The Wall Street Journal - 04.04.2020 - 05.04.2020

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BUSINESS & FINANCE NEWS

ecutive Perry Sook said. What’s

different this time, he said, is

that the coronavirus pandemic

“is a disaster that’s playing out

across the entire nation.”

Local broadcasts aren’t the

only news stations experiencing

surges in audience. Daytime ca-

ble news viewership for chan-

nels including CNN, Fox News,

MSNBC and Fox Business more

than quadrupled from a year

earlier, according to measure-

ment firm Samba TV.

Charter Communications

Inc.’s local Spectrum News, of-

fered to traditional pay-TV sub-

scribers, experienced a 71% in-

crease in household viewership

in mid-March compared with

prior weeks.

The rise in viewership comes

as companies pull back on ad-

vertising spending.

“It’s a tale of two cities,” said

Kyle Evans, a media analyst at

Stephens Inc. “On one side your

viewership has been teleported

back to the 1950s, when people

crowded around their TV at

home and watched the news.

On the other side, advertising is

dropping off and not matching

those viewership numbers.”

Advertising is often among

the first things cut by compa-

nies looking to preserve cash in

times of crisis. Ad-buying giant

Magna Global last week slashed

its U.S. advertising forecast be-

cause of the coronavirus pan-

demic, whose impact it likened

to “a combination of the Great

Recession and 9/11.”

The coronavirus outbreak’s

impact on sporting events also

affected local channels. The

Average local-news viewership, in thousands

Source: Nielsen, TVB

Note: Average live viewership among people 18 and older in 25 top U.S. markets

thousand  4 6 8

March

4-10

March

11-17

March

18-24

s7.5%

s21%

s57%

2019 2020

WalmartInc. sales rose rap-

idly in stores and online in re-

cent weeks as shoppers, wor-

ried about the spread of

coronavirus, rushed to stockpile

water, face masks and canned

goods before shifting their fo-

cus to necessities for a pro-

longed stretch at home.

Walmart sales from its over

4,700 U.S. stores increased

nearly 20% over the past four

weeks compared with the

year-earlier period, according

to documents viewed by The

Wall Street Journal.

Sales on Walmart.com rose

over 30% over the past eight

weeks. Downloads of Wal-

mart’s online grocery mobile

app skyrocketed.

U.S. retailers that have re-

mained open because they sell

products such as food and

household goods have seen

sales of certain products rise

rapidly as nervous shoppers

stock up on paper goods, food

and other items. Walmart is

the biggest, with $341 billion

in U.S. annual sales.

The rush has challenged re-

tail supply chains and online lo-

gistics and, in some cases, has

pressured profits as sales of

higher-margin products fall.

Target Corp. said last

month comparable sales, those

from stores and digital chan-

nels operating for at least 12

months, were up more than

20% in the almost four weeks

through March 25, compared

with the period last year. But

the sales surge came from food

and household goods, while

higher-margin apparel sales

fell, leading Target to with-

draw its financial guidance for

the quarter and full year.

Panic buying appeared to be

slowing over the past week.

Overall consumer goods sales

rose 21.5% for the week ended

March 28, compared with the

same week in 2019, according

to Nielsen. That is elevated, but

down from a 67.9% sales spike

for the week ended March 21.

The Walmart documents

showed how the country’s larg-

est retailer has experienced a

rapid shift in shopping behavior

as the novel coronavirus spread

through the country. They also

suggest how Walmart aims to

capitalize on those changes.

A spokesman for Walmart

had no comment.

As the coronavirus first

emerged in the U.S., customers

started “proactive health-

minded buying,” such as hand

sanitizers, the document said.

Then they started to prioritize

products essential to virus con-

tainment, like face masks, be-

fore moving on to “pantry

preparation.” In this phase,

more flocked to stores.

Then shoppers prepared for

life mostly at home, starting

what Walmart dubbed “quaran-

tine living preparation.” In this

period, shoppers favored online

shopping and the supply chain

strained, the document said.

Shoppers stocked up on more

food and household and per-

sonal-care items.

The next phase, what Wal-

mart called “restricted living,”

means shoppers are preparing

to home-school and work from

home. Customers will severely

restrict store visits and favor

online shopping, the document

said. This phase is favoring

sales of iPads, routers, board

games, home exercise equip-

ment and home cooking sup-

plies such as small appliances.

BYSARAHNASSAUER

Stockpiling Boosts Sales for Walmart

canceled NCAA basketball tour-

nament led to advertising can-

cellations at CBS network affili-

ates. The Tokyo Olympics,

which would provide a boost in

advertising revenue, according

to the local TV broadcasters’

public filings, have been post-

poned until 2021.

Local TV broadcasters say

the automobile industry makes

up a key portion of advertising

revenue, but auto sales are

dropping. Political advertising

is another large contributor to

local TV stations’ revenue, and

the postponement of many pri-

maries because of the virus

means that advertising revenue

is likely to be pushed to later in

the year, company executives

said.

Local TV broadcasters de-

clined to disclose the extent of

the advertising hit. Meredith’s

Mr. McCreery said the company

has been in contact with adver-

tisers.

“Net-net, there is a decline in

advertising, and more cancella-

tions than new orders,” said

Kevin Latek, executive vice

president atGray Television

Inc., which owns and operates

TV stations in 93 markets.

However, he said, there have

been some new advertisers tak-

ing advantage of the rise in

viewership.

Advertising accounted for

between 31% and 46% of total

local TV revenue at Nexstar,

Gray, Meredith and Sinclair for

calendar year 2019, according

to an analysis of the companies’

financial statements. Much of

the broadcast stations’ revenue

comes from fees paid by pay-TV

distributors in return for carry-

ing their channels, known as re-

transmission-consent fees.

