primarily due to COVID-19 pandemic. This reduction was partially offset by reduced operating expenses as a result of decreased variable cost tied to lower receivables as well as $240 million of fixed cost savings that Ralph mentioned before.

Starting in the fourth quarter of 2019, we took action to rightsize our expense base. We optimized our workforce and physical real estate and continue to recognize the benefit from our investment in automation. Others areas of reduced cost in 2020 included legal, consulting and product expenses. For the fourth quarter of 2020. revenue was down 24% versus the prior year. Fourth quarter income from continuing operations of $93 million benefited from lower provision for loan loss expense compared to the prior year, driven by better than expected credit performance. Income from continuing operations per diluted share was $1.93 and net income per diluted share was $0.25 for the fourth quarter.

Net income was impacted by the $81 million after tax charge in discontinued operation as discussed in the press release. I will provide more detail on the quarter in the coming slides. Slide 11 highlights our segment level results for the fourth quarter and full year 2020; focusing on the fourth quarter, both LoyaltyOne and Card Services revenues were down. The decrease in Card Services was primarily tied to a reduction in normalized card receivable and lower card yield from the Fed rate cuts. LoyaltyOne revenue was down primarily due to fewer short-term loyalty programs in market due also to COVID-19 as well as the sale of Precima in January 2020, which accounted for $23 million of incremental revenue in last year's fourth quarter. The improvement in Card Services EBT is primarily the result of lower loan loss provision expense resulting from continuing strong card member payment behavior and improving year-over-year delinquency rates. At the corporate level, EBT was down for the fourth quarter of 2020 including costs associated with the Bread acquisition.

Moving to Slide 12, I will review some of the key business metrics for the company. Starting at the bottom left, we show the normalized AR, which include held for sale versus our total credit sales. For the quarter, we saw sales come in at $7.7 billion, which is down 18% year-over-year compared to down 21% year-over-year the last quarter. As Ralph highlighted, we continue to see a gradual rebound in our sales along with the typical fourth quarter seasonal increases. While normalized average receivables improved sequentially, AR balance levels continue to be pressured by lower year-over-year sales and strong payment behavior.

Moving to the lower right, yields remained fairly stable sequentially as the impact from customer relief programs earlier in the year has largely subsided, the benefit from lower fee waivers was offset by higher seasonal balances in the fourth quarter. Card Services cost of funds dropped approximately 30 basis points from the third quarter with lower securitization and deposit costs. Finally turning to expenses, the fourth quarter included a previously announced $50 million real estate optimization cost and approximately $40 million increase in marketing and approximately $30 million increase in cost redemptions in our LoyaltyOne due to higher seasonal revenue.

Turning to Slide 13, I will start in the upper left. For the quarter, we finished with a loss rate of 6%, down 30 basis points versus the prior year. As you may have seen in our monthly data, our December net loss rate was impacted by the COVID related customer relief programs we offered earlier in the year. The spike in the December was timing related, and we expect the net loss rate to return to more normalized if not better levels in January. Slide 27, the appendix provides additional information on the topic. On the bottom left of the slide, you can see the improvement in our delinquency rate to 4.4%, down 140 basis points versus the prior year. We are very pleased with the continued year-over-year improvement in delinquencies. These improvements are a result of our actions taken in 2020, including enhanced collection efforts, prudent credit line management and the expansion of the pandemic related consumer relief programs as well as the benefits of the stimulus programs.

Finally turning to the right hand side of the page, allowance slightly decreased to $2 billion for a reserve rate of 12%. Note that a temporary seasonal increase in balances pulled down the reserve rate percent for the year-end. Given the continued uncertain economy in particular the second half of 2021, our reserve levels remain elevated to reflect the potential risk. The reserves contemplate the assumption in Moody's S4 economic outlook, which reflects only a 4% probability that economy will perform worse.

Slide 14 covers our corporate and bank liquidity and capital. We continue to maintain sufficient liquidity with over $1 billion to the parent company and nearly $350 million in cash. At the bank level, cash was $2.7 billion, the banks remain well capitalized with a total risk-based capital ratio of 19.7%.

I'll now turn it back over to Ralph.

Ralph J. Andretta -- President and Chief Executive Officer

Thanks, Tim. Slide 15 provides the initial financial outlook for the year. For 2021, we expect period-end receivables to be relatively in line with year-end 2020 while full-year average receivables are expected to be down mid-single digits reflecting the year-over-year pressure in the first half of 2021. We anticipate a sequential decline in average receivables in the first and second quarter and then flat year-over-year balances in the second half of 2021. We expect to resume high single-digit to low double-digit card receivables growth as we exit 2021.

