UPDATE:Alliance Data 1Q Net Down 44% As Loyalty-Services Revenue Falls

(Updates with recast first paragraph, more results and outlook, share price.)

 
   DOW JONES NEWSWIRES 
 

Alliance Data Systems Corp. (ADS) posted a 44% decrease in first-quarter net income as sliding revenue in its loyalty-services and private-label credit units outstripped a modest decrease in overall operating expenses.

The company had previously recorded strong results from frequent flier and loyalty programs, as consumers increasingly turned to programs that give back for spending as they look to trim their budgets. But that trend didn't hold up this quarter.

Still, its earnings excluding items, were better than the loyalty-program and private-label card operator expected, and the company predicted continuing strength in its loyalty services throughout the year.

Net income fell to $27.9 million, or 45 cents a share, compared with $49.3 million, or 61 cents a share, a year earlier.

Excluding stock-based compensation and other one-time items, cash earnings were $1.19 a share, compared with the $1 a share it earned a year earlier and the $1.10 a share the company and analysts had been expecting.

Revenue slipped 4% to $480 million, below the $488 million analysts polled by Thomson Reuters had been expecting. Excluding currency exchanges, revenue would have increased 4%.

Total operating expenses fell less than 1% to $378.5 million.

In its loyalty-services segment - which operates frequent-flier programs and gasoline credit cards - adjusted earnings before interest, taxes, depreciation and amortization rose 34%, though revenue fell 7% as foreign currency exchanges hurt the results. The company said it had an increase in flier miles redeemed, but miles issued dropped. It added it didn't believe the economic environment was playing a role in redemption behavior.

The Epsilon segment - which provides loyalty programs for a range of companies including Barnes & Noble Inc. (BKS) and Pfizer Inc. (PFE) - posted a 6% decrease in adjusted earnings on a 2% rise in revenue as the company said the year-ago results were strong and the latest quarter "tracked" expectations.

For the private-label credit segment, revenue slumped 11% and earnings tumbled 34%, while its smaller private-label services unit saw revenue rise 4% and earnings rise 11%.

For the second quarter, the company said it is expecting cash earnings of about $1.05 a share, below the $1.22 analysts had been projecting. And Alliance Data said it is maintaining its full-year guidance of earnings of "at least" $5.15 a share, though it had previously called for a range of $5.15 to $5.20.

The company said it expects the loyalty-services segment to post strong results in the future as consumers finally make purchases they have been deferring, and flier miles awarded rebound. It also said the Epsilon segment still remains on track and private-label services should show moderate growth.

Alliance Data shares have somewhat recovered from last year's steep fall, now down 22% over the past 12 months after nearly doubling in the past month. Much of the gains have come just as the company put in place a new chief executive, Edward Heffernan, who took over March 1 when J. Michael Parks moved to the sole role of chairman.

Shares fell 2.6% in the regular session and were unchanged in after-hours trading.

-By David Benoit, Dow Jones Newswires; 201-938-2472; [e-mail]