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Why Alliance Data Systems Stock Popped Today

By Evan Niu, CFA - Apr 23, 2020 at 4:51PM

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The loyalty program operator reassured investors that it is prepared to weather the novel coronavirus crisis.

What happened

Shares of Alliance Data Systems (BFH 0.36%) have popped today, finishing with gains of 10%, after the company reported first-quarter earnings results. The loyalty and marketing specialist also suspended its 2020 guidance due to ongoing uncertainties related to the COVID-19 pandemic.

So what

Revenue in the first quarter increased 4% to $1.4 billion because the impacts from the novel coronavirus outbreak didn't arrive until March. However, the bottom line took a substantial hit, as the company had to increase its loan loss reserves due to deteriorating macroeconomic conditions and the adoption of the current expected credit losses (CECL) methodology as of Jan. 1. The company's provision for loan losses increased by $404 million, which led to net income plunging 80% to $30 million, or $0.63 per share. Adjusted EBITDA fell by more than half to $194 million.

Person taking a loyalty card out of a wallet

Image source: Getty Images.

"The Company entered this crisis in a position of strength and is focused on remaining liquid and well capitalized," CEO Ralph Andretta said in a statement.

Now what

Alliance Data Systems suspended its 2020 guidance, which had previously called for revenue of $5.6 billion this year. The company is also suspending its share repurchase program and cutting its dividend payout in order to save cash. Andretta also said Alliance Data Systems is tightening credit standards and looking for additional opportunities to cut costs.

"We are proactively managing all aspects of our business to further strengthen our financial position and reduce risk," the chief executive added. "At the end of the first quarter, we had over $1 billion of immediate liquidity between cash on hand and our revolver at the parent level."

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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