In retrospect, Wednesday’s modest bullishness was nothing but a blip within a bigger, decisive downtrend. Perhaps deflated/inspired by a lackluster ADP payroll report for June, the sellers tore into stocks again. Today’s 0.94% setback for the S&P 500 left it at 2,409.75, which is the lowest close since late-May. Some key technical support lines are being pressured, in earnest.
That was nothing compared to the baths General Electric Company (NYSE:GE), L Brands Inc (NYSE:LB) and Yum China Holdings Inc (NYSE:YUMC) took today. These three names all dished out much bigger losses, though for understandable reasons.
Here’s the deal.
Yum China Holdings Inc (YUMC)
Yum China Holdings, the product of a spinoff finalized by Yum! Brands, Inc. (NYSE:YUM) in October, rallied quite nicely leading up to yesterday’s Q2 report, with YUMC rallying a healthy 44% between the end of March and Wednesday’s close. A huge chunk of that move was given back on Thursday though, in the wake of a disappointing second-quarter report and a subsequent change in the company’s prospects.
For the quarter ending in May, Yum China earned 27 cents per share versus expectations of only 24 cents. But, revenue of $1.594 billion missed estimates of $1.632 billion. Same-store sales were only up 0.3%; Pizza Hut was a sore spot.
AB analysts Sara H. Senatore, Stephanie Ng and Anna Papp noted of the news:
“While YUMC has done an admirable job of controlling expenses … margin expansion continues to be primarily a function of VAT, along with modest leverage of fixed costs (at KFC), but wage inflation (+7% in 2Q) and commodity inflation (+4%) remain headwinds and we see a clear trade-off between price and traffic.”
YUMC ended the day down 13%.
L Brands Inc (LB)
L Brands, the parent company of Victoria’s Secret and Bath & Body Works, announced June sales today that downright spooked shareholders, sending LB shares lower to the tune 14.1%.
Last month, same-store sales for the boutique chain fell a whopping 9%. Swimwear and apparel were notably weak performers. Analysts knew it would be rough, but they were only counting on a 7% sales slide.
With today’s tumble, LB shares are now down 24% since the end of last year, as investors increasingly doubt the company will be able to dig its way out of trouble anytime soon.
General Electric Company (GE)
Last but not least, just when it looked like beleaguered General Electric shares might at least have a chance of perking up with a new CEO at the helm, JPMorgan pulls the rug out from underneath the nascent recovery. The research arm of the bank/broker, already calling GE an “Underweight,” lowered its twelve-month price target on the stock to $22. Today’s 3.8% stumble got it part of the way there, but the close of $26.20 still leaves shares plenty of room to fall if analyst Stephen Tusa is right. He explained:
“The GE narrative is as open and undefined as it’s been in decades. While we expect a fresh start, a positive, we don’t see a quick or easy fix to the current predicament.”
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.