Our worst performer was Alliance Data Systems (NYSE:ADS), the leading private-label credit card issuer. It subtracted 242 basis points (one basis point is 1/100th of one percent) from the Fund’s return, as the stock’s total return was a loss of 40.2%. (For this report, we will quote total return to the portfolio, which includes price change and dividends.) The shares fell as the company’s credit delinquency rates remained above management’s expectations, while its loan growth decelerated. We were disappointed with Alliance Data’s performance, but we’re holding onto our position because the management team is taking action to right the ship. The loan portfolio is being repositioned by discontinuing partnerships with struggling mall-based apparel retailers and focusing on growing verticals like hospitality, home furnishings and e-commerce. Alliance Data has also commenced a sale process for its marketing segment, Epsilon, which should sell at a higher valuation than the stock’s current multiple. As the loan portfolio repositioning bears fruit and the company repurchases stock with proceeds from the Epsilon sale, we expect 2019 will be a much better year for shareholders.
From Jerome Dodson (Trades, Portfolio)'s Parnass Funds' fourth-quarter 2018 shareholder letter.
