Alliance Q1 income falls 44%, despite growth in some divisions

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Alliance Data Systems Corp., parent company to Epsilon and LoyaltyOne, reported results for its first quarter, ended March 31, 2009, showing that first-quarter net income has decreased nearly 44% since Q1 last year.

Revenue for the company dropped 4%, to $480 million, while cash earnings per diluted share were up slightly — from $1 to $1.19. Growth in some business areas was offset by negative macroeconomic factors, which took a toll on the company's private label credit card division and knocked down issuance of the Loyalty Services division' Air Miles rewards miles by 4%. Epsilon Marketing Services' proprietary data services — which work heavily with catalog companies — struggled as well, thanks to retailer bankruptcies.

“We expect Loyalty Services to have a great year and Epsilon Marketing Services to produce solid results,” said Edward Heffernan, who was named president and CEO of Alliance on March 1, in a statement late Wednesday. “Regarding private label credit, we have not added enough portfolio growth to fully mitigate the higher credit losses and the impact from the interest only strip gain in 2008. We expect to balance the higher credit losses with lower funding as the year progresses while also looking for additional growth in the portfolio."

Epsilon Marketing Services, as a whole, reported Q1 revenue of $118 million, vs. $116 million in Q1 2008. The division's biggest offerings — marketing database services, analytics and interactive communications — reported double-digit organic growth.

Private label services also saw growth — 4% in revenue — thanks to a number of new client wins in the first quarter, which included HSN, Haband and Springstone Financial. The segment is expected to have single-digit growth for the year.

Private label credit, on the other hand, saw revenues drop 11%, to $187 million, thanks to continued tightness in the credit market.

On a constant currency basis, the Loyalty Services division saw revenue increase by 17%, to nearly $200 million. However, US dollar reported segment revenue was down 7%, to $161 million, in spite of a 100% client retention rate. Alliance expects double-digit organic revenue going forward.

The company admits that the second quarter of the year tends to be its weakest, and projections for Q2 have pointed to a small drop in earnings per share going forward.

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