Wooing those affluent credit-card customers is getting expensive.
American Express Co. spent the most in at least nine years on rewards last quarter as it worked to retain customers lured by a spate of recent offerings from competitors. AmEx, which has described its core U.S. card holders as those with annual income over $200,000, has seen wealthy customers flock to new products like JPMorgan Chase & Co.’s Sapphire Reserve.
AmEx’s Doug Buckminster, the president of global consumer services, said in March that his company has been in “hand-to-hand combat” with JPMorgan as issuers sweeten rewards to attract business. Spending on American Express cards was flat in the second quarter, while revenue posted a surprise increase, helping profit top analysts’ estimates.
JPMorgan made a splash last year with its Sapphire Reserve card featuring an initial sign-up bonus of 100,000 points, drawing so many applicants it temporarily ran out of materials to mint it. AmEx responded in March by offering customers of its Platinum card $200 of free Uber rides, while raising the annual fee. Users are also able to earn quintuple reward points at eligible hotels booked through AmEx’s website.
“We made some significant investments in the U.S. on both the business Platinum and consumer Platinum card and that is really driving a really nice result,” Chief Financial Officer Jeff Campbell said Wednesday on a call with analysts. He said AmEx added 2.7 million new customers in the quarter.
Last month, AmEx announced it won exclusive rights to issue credit cards for Hilton Worldwide Holdings Inc., ending an agreement in which the lender had shared the business with Citigroup. The news ended a string of defections that began in 2015, the year AmEx lost its largest co-brand partner, Costco Wholesale Corp., to Citigroup.
There were many signposts of progress this quarter,” Chief Executive Officer Ken Chenault, 66, said Wednesday in a statement announcing quarterly results. “The work is not complete, but we’re now moving forward with a stronger foundation.”
Net income fell 33 percent to $1.3 billion, or $1.47 a share, from $2.02 billion, or $2.10, a year earlier, when AmEx recorded a $667 million gain from the sale of its Costco loan portfolio, according to the statement. The average estimate of 22 analysts surveyed by Bloomberg was for adjusted profit of $1.44 a share.
Worldwide billed business, a measure of customer card spending, was little changed at $269.6 billion, but rose 8 percent excluding the impact of severing its Costco relationship. Revenue increased less than 1 percent to $8.3 billion, exceeding analysts’ estimates, while expenses climbed 21 percent to $5.8 billion, fueled by a 9 percent jump in card rewards to $1.93 billion.
The company set aside $584 million for bad loans, a 26 percent boost from a year earlier, largely due to growth in lending and a higher write-off rate, the company said. Write offs will probably continue to climb as the company’s portfolio shifts following the Costco breakup, Campbell said on the call.
Campbell also said the lender expects full-year adjusted revenue growth to exceed the earlier forecast of 5 percent to 6 percent, without giving a new number. He reiterated guidance of full-year profit per share of $5.60 to $5.80.
AmEx shares slipped 1.1 percent to $84.99 at 6:03 p.m. in New York. The stock gained 16 percent this year through the end of regular trading, compared with the 6.6 percent advance of the S&P 500 Financials Index.