Photographer: Andrew Harrer/Bloomberg

AmEx’s Richer Rewards, Marketing Fuel Revenue After Costco Loss

Updated on
  • Lender parted ways with largest co-brand partner last year
  • Excluding Costco, revenue climbed 6.2% from a year earlier

American Express Co. is showing there’s life beyond Costco.

The largest U.S. credit-card issuer by purchases led the Dow Jones Industrial Average higher Thursday after reporting surprisingly strong first-quarter revenue a day earlier -- evidence that sweeter rewards and a marketing campaign can help spur spending and blunt last year’s loss of a partnership with the warehouse retailer. AmEx shares rose 2.9 percent to $77.75 at 9:31 a.m. in New York, the most intraday since Dec. 7.

While quarterly revenue slipped 2.5 percent to $7.89 billion, it still exceeded the average analyst estimate of $7.79 billion. Excluding Costco Wholesale Corp.’s contribution to year-earlier results, revenue rose 6.2 percent -- an acceleration from the fourth-quarter’s 5 percent growth rate.

Chief Executive Officer Ken Chenault, 65, stepped up spending on marketing last year and has sweetened rewards to keep customers after JPMorgan Chase & Co. introduced its Sapphire Reserve card in August, causing a temporary increase in attrition at AmEx. Those efforts, as well as a broader restructuring, seek to reinvigorate AmEx after its decision to part ways with Costco sparked the lender’s worst stock slump since the financial crisis.

“While reward costs are rising at a very high pace and are expected to stay at these levels for the next few quarters, as long as American Express is able to grow through this, we believe the market will likely give it a free pass,” Ryan Nash, a Goldman Sachs Group Inc. analyst, said in a note to investors.

Chenault’s Forecast

Net income fell 13 percent to $1.23 billion, the New York-based firm said Wednesday in a statement. That amounted to $1.34 a share, beating the $1.27 average estimate of 26 analysts surveyed by Bloomberg.

Chenault said the quarter’s results make him confident the company can hit its target for earnings of $5.60 to $5.80 a share for the year.

The firm spent a record $1.2 billion in the fourth quarter on marketing and promotional costs, and has said quarterly results will be uneven as it spends more on rewards and incentives to try to overcome the loss of Costco. Last month, it announced a redesign of its Platinum card, adding a $200 annual credit for Uber rides and boosting the card’s yearly fee.

Read more: Stung by Sapphire, AmEx sweetens perks with Uber credit

In the first quarter, total expenses climbed 1 percent to $5.5 billion, in line with analysts’ estimates. The lender’s rewards spending increased about 6 percent to $1.81 billion, offsetting a 4 percent drop in marketing and promotional expenses.

The average discount rate, a measure of the fees AmEx charges merchants, increased to 2.45 percent from 2.44 percent in the prior quarter, the company said. Worldwide billed business, a measure of customer card spending, slipped one percent to $252.3 billion.