Moving to the income statement. Total revenue is anticipated to be down low-single digits from 2020 as the impact from low average receivables in the first half of the year is partially offset by improving revenue from LoyaltyOne and our Bread Fintech acquisition. Expenses ex-provision are expected to remain flat for 2020 as we balance prudent expense discipline and the continued investment in our strategic priorities. The 2021 expense figure includes over $100 million of digital innovation and technology enhancement investments. We are capitalizing on the significant growth prospects of our fintech business expansion as well as enhancing our data and analytic capabilities. Our Fiserv processing system transition investment remains on track and will provide operational efficiencies to lower our cost to serve. Separate from our digital and tech investments, we are ramping up marketing spend in 2021 by over $50 million from the depressed levels in 2020. The investments are key to position the company for growth and the delivery of positive operating leverage in 2022. On credit, the encouraging trend in delinquencies, strong payment behavior and positive impact on the prudent risk management actions we took in 2020 provide us with confidence that our stable credit performance will continue in the first half of 2021.

We expect the first quarter net loss rate to be at or below 6%. While it's hard to predict beyond the first half of 2021 given the uncertainty and volatility in the marketplace, if card member payment behaviors remained stable and the economy improves as projected, we would expect the net loss rate for full year 2021 to be similar to 2020. 2021 will be a critical year for Alliance Data to solidify our core businesses, improve efficiency and continue to invest in our strategic initiatives and drive sustained profitable growth over the long term. We will host a virtual Investor presentation in May focused on our strategy. At that time, we'll provide the details on our 3-year strategic plan and our long-term financial targets across key metrics, including return on equity, balance sheet growth, efficiency and capital. More detail on the time will be forthcoming.

I will close on Slide 16 outlining our strategic areas where we are investing opportunistically. With the acquisition of Bread and the move to Fiserv, we are demonstrating how we are leveraging technology to build a more efficient company evolving our products and capabilities with digital advancement at the forefront. Our leadership team will go into more depth on how these initiatives and our key foundation elements will drive our company forward at our Strategy Update in May.

I'm coming up to my one-year mark of joining Alliance Data. I could not be prouder of the team, all my associates and their dedication and resilience over the past year. I am confident in our direction and our ability to capture the substantial opportunities we see in front of us.

With that, operator please open the line for questions.

Questions and Answers:

Operator

Great, thank you. [Operator Instructions] Your first question here comes from the line of Sanjay Sakhrani from KBW. Please go ahead, your line is now open.

Sanjay Sakhrani -- KBW -- Analyst

Thanks. Good morning, Tim. Wow, it's been a year. Congratulations, Ralph. So maybe my first question is the outlook on expenses, specifically the digital innovation and technology related costs. Could you guys talk about maybe some of the specifics around where you're making these upgrades and how you think those will pay off over time, like what the IRR is on those investments are?

Ralph J. Andretta -- President and Chief Executive Officer

Yes, with the acquisition of Bread it makes sense for us to make investments in digital and platforms. And also with our existing partners with our Enhanced Digital Suite. That's where the investments lie and end-to-end journeys for our card members and customers and partners to drive incremental digital interaction. So we could be in every channel our customers are in. So that's it, we're excited about that. Bread's acquisition has been really very, very good for us. Very surprising, great pipeline, and we'll continue to invest in. We expect Bread revenue to double and the receivables to double during the course of the year.

Sanjay Sakhrani -- KBW -- Analyst

Okay. And I guess maybe specifically to that, I was noticing you guys have made a decent amount of progress already cross selling Bread into your customer base with the most recent one being RBC. Could you just talk about like how we should think about the profitability of deals like this and how you guys specifically will make money in the transaction there and then maybe what the opportunities are to do more deals like this in the near future?

Ralph J. Andretta -- President and Chief Executive Officer

Yeah. So we're really excited about the RBC deal. If you think about that deal, RBC has thousands of merchants out there and what we get from that deal is a technology and service fee. So we get to see with really no risk of receivables on our books. That said, as you think about the white label solutions that Bread has, we could drive incremental receivables within our existing partners and new partners moving forward. So, again, we're excited about that as well as we'll gain those receivables. There are two or three very exciting deals in the pipeline that are a mix of both technology and servicing fees as well as gathering receivables. So more to come in the very near future, but we're excited about the prospects that Bread has with Alliance Data.

