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Alliance Data Canadian Biz in Cross-Country Deal with Sobeys

Zacks Equity Research

The Canadian Loyalty business of Alliance Data Systems Corporation (ADS) inked a multi-year agreement with Sobeys, whereby the latter will issue AIR MILES at all Sobeys stores. Shares have gained over the last 2 days as the cross-Canada agreement for reward miles is the second such that the company has entered into in the ongoing quarter.

Sobeys, a wholly owned subsidiary of Empire Company Limited, owns or franchises more than 1,500 stores under several retail banners in all the 10 Canadian provinces. It boasts over a hundred years of service in the Canadian grocery industry.

Per the agreement, Sobeys-owned brands in Atlantic Canada, Quebec, Western Canada and northwestern Ontario will be part of the AIR MILES Reward Program.  The new agreement replaces all previous deals with Sobeys and places it in the top-10 client list of Alliance Data. The ongoing loyalty programs will move to AIR MILES Reward Program in the fall of 2014.

AIR MILES Reward Program will be introduced this fall at Sobeys, IGA, Thrifty Foods and Sobeys Liquor stores in British Columbia, Alberta, Saskatchewan and Manitoba, respectively. In addition, Sobeys will continue the partnership in Safeway and Safeway Wine and Spirits stores across the west and locations in Northwestern Ontario.

Subsequently, AIR MILES can be redeemed with more than 1,200 different rewards, including travel, movie passes, entertainment attractions and electronic merchandise.  In addition, collectors can also redeem their points for AIR MILES Cash at selected Sobeys banner stores that had issued the reward miles. Hence, with this tie-up, Sobeys will be able to better serve its customers.

With more than 65% of the Canadian household collecting reward miles, the AIR MILES Reward Program has positioned itself as Canada's premier coalition loyalty program with more than 10 million active collectors under it. The number is expected to ramp up as more brands affiliate to the program.

In May, the Canadian Loyalty business of Alliance Data inked a multi-year agreement with Moneris Solutions Corporation, Canada's largest credit and debit card processor.

In the last reported quarter, AIR MILES’ reward miles at Alliance Data decreased 4% year over year. We expect that such deals will help Alliance Data bounce back to the growth trajectory.

Alliance Data currently carries a Zacks Rank #2 (Buy). Among other financial transaction service providers, Fidelity National Information Services, Inc. (FIS) and VeriFone Systems, Inc.  (PAY) carrying a Zacks Rank #1 (Strong Buy); and Total System Services, Inc. (TSS) with a Zacks Rank #2 are worth noting.

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