Synchrony (SYF 29.05, +2.50, +9.42%), formerly GE Capital Retail Finance, is trading
higher today after announcing an extension of its strategic partnership with
Sam's Club, a segment of Walmart (WMT).
Synchrony is the largest provider of private label credit cards in the U.S. So, when you're applying for a Lowe's credit card, you're really applying with Synchrony. Key customers include Lowe's, Walmart, Amazon, and Ashley Furniture HomeStore. Its customers benefit from instant access to credit, discounts, and promotional offers.
A little context here is important. Walmart had been suing Synchrony, alleging breach of contract. After nearly 20 years with SYF, Walmart announced in July 2018 that it would partner with Capital One, which would start issuing its private-label and co-branded credit cards for WMT shoppers.
As part of the newly-announced deal, Synchrony will continue offering Sam's Club members financing options through the Sam's Club-branded credit cards. As part of the extension, Synchrony will continue to manage and service the credit card programs for Sam's Club members across the retailer's nearly 600 clubs.
Synchrony also announced that it has reached an agreement regarding the sale of the Walmart loan portfolio currently serviced by Synchrony. The portfolio is expected to transfer late in Q3 or early Q4 of 2019. As part of the deal, Walmart has agreed to dismiss its lawsuit against Synchrony.
According to Synchrony's president and CEO, Margaret Keane, the company is “very pleased to have reached these agreements. Obtaining certainty around the Walmart portfolio and a renewal on Sam's Club is a great outcome for the company… This extension is the latest in a series of renewals and key customer initiatives.”
There is a long history here as the partner relationship between Synchrony and Sam's Club began in 1993, providing credit programs for business members. It added revolving credit programs for Sam's Club consumer members in 1995; and it currently offers Sam's Club co-branded and private-label credit card programs for Club and Plus members -- all of which double as membership cards. Synchrony is integrated in all of Sam's Club channels.
There have been concerns that SYF could lose a major long-term customer in Walmart. As such, today's agreement is being viewed as a nice positive by the market. SYF has seen its stock price trend lower over the past year, going from $40 in Jan 2018 to a low of $21.78 in December 2018. SYF has high exposure to the retail environment, which has been sluggish of late and there was the dispute with a key customer. It's good that SYF has reached an agreement with WMT. It removes a cloud over the stock.
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