Sanjay Sakhrani -- KBW -- Analyst

And just to be clear on this RBC example, you guys won't be portfolioing the loans at the RBC, right?

Ralph J. Andretta -- President and Chief Executive Officer

That's correct. There will be RBC loans, what we do get is a technology and servicing fee. So very little risk for revenue.

Sanjay Sakhrani -- KBW -- Analyst

And I'm sorry, last one, just in terms of those fees, those technology and servicing fees, how do they compare to other peers in that business, are they lower, comparable?

Ralph J. Andretta -- President and Chief Executive Officer

Yeah. They are comparable, they're consistent with the peers in that business.

Sanjay Sakhrani -- KBW -- Analyst

Got it. Thank you so much.

Ralph J. Andretta -- President and Chief Executive Officer

Thank you. Sanjay.

Operator

Your next question comes from the line of Bob Napoli from William Blair. Please go ahead, your line is now open.

Bob Napoli -- William Blair -- Analyst

Thank you. And thanks, Ralph, and Tim. So this is a follow-up on Sanjay's question on Bread, I'm sorry. Ralph, did you say what the revenue and loans were for Bread at the end of the year on your balance sheet, -- the amount on the balance sheet, the revenue growth rate.

Ralph J. Andretta -- President and Chief Executive Officer

I did. We're going to report Bread as part of the Card Services segment. But what I will tell you going forward, we expect Bread's revenue to double in 2021 as well as the receivables to double.

Bob Napoli -- William Blair -- Analyst

Okay. And the tech business, I mean, selling Bread to RBC, is that a significant strategy to grow the non-credit sensitive and partnerships providing Bread's technology to banks and others? Is that a significant strategy and do you have a pipeline on the technology side?

Ralph J. Andretta -- President and Chief Executive Officer

Yeah, it's another revenue stream for ADS and we are really excited about it and there is a significant pipeline to do two things, one, continue to grow that technology and servicing fee, but also to gather receivables with other partners, including partners we have today.

Bob Napoli -- William Blair -- Analyst

Okay, thank you. And then just on the current customer base and what do you have coming up on renewals, has it become more competitive in retaining and adding new customers? I mean I appreciate your confidence in growing double-digit, high-single to low double, I guess, going into 2022, but are there significant renewals? Is there pricing pressure? Is there more competition for those renewals and how confident are you? Historically, ADS has had a pretty high retention rate.

Ralph J. Andretta -- President and Chief Executive Officer

Yes, the competition has always been there. So I don't view the competition is any different than it has been in the past. I mean, I think we're better suited now because we have a greater suite of products. If you think about adding those Bread white-label products to private label, co-brand, big ticket, it just gives us the ability to demonstrate to our partners, we're a one stop shop for underwriting in financial services, so we feel good about that. We feel going forward we even have a better opportunity to compete.

Bob Napoli -- William Blair -- Analyst

Okay and then just a quick numbers question for Tim. Tim, what's the share count, fully diluted share count you expect for 2021 in tax rate?

Tim King -- Executive Vice President and Chief Financial Officer

Are you asking the share count on the tax rate, Bob? Is that correct?

Bob Napoli -- William Blair -- Analyst

Yes.

Tim King -- Executive Vice President and Chief Financial Officer

Yes, it's 48 million shares and the tax rate will probably be pretty consistent with our 2020 numbers, which will be around 25%.

Bob Napoli -- William Blair -- Analyst

Thank you very much. Appreciate it.

Operator

Your next question here comes from the line of Ryan Nash with Goldman Sachs. Please go ahead, your line is now open.

Ryan Nash -- Goldman Sachs -- Analyst

Hey, good morning, Ralph. Good morning, Tim.

Ralph J. Andretta -- President and Chief Executive Officer

Good morning, Ryan.

Ryan Nash -- Goldman Sachs -- Analyst

Tim, maybe a question on credit, you talked about the reserve still contemplating S4, can you maybe just talk a little bit further about what is assumed in terms of unemployment and if the economy continues to improve, how should we think about both the pace of reserving and reserve releases over the coming quarters?

