Bank Behind J.C. Penney, Gap Cards Hit by Spending Decline

(Bloomberg) -- The company behind the credit cards for J.C. Penney Co., Gap Inc. and American Eagle Outfitters Inc. said that the nationwide shutdowns tied to the coronavirus pandemic have led to a sharp decline in spending on the firm’s cards.

Synchrony Financial, the largest U.S. provider of store cards, abandoned its full-year guidance for metrics including loan growth and net charge-offs following the spending decline in the last two weeks of March, when retailers across the country were forced to shutter their stores as part of the efforts to slow the spread of the deadly virus.

“We are facing an extraordinary and unprecedented time,” Synchrony Chief Executive Officer Margaret Keane said on a conference call with analysts Tuesday. “And I have confidence that, through the strength of our business model and balance sheet, we will navigate this crisis successfully.”

Synchrony’s first-quarter results showed how dramatically consumers pulled back over the course of the quarter. Purchases on the firm’s cards climbed 10% from a year earlier in January, 13% in February and 14% in the beginning of March. Then, between March 18 and 31, spending plummeted 26%.

The impact of the pandemic lockdowns will be even more dramatic in the second quarter, hindering loan growth, Chief Financial Offer Brian Wenzel said on the conference call.

Synchrony invested in analytics in recent years to take advantage of a vast trove of internal data. That, combined with information gleaned from credit bureaus, helps the company manage credit lines, Keane said in an interview Tuesday.

‘More Thoughtful’

“The difference between where we are now and the credit crisis is we just didn’t have the same set of tools,” she said. “We were a little more of a big hammer, and this time we can look at it customer by customer and partner by partner and be more thoughtful.”

Synchrony shares fell 1.6% to $15.34 at 12:44 p.m. in New York. They have declined 57% this year, almost double the 31% drop in the S&P 500 Financials Index.

Synchrony has said Gap, J.C. Penney, Lowe’s Cos., PayPal Holdings Inc. and Walmart Inc.’s Sam’s Club are its five biggest partners, with the group accounting for nearly half of the interest and fees it collects.

The firm set aside $1.68 billion to cover souring loans in the first quarter, a 95% increase from a year earlier, in response to the economic impact of the coronavirus pandemic. Net income for the period dropped 74% to $286 million, or 45 cents a share.

©2020 Bloomberg L.P.

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