Loyalty services, alone among Alliance Data Systems’ operating divisions, was the only one to increase its operating income between third-quarter 2008 and third-quarter 2009, even while its revenue was falling.
Company-wide, Alliance’s third-quarter revenue fell 5.5%, from $511.2 million a year ago to $483.2 million, and its income from continuing operations dropped nearly 21%, from $119.8 million in third-quarter 2008 to $94.8 million for the quarter ended Sept. 30. Net income dropped 29%, from $64.8 million to $45.8 million.
Revenue among the company’s various operating units was either stagnant or lower than a year ago. Its private label services segment, which provides services for its private label and retail credit card clients, generated $96.7 million, up from $94.7 million. Epsilon Marketing Services, its database marketing and analytics unit, pulled in $132 million, a tick above the $131 million it garnered in third-quarter 2008.
Its private label credit operations, which offer risk management, account origination and funding services for its private label and retail cards, saw its revenue fall from $182.4 million to $165.2 million. And its loyalty services division saw its operating revenue drop from $187.7 million to $177 million.
But while the loyalty services unit was losing revenue, it was also expanding its margin. Its operating income jumped from $38 million to $43.4 million. In comparison, Epsilon’s operating income fell from $17.9 million to $15.5 million, private label services income dropped from $26 million to $23.7 million, and private label credit income plummeted from $56.2 million to $38.1 million.
The drop in revenue within loyalty services was attributed to changes in foreign currency rates, and declines in database marketing fees. Epsilon saw its fortunes affected by a $4.7 million drop in revenue from its database marketing fees. And the private label credit operations took a $22.7 million hit in finance charges.
But loyalty services was able to offset its revenue drop by cutting operating expenses such as payroll and benefits and data processing.