Tim King -- Executive Vice President and Chief Financial Officer

Sure. So let me start with the second part and then I'll get to the S4 assumptions. Clearly we're concerned as most of the others in the industry about the fourth quarter. We feel fairly comfortable about our guidance that the charge-off number over the course of 2021 should be pretty consistent with 2020, but, you know, like others we feel that there may be a little bit of spike at the end of the year. Our reserve rate contemplates that. So specifically, Ryan, if you start asking about whether I think that there is any opportunity to release, clearly if the economy improves and we don't see that spike in the fourth quarter, there's going to be an opportunity to release the allowance. And I think, Brian, check me, but I think we have 11.1% unemployment rate for S4 is that correct?

Brian Vereb -- Investor Relations

Correct.

Ralph J. Andretta -- President and Chief Executive Officer

Yes. So I think that was caused by the S4, so pretty conservative with the overlays, but at this point, like others in the industry, we're very concerned about what happens in the -- we are concerned about the fourth quarter, and we're watching it pretty carefully.

Ryan Nash -- Goldman Sachs -- Analyst

Got it. And Ralph you talked on one of the last questions about the potential for high single-digit, low double-digit card receivables growth as you exit 2021, can you maybe just talk about what you expect to be the drivers as well as your degree of confidence in delivering on this? And does this factor in further merchant bankruptcies and is this sort of the way we should think about what the franchise is capable of in terms of growth on an ongoing basis or is this really just specific to the near term?

Ralph J. Andretta -- President and Chief Executive Officer

Yes. So the exit rate is a combination of a number of things. It's the vaccination taking hold, people being more confident to go out shopping, that pent-up demand that people have to go out and shop. So we feel good about that. The integration of Bread into our existing part is going deeper into our existing partners, the incremental marketing dollars of $50 million to drive acquisitions in sales, all that is going to contribute to the double-digit growth as we move forward. And in my view that is high single digits, double-digit growth, what you can expect from us on an ongoing basis given the investments that we have made in 2021 and the execution of those investments and our new digital platforms.

Ryan Nash -- Goldman Sachs -- Analyst

Got it. And then for sure to say thanks for all the color on the outlook, it's really good see all the information that you gave us.

Ralph J. Andretta -- President and Chief Executive Officer

Thank you.

Operator

Your next question here comes from the line of Mihir Bhatia from Bank of America. Please go ahead, your line is now open.

Mihir Bhatia -- Bank of America -- Analyst

Hi, thank you for taking my questions and good morning. And let me also start off by thanking you for the color on the outlook and the additional disclosure at the back. I did want to just clarify the answer on the 2021 credit outlook. I in think your last answer, you mentioned -- did I hear it right, did you say that you expect 2021 -- if things keep improving, you expect 2021 loss outlook to be similar to what you saw -- experienced in 2020. I just want to make sure I got that because I think in the formal guidance you'll only talked about first quarter 2020.

Tim King -- Executive Vice President and Chief Financial Officer

Yes. So Ralph, when we were on the guidance page, said unless something happens with the economy, we feel the 2021 charge-off on the year will be consistent with the 2020. And so just to grant everybody that 2020 charge-off was 6.62%. So we feel like it should be pretty close to that, given what we're seeing in the economy at this point.

Mihir Bhatia -- Bank of America -- Analyst

Got it. Thank you. And then just -- I guess I wanted to ask -- go back to the Bread question and particularly the RBC integration announced this morning. I was wondering when you mentioned -- you were talking about the fees and things with it, is that on -- is that just a straight licensing fee or is it dependent on like -- is it based on number of transactions, is there a per transaction fee, any more details on the financial impact of that kind of a deal that you could provide?

Ralph J. Andretta -- President and Chief Executive Officer

Yeah, it's a number of things. It's technology servicing and marketing fee. So it's an ongoing fee revenue.

Mihir Bhatia -- Bank of America -- Analyst

Okay. And then I guess one last question from me and then I'll get off. Just if we can go back to your Slide 7 where you have all your new partnerships, is that just Bread partnerships, card clients, just trying to understand what it means to add so many new partners in a quarter? What does it mean from a financial standpoint? What does it mean -- or is that more like, you know, showing you're making progress toward your strategic goal? Just want to make sure I understand what we're trying to say on that slide.

Ralph J. Andretta -- President and Chief Executive Officer

Yeah, obviously, a lot of those digital partners are new additives from Bread and it just expands our portfolio and where people can spend. Famous Footwear is a traditional client from ADS that it will be in our Enhanced Digital Suite. I think the thing to notice there is that they are going to integrate simply with one API. And as we move forward, the integration of partners to our Enhanced Digital Suite continues to become seamless, that drives more partners online and again gives us the ability to meet consumer needs in all the channels, whether it's bricks and mortar or digital.

