Alliance Data Profit Drops 40% as Takeover Nears

Alliance Data Systems Corp. (NYSE: ADS) last week reported third quarter net income of $29.1 million, down more than 40 percent from $48.8 million in the third quarter of 2006. Operating expenses rose to $509 million compared with $417.4 million a year ago.

Profits were impacted by merger costs, compensation tied to stock awards and non-cash asset write downs, Alliance Data reported. An affiliate of the Blackstone Group is on schedule to purchase Alliance Data for $6.4 billion with plans to close on the deal in the fourth quarter.

Revenues increased 14 percent to $575.5 million from $506.6 million in the third quarter a year ago.

Alliance Data operates the Air Miles reward program in Canada, a marketing arm called Epsilon and a private label card program.

The card program had managed receivables of $3.9 billion at the end of the quarter, an increase of 8 percent from a year ago. Sales on the cards rose slightly to nearly $1.8 billion.

Two divisions related to the private label group include credit services and transaction services. Credit Services revenue increased 12 percent in the third quarter to $202.5 million compared to the prior-year period.

Alliance Data reported that its credit quality is “excellent with credit losses remaining under the Company’s 6 percent target. Based on favorable delinquency trends, the Company expects credit quality to complete its normalization process post-bankruptcy reform and to remain stable for the foreseeable future.”

Transaction Services revenue decreased 3 percent in the third quarter to $190.1 million. The division saw an increase in costs related to the ramp-up of the Alliance Data’s collections and client services units that support its private label business.