Luckin Coffee Inc
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Consumer Discretionary : Hotels, Restaurants & Leisure |
Based in China
Company profile

LUCKIN COFFEE INC. is a China-based holding company mainly engaged in coffee retail business. The Company applies new retail models for coffee sales and services. The Company operates primarily through mobile apps and pick-up stores. The Company's products mainly include freshly brewed drinks, juices and light meals. The Company's main brand is Luckin Coffee.

This security is an American depositary receipt
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Closing Price
$14.25
Day's Change
-0.27 (-1.86%)
Bid
--
Ask
--
B/A Size
--
Day's High
14.34
Day's Low
14.02
Volume
(Light)
Volume:
1,450,629

10-day average volume:
2,914,767
1,450,629

Profit warnings kicked into high gear, and there's still no slowdown in sight

7:11 am ET June 13, 2022 (MarketWatch)
Print

By Tomi Kilgore

S&P 500 companies keep issuing negative outlooks at a high rate, but analysts have cut estimates a lot less than usual

U.S. companies are warning of earnings misses at a historically high rate and there are signs that the pace could accelerate, but Wall Street analysts don't seem to be listening too closely, yet.

The downbeat outlooks for the current quarter, as inflation and continued supply-chain challenges lead to slowing demand, muddied what has been a surprisingly clean first-quarter earnings reporting season.

With virtually all companies within the S&P 500 index having reported quarterly results, first-quarter earnings per share have increased 9.1% from a year ago, well above consensus analyst expectations at the beginning of the quarter of 5.8% growth. Revenue rose by an even-better 13.6%, up from initial forecasts for a 9.7% rise.

Of the companies reporting results, 77% have beat consensus EPS estimates, according to FactSet, which is exactly in line with the quarterly average over the past five years. But the magnitude of the earnings beats is 4.6% above consensus, which is just a little more than half of the five-year average of 8.9%.

Meanwhile, 73% of the S&P 500 companies beat revenue expectations, by an average of 2.7%, better than the five-year averages of 69% of the companies beating by 1.7%.

While that data reflects a relatively healthy first quarter for companies and their customers, the guidance for the second quarter that many companies have provided suggests there was a surprise drop in demand and profit margins since the end of March, as inflation and supply chain challenges have taken their toll on consumers, particularly on lower-income consumers, and margins.

Snap Inc. (SNAP), although not an S&P 500 component, shocked investors last month when warned that it would miss second-quarter guidance provided just a month before, because "the macroeconomic environment has deteriorated further and faster than anticipated."

Some other highlights of disappointing results and guidance came from companies that have fiscal first quarters that run through April, such as Target Corp. (TGT) and Walmart Inc. (WMT) Target actually cut its margin guidance twice in less than a month.

Discount home essentials retailer Big Lots Inc. (BIG) highlighted the effects inflation was having on its customers, saying sales trends "materially slowed" in April.

"We believe the slowdown was caused by the spending pressure our consumers felt from higher gas prices and broader inflation, which is affecting discretionary spending across the retail industry," Chief Executive Bruce Thorn said.

It's not all about inflation and the supply chain, however, as technology giants Microsoft Corp. MSFT and Salesforce Inc. CRMwarned about the negative effects of a strengthening U.S. dollar, which has been fueled by rising interest rates and geopolitical concerns. .

There have been 102 S&P 500 companies that have issued EPS guidance for the second quarter, with 71, or 70%, of those companies providing estimates below consensus, which is well above the five-year average of 60%, according to data provided by FactSet senior earnings analyst John Butters. That's the most companies issuing negative guidance since the fourth-quarter of 2019, or before the pandemic.

What should concern investors is that while Wall Street analysts have lowered their EPS estimates for the June quarter in response to the negative guidance, the cuts have been by much less than historical averages. In addition, analysts have actually increased estimates for the second half of the year.

Analysts typically lower earnings estimates during the first two months of a quarter, but EPS estimates for the current quarter have decreased by just 1.2% despite all the profit warnings, according to FactSet. That' s only half the average decrease of 2.4% over the past five years. It's even less than the 10-year average decline of 3.3% and the average cut over the past 15 years of 4.7%.

And the latest data from FactSet's Butters shows that EPS estimates have actually increased by 0.4% for the third quarter and by 0.2% for the fourth quarter.

That's despite an indication that the pace of guidance cuts won't slow anytime soon, and may even accelerate.

Wells Fargo analyst Ike Boruchow said there's no question that demand is slowing, particularly among lower-income consumers. He noted that while revenue estimates have also come down, they haven't come down enough.

"The negative revision cycle has finally begun," Boruchow wrote in a note to clients. "Fact is, demand is slowing (not accelerating), and inventory dynamics are also worsening, which leaves us concerned that more cuts are on the horizon."

An example of the inventory dynamics Boruchow refers to is what Target is experiencing. The company said less-than-expected demand has led to excess inventory, and it is planning several actions, including additional markdowns, to whittle down the excess. That should lead to lower profit margins, which translates to lower profits.

Boruchow said history suggests that the negative revision cycle is only in the early innings.

"While it is certainly challenging to draw parallels to historical downturns in the macro, the key point we make is that the prior two recessions saw negative revision cycles lasting 12 and 15 months, with peak-to-trough [revenue] revisions of -6% and -16%," Boruchow wrote. "Thus, given we are just 1-2 months in (and just -1.4% on revenue estimates thus far), it's easy to see why the market is clearly bracing for future risk to estimates."

The S&P 500 has dropped 13.9% since the end of the first quarter through Friday, which puts it on track for the worst quarterly performance since it tumbled 20.0% during the pandemic-stricken first-quarter of 2020. And after falling 5.0% in the first quarter, the index is headed for the first back-to-back quarterly declines since the second (down 0.2%) and third quarters (down 6.9%) of 2015.

-Tomi Kilgore

	

(END) Dow Jones Newswires

June 13, 2022 07:11 ET (11:11 GMT)

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