Mihir Bhatia -- Bank of America -- Analyst

Good. Thank you.

Operator

Your next question here comes from the line of Jeff Adelson from Morgan Stanley. Please go ahead, your line is now open.

Jeff Adelson -- Morgan Stanley -- Analyst

Hey, good morning, Ralph and Tim.

Ralph J. Andretta -- President and Chief Executive Officer

Good morning.

Jeff Adelson -- Morgan Stanley -- Analyst

Yes, hi. I was wondering if you could elaborate a little bit more on the credit sales trend that you guys are expecting in 2021?I appreciate the full year guide of high single digits. Just kind of wondering how that progresses throughout the year once you lap the COVID impacts and perhaps what you're also expecting on the payment trends from here with stimulus coming in. Are you still expecting a pretty significant rate of pay downs and that's part of what's happening with your guidance and then on the average receivables. I am just trying to understand how much upside the average receivables could have from Bread this year and how much you're kind of contemplating? Is that doubling fully in there?

Tim King -- Executive Vice President and Chief Financial Officer

Yes. So I think your questions all get back to what we think for average receivables and the different pieces, Jeff. So we'll start with just what we're expecting. As Ralph said by the end of the year, we feel like we should be flat to 2020. The big issues are obviously going to be Q1 and Q2, which we took, obviously, the COVID had a big impact on us at the end of the year. The sales trends are going to follow that same year-over-year trend, which is they'll build out of Q1 and Q2 and by Q3, Q4 will have a nice increase in our sales, which is also part of the reasons we're guiding to 2022 with much stronger growth.

On top of that, in 2021 the COVID behavior is that people are paying us and they continue to pay us above what we saw back in the 2019 time frames, we have contemplated that. So if we put all that into perspective, Q1 is going to be down, Q2 is going to be down but then you start making that all up in as you get into Q3 and Q4. And by the end of the year, we feel pretty confident that we should be flat year-over-year. Included in that is some opportunity with Bread but as Ralph, obviously, as indicated, and I certainly would second that, we think there's a whole lot of opportunity in Bread above and beyond. We have contemplated more than doubling the AR that we have for Bread in there. But given some of the things we're seeing that we think there may be some upside there, and which we have not contemplated.

Jeff Adelson -- Morgan Stanley -- Analyst

Okay, great. And maybe just kind of switching a little bit to capital. I know that buybacks are off at this point. But as you start to see some of this excess capital come through and some of the excess reserves come off, can you remind us all how you're thinking about your tangible equity targets and what your goal is there and when you might eventually decide to start looking at maybe perhaps turning on that again?

Ralph J. Andretta -- President and Chief Executive Officer

Yes, so let me start, and I'll turn it over to Tim in terms of our target. So my view is the use of capital to me is got to continue to invest in the business. I think that's critically important. We've got to certainly return some shareholder value in dividends and we've got to pay down our debt. So if I look at -- as I look at uses of capital and my top four uses of capital at least in the near term and as we move forward. Tim, can you talk about targets?

Tim King -- Executive Vice President and Chief Financial Officer

Yes. So, look, I mean, at the sake of being redundant, I'm going to reiterate what Ralph said, our first party with the capital is got to be putting money back in the business, and we will continue to do that. And the reason I say that is we have targets for the TC to TA ratios that are going to be consistent with our peers. But as we get opportunities like Bread, both purchasing Bread as well as investing in Bread, we're going to do that. So we're not going to pick a date, we're going to continue to grow the business with the first priority making sure that a capital goes back and the opportunities we see that are pretty strong. But long term a few years out, we would expect our TC to TA ratios to be consistent with our peers.

Jeff Adelson -- Morgan Stanley -- Analyst

Great. Thank you, guys.

Operator

Your next question here comes from the line of David Scharf from JMP Securities. Please go ahead, your line is now open.

David Scharf -- JMP Securities -- Analyst

Hi. Good morning. Thanks for taking my call. And I guess congratulations on the impending anniversary, Ralph. It's for a year that seemed to last five years. That did progress remarkably quickly on your front. I'm wondering maybe just a follow up on the Bread pipeline, how we ought to think about it. I know you referenced active discussions on cross selling with kind of existing private label partners. Well, number one, I believe you said there were some integrations to start in the end of this quarter, was that the new kind of signings that were referenced in that slide, the 50 odd digital partners or are there some existing private label partners that are going to be coming on board with Bread?

