American Express reported record purchase volume, a rebound from its pandemic slump that is getting added wind from its ongoing influx of new and younger users. “Our new customers … are spending more from the start of their relationship with us than previous newcomers, giving us a long runway for growth,” said CEO Steve Squeri during Friday’s earnings call with analysts.
The New York-based company increased its revenue forecast for the year to growth of 23% to 25%, up from 18% to 20%, based on strong overall sales trends it expects will continue in the next couple of quarters at least. The performance came in spite of concerns about a potential recession and high inflation.
It’s also a far cry from the early days of the pandemic, when the company reported an 85% drop in revenue for the second quarter of 2020. Amex also struck a more bullish tone than other firms, such as JPMorgan Chase.
Amex owes a good share of its recent success to the enthusiasm for its cards among millennials and Gen Z consumers. Younger adults accounted for about 75% of new customers signing up for the $695-a-year Platinum card or $250-a-year Gold card. Platinum cards alone increased by 20% during the second quarter and overall spending by younger adults surged 48% during the period, significantly outpacing spending by other generations, Squeri said.
More significantly, younger adults are showing a willingness to roll over their loan balances and make intermittent use of Amex’s Pay It Plan It buy now/pay later financing options, Squeri said.
Amex’s travel and entertainment spending returned to near-normal levels during the second quarter — with corporate travel recovering more slowly — reaching 108% of 2019 levels during the quarter, the company announced on Thursday.
Although Amex executives didn’t rule out the possibility of a coming recession, Chief Financial Officer Jeffrey Campbell brushed off concerns during the call that Amex might struggle to maintain its current growth rate, which is driven in part by frenzied pent-up post-pandemic travel and dining spending.
“We’re seeing tremendous growth, like 48% growth in restaurant, lodging [spending] is huge, airline is way up, but lodging and airline are still below 2019 levels in aggregate,” Campbell said, noting that air travel volumes are currently below their capacity as a result of staffing and operations problems.
Card spending by large global organizations rose 58% during the quarter as business travel improved from low levels during the pandemic, Amex said. Small and midsize business card spending rose 25% during the quarter.
Amex’s loan volume during the quarter rose 28% over the previous year, as total receivables reached $56 billion, up 18% over a year ago but still below 2019 levels as paydown rates remain elevated, Amex said. The charge-off rate rose slightly during the quarter but remains under 1%.
Expenses shot up by 32% during the quarter to $10.4 billion, which included higher costs from card benefits including cash-back rewards for middle-income consumers and airport-lounge amenities for affluent card users. Inflation accounted for a “modest” portion of Amex’s sales growth, according to Campbell.
Revenue for the quarter was $13.4 billion, up 31% from $10.2 billion a year ago. Net income was $2 billion, down 14% from a year ago on an increase in credit-loss reserves, which remain below pre-pandemic levels.
“For 2023, Amex continues to expect top-line growth to exceed long-term aspirational levels on post-pandemic recovery tailwinds,” John Hecht, a managing director with Jefferies, said Thursday in a note to investors.