Ralph J. Andretta -- President and Chief Executive Officer

Existing private label partners, that was different from the 50 -- 60 new digital partners or existing private label partners. And we expect an integration later in the first quarter.

David Scharf -- JMP Securities -- Analyst

Got it. And then in the course of those negotiations just curious, since the buy now pay later product is still emerging, are your partners open to exclusivity with Bread or are they generally adding several providers on their online shopping card? How do you see that playing out over time?

Ralph J. Andretta -- President and Chief Executive Officer

Yes. It depends on the partner but what they particularly like about our Bread solution is it's white-labeled. So it's not a move to another provider, it looks like it's right into buy flow or right in the checkout flow, and it gives them the -- gives our partners and our customers the opportunity to finance transactions in different ways, whether they want to use their private label card there, or buy now pay later an installment loan just as a seamless transaction where it is within the buy flow and not having to punch out to a third party.

David Scharf -- JMP Securities -- Analyst

Okay. So is it ever -- are we ever going to see a Bread logo or it sounds like it'll always be branded as the merchant?

Ralph J. Andretta -- President and Chief Executive Officer

Yes, in some of the offerings you'll see the Bread logo. I think the Bread logo has some equity to it, and you'll see that Bread logo as you've seen it in the past.

David Scharf -- JMP Securities -- Analyst

Got it. And just one follow up, I guess, for Tim, maybe just once again sort of touching upon some of the underlying assumptions on AR this year. You referenced obviously that the guidance is still contemplating elevated payment rates and we're seeing elevated savings rates as well. Are you making any assumptions about a additional round of stimulus? And if that's being debated upon the new Congress right now? And how we ought to think about how that might potentially impact the cadence?

Tim King -- Executive Vice President and Chief Financial Officer

Yes, I'd say that yes and no. The payment rates we're seeing are indicative of the stimulus checks that are going out and the stimulus the folks have been getting over the course of 2020. So we didn't put a step function in our payment rates for a new round of stimulus. We just kept them high, contemplating that US government would continue to support the consumer.

David Scharf -- JMP Securities -- Analyst

Got it. Thank you.

Operator

Your next question comes from the line of Scott Wurtzel from Wolfe Research. Please go ahead, your line is now open.

Scott Wurtzel -- Wolfe Research -- Analyst

Good morning, guys. This is Scott on for Darren. Thanks for taking my questions. Just had one question here. So in terms of credit sales, looking at online sales being over 40% of total during the fourth quarter, do you guys have any sort of expectation for sort of a normalized run rate of e-comm and digital sales as we head into 2021? Thanks.

Ralph J. Andretta -- President and Chief Executive Officer

Yes, I think it will continue to grow. It may moderate when malls open and people are able to shop in store but I think I see that continuing to grow over the course of the year, particularly as we add new digital partners and partners like RBC and other partners that we have in the pipeline, you'll see digital sales continue to ramp up.

Scott Wurtzel -- Wolfe Research -- Analyst

Got it. Thanks for taking my questions, guys.

Ralph J. Andretta -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of John Hecht with Jefferies. Please go ahead, your line is now open.

John Hecht -- Jefferies -- Analyst

Yes, thanks very much, guys. Ralph, congratulations on coming up on one year. I appreciate all the color on guidance as well. And we've talked a lot about the credit receivables, outlook, maybe LoyaltyOne, it sounds like you just expect kind of a recovery in revenues over the course of the year. Any color there? Is that just generally with expectations of increased travel throughout the year, any other kind of incremental factors we should think about with LoyaltyOne?

Ralph J. Andretta -- President and Chief Executive Officer

Yes, I think LoyaltyOne, I think both organizations have done a really nice job in 2020 doing a few things. One, certainly trimming their selves in terms of expenses. And secondly, having to reinvent themselves in terms of their product offerings, particularly in Canada AIR MILES has pivoted to a stay-at-home offerings, which will continue to drive spending redemptions. I think that combined with travel coming back gives the customer options on how to redeem miles. I think that would be the only positive for that business. And our Netherlands-based business BrandLoyalty, I think they've done the same, they've kind of reinvented themselves, a lot of their promotions got pushed off to 2021. We'll see those promotions in 2021. I think they've added, again, added some stay-at-home options and bring things home and I think that'll, again, that combination will drive incremental revenue in 2021.

John Hecht -- Jefferies -- Analyst

Okay. And then thinking about the Bread influence on the business, just because it's growing nicely and you're signing up different forms of partnerships that I think probably have different economic relationships. How do we think about the influence of Bread over time on yield in the receivables portfolio and the mix of PLCC versus co-brand versus big ticket?

Tim King -- Executive Vice President and Chief Financial Officer

Sure. So let me start with the yield. When you get a relationship like the RBC relationship, which is ongoing fee income, revenue income for that over time, and as they continue to grow that business, we continue to make money. With no AR, that's obviously going to help our yields. So I think Bread is going to continue to be incremental as an adds to our yields. No AR no denominator, obviously, to that yield. So that's certainly going to help. Once you move into our split, PLCC, big ticket, co-brand, we'll think -- we've given guidance, we think the co-brands is going to get a little bit larger over time, that's not changed. We think that Bread's not going to influence that. And we think we're going to be able to penetrate co-brand type relationships, PLCC type relationships, big ticket relationships. So this one I'd say that we're pretty consistent with our product split.

John Hecht -- Jefferies -- Analyst

Okay. Appreciate the color.

Tim King -- Executive Vice President and Chief Financial Officer

Thanks, John.

Operator

Your next question comes from the line of Bill Ryan from Compass Point. Please go ahead, your line is now open.

William Ryan -- Compass Point -- Analyst

Thanks and good morning. A couple of questions. First, just numbers question. Your total expense guide was flat versus 2020 and you kind of look at the footnote, it says that includes interest expense. And kind of assuming interest expense goes down, does that mean you should be modeling just higher operating expenses in general? Second question looking back at the firm, it was kind of surprising to see a little bit over 50% of their business being installment lending at about a 25% interest rate. And I was kind of curious, in the positioning of Bread, is it kind of a hybrid between pure BNPL 0% type offers, and installment lending? And do you see an opportunity if there is installment lending to kind of offer a somewhat more attractive rate relative to what is being offered by the competitors? Thanks.

Ralph J. Andretta -- President and Chief Executive Officer

Yes, so let me talk about expenses first. So operating expenses are projected to be flat. And I just want to remind everyone, in that number there is $100 million of investment dollars in operating expenses. So those investment dollars are necessary to drive our digital enhancements and such. On Bread, I think it will be a hybrid, I think you'll see the white-label solution of buy now pay later and you'll also see let's be competitive in the marketplace with rates on installment loans.

Tim King -- Executive Vice President and Chief Financial Officer

Yes, so clearly we start looking at the makeup of firm and installment lending and that rate. We think there's some opportunity to drive that forward as far as how we position ourselves how we get our rate. So John, I think that I think that answers your question, correct?

William Ryan -- Compass Point -- Analyst

Yes, like I said it was just kind of interesting when you're looking at the securitization data for a firm, just the appreciation that there's a lot of installment lending at a very high rate. And some of the traditional private label products actually look somewhat more attractive in some respects.

Tim King -- Executive Vice President and Chief Financial Officer

One of the things we like and saw, you think about how we're going to position and we are positioning Bread vis-a-vis our credit card and installment lending buy now pay later. We're going to have that whole suite and go across all those different products, including being able to have the installment and migrate people back and forth from a private label. It's going to fit nicely in our big ticket space. So some of our jewelry verticals are certainly very, very interested in that Bread product. So yes, that rate is a spot which we think we have a lot of opportunity there. But we also saw opportunity for us across the spectrum of products.

William Ryan -- Compass Point -- Analyst

All right. Thank you.

Operator

And your next question comes from the line of Michael Young with Truist Securities. Please go ahead, your line is now open.

Michael Young -- Truist Securities -- Analyst

Hey, thanks for taking the question. Wanted to ask, I appreciate as well all the outlook items, and it seems like the focus is on generating positive operating leverage in 2022 with stronger revenue growth. Obviously, there's a lot of macro factors that are kind of going into the revenue outlook currently. So if we get either upside or downside to kind of the revenue growth expectation either later this year or into 2022, do you plan to spend that back into further investment in digital or other areas, or should we expect that to drop to the bottom line?

Ralph J. Andretta -- President and Chief Executive Officer

Yes, I think the investment, the $100 million investment, the $50 million in marketing are the right investments as we look out at 2021. If there's incremental opportunity, we would of course weigh that but I would expect that to be dropped to the bottom line.

Michael Young -- Truist Securities -- Analyst

Okay, thanks. And maybe just as a follow up kind of on capital, big picture you guys did the Bread acquisition. But as we look at kind of moving into the regrow phase, are there other areas of capital deployment or growth that we should expect whether it be acquisitive or share buyback anything else that we should be kind of thinking about that you guys are focused on?

Tim King -- Executive Vice President and Chief Financial Officer

Yes, the capital commitments remain consistent with number one being invest back in the business. Once we pass that phase, getting the balance sheet, getting the TC and the TA ratios on spot we feel very consistent with our peers would be the next party. And then, of course, after that then we will be doing separate share repurchases/ dividends. And the reason we've been careful about not saying, hey, we're going to put a target out is because luckily with better response, we've got some great opportunities to invest back in business. As Ralph talked about, obviously, $100 million in just going back in digital and transformation. There, obviously, the $50 million in marketing is a huge advantage for us, that will, of course, push our debt repayment out a little bit. But we think that's the right thing to do for the business, when we get opportunities like we've been seeing with the Bread acquisition, and then putting money back into the business in 2021.

Michael Young -- Truist Securities -- Analyst

Okay. Thanks.

Operator

Your next question comes from the line of Meng Jiao with Deutsche Bank. Please go ahead, your line is now open.

Meng Jiao -- Deutsche Bank -- Analyst

Good morning, gentlemen. Thanks for taking my question. The first question I had is if payment rates, I guess, continue to remain elevated into the second half of 2021, do you expect I guess modest downward pressure then?

Tim King -- Executive Vice President and Chief Financial Officer

We have the payment rates at pretty close to historic highs on those rates. So I doubt we have much more pressure coming on our AR for the payment rates even with the stimulus packages that might be out there, the payment rates we have are pretty elevated so I wouldn't expect any further pressure on our AR from the payment rates.

Meng Jiao -- Deutsche Bank -- Analyst

Got you, great. And then I guess secondly, with Bread's receivables that are coming up in the new year and current ones, is there any sort of, I guess, fundamental difference between those and what you guys currently have on balance sheet, I guess, in terms credit profile or anything?

Ralph J. Andretta -- President and Chief Executive Officer

Yes, I'll start and I'll turn it over to Tim if he has -- the Bread credit really is shorter term than our traditional receivables that we would have on balance sheet if you think about the installment loan to buy now pay later. So those tend to be shorter term receivables.

Tim King -- Executive Vice President and Chief Financial Officer

Yes, that's what I was going to add. And on the credit plus perspective right now, we think there's some opportunity to put a full spectrum lending and enhance the offers we have for the installment loans, the buy now pay later.

Meng Jiao -- Deutsche Bank -- Analyst

Great. Thank, guys.

Operator

Your next question comes from the line of Scott Wurtzel from Wolf Research. Please go ahead, your line is now open.

Scott Wurtzel -- Wolfe Research -- Analyst

Hey, guys, just had one quick follow up on credit sales. So looking at in 2021 up high single digits, imagine some of that is due to some easier comps but how should we think about sort of credit sales growth rate like, kind of, normalize as we get past 2021?

Tim King -- Executive Vice President and Chief Financial Officer

Yes, I would say that you're going to -- we should be able to do the highest single digits in 2022. So if I start looking at normalized, it should be high single digits.

Scott Wurtzel -- Wolfe Research -- Analyst

Great. Thanks, guys.

Operator

And I'm not showing any further questions in queue. I will turn the call back over to Ralph Andretta for any closing comments.

Ralph J. Andretta -- President and Chief Executive Officer

Thank you all and I appreciate you joining us this morning and everybody have a good day.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Brian Vereb -- Investor Relations

Ralph J. Andretta -- President and Chief Executive Officer

Tim King -- Executive Vice President and Chief Financial Officer

Sanjay Sakhrani -- KBW -- Analyst

Bob Napoli -- William Blair -- Analyst

Ryan Nash -- Goldman Sachs -- Analyst

Mihir Bhatia -- Bank of America -- Analyst

Jeff Adelson -- Morgan Stanley -- Analyst

David Scharf -- JMP Securities -- Analyst

Scott Wurtzel -- Wolfe Research -- Analyst

John Hecht -- Jefferies -- Analyst

William Ryan -- Compass Point -- Analyst

Michael Young -- Truist Securities -- Analyst

Meng Jiao -- Deutsche Bank -- Analyst

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