These are often lucrative fee

deals that have increased in re-

cent years.

Local television stations are

experiencing a rare surge in

viewership as more Americans

tune in for coronavirus updates.

But the stations are unlikely to

benefit financially because of a

cutback in advertising spend-

ing.

“We have more viewers than

ever, but advertisers are unfor-

tunately stuck in the same eco-

nomic boat as many of us,” said

Patrick McCreery, president of

the local media group ofMere-

dithCorp., which owns 17 TV

stations.

Local broadcast journalists

are producing segments from

their homes and on the street,

as they are considered essential

workers. Many viewers are

leaning on local TV news for

constant updates in their com-

munities.

By mid-March, Meredith’s af-

ternoon and evening news

viewership had risen by up to

30% since the beginning of the

month.Nexstar Media Group

Inc., which owns 196 stations in

114 U.S. markets, experienced

ratings jumps of at least 35%

during that stretch.

Sinclair Broadcast Group

Inc., which has 191 TV stations

in 89 markets, declined to pro-

vide its overall TV audience

numbers but said viewership

for its ad-supported streaming

service STIRR nearly doubled in

recent weeks. Scott Livingston,

Sinclair’s senior vice president

of news, said the initial spike in

news viewership was in Seattle,

the first location of the corona-

virus outbreak in the U.S.

Spikes in local-TV viewer-

ship aren’t unusual when a spe-

cific market gets hit by a major

disaster, such as Louisiana in

the aftermath of Hurricane Ka-

trina in 2005, Nexstar Chief Ex-

BYLILLIANRIZZO

TV Stations See Audiences Spike as Advertisers Drop

Accounting firm Ernst &

Young said it uncovered the

problems at China’sLuckin

CoffeeInc., which hammered

the stock price of the upstart

challenger to Starbucks Corp.

in the country and cast doubt

over a large part of its sales

last year.

Luckin’s Nasdaq-listed

shares fell more than 75%

Thursday after it said an inter-

nal investigation indicated its

chief operating officer and

others had fabricated much of

its reported revenue in 2019.

While auditing Luckin’s fi-

nancials for 2019, the account-

ing firm said it found some

“management personnel en-

gaged in fabricated transac-

tions which led to the inflation

of the Company’s income, costs

and expenses” from the second

quarter to the fourth quarter.

“Based on such findings, EY

made a report to the company’s

Audit Committee,” Ernst &

Young said in an emailed state-

ment Friday. It said that

prompted Luckin’s board to

start an internal investigation.

Ernst & Young Hua Ming

LLP is the entity in China that

audits Luckin. EY is the term

for the global umbrella organi-

zation to which it and affiliates

such as Ernst & Young LLP in

the U.S. belong.

EY, which has audited Luckin

since the coffee group’s found-

ing in 2017, said it wouldn’t

comment further, citing client

confidentiality.

In three years Luckin, one of

a string of aggressive Chinese

startups, has risen to challenge

Starbucks as China’s largest

coffee chain. Its listing prospec-

tus highlighted how it was “dis-

rupting the status quo of the

traditional coffee shop model”

with mobile apps and pickup-

only stores.

Since May 2019 the company

and some of its early backers

have raised nearly $1.8 billion

through an initial public offer-

ing, a convertible bond sale,

and a follow-on stock sale.

On Thursday, Luckin said the

investigation suggested its op-

erating chief and some of his

reports had engaged in miscon-

duct, including fabricating

transactions, which inflated

both sales and expenses.

Based on previously re-

ported results and company

forecasts for the fourth quar-

ter, the 2.2 billion yuan ($310

million) of sales affected

would represent nearly half of

net revenue in that period.

The stock’s sharp decline was

a victory for short sellers, who

had bet against the company.

Matthew Unterman, a direc-

tor at S3 Partners, a New

York-based financial data pro-

vider, said there had been ele-

vated demand from hedge

funds to sell Luckin’s stock

short ever since the IPO.

Mr. Unterman said recent

short interest was equivalent to

a very high 35% of Luckin’s U.S.

securities. He said those inves-

tors likely made $686.7 million

in gains on paper Thursday.

In early February, high pro-

file short-selling firm Muddy

Waters LLC endorsed an anony-

mous report that attacked

Luckin’s financials, governance

and business model.

Luckin said the report was

false and misleading.

Beijing-based private-equity

firm Centurium Capital, an early

investor in Luckin, said Friday it

supported the decisions and ac-

tions of the board, and the in-

vestigation that was being pur-

sued to protect shareholders.

BYQUENTINWEBB

ANDJOANNECHIU

China’s Luckin Accounting Issues Revealed

People line up at a Walmart store in Uniondale, N.Y. The retailer saw an increase of nearly 20% in store sales in the past four weeks.

AL BELLO/GETTY IMAGES

The Chinese rival to Starbucks said officials fabricated transactions.

YAN CONG FOR THE WALL STREET JOURNAL

Dave Mazza, chief meteorologist for WCMH in Columbus, Ohio, delivers a forecast from his basement.

CRYSTAL MAZZA

 Heard on the Street: An

unfiltered view............ B16

Several U.S. airlines on Fri-
day applied for government
funds to keep paying workers,
but said they still needed
more cash as they face a cri-
sis that doesn’t look likely to
abate soon.
Major airlines including
American Airlines GroupInc.,
Delta Air LinesInc.,United
Airlines HoldingsInc.,Jet-
Blue Airways Corp. and
Southwest AirlinesCo. sub-
mitted applications for the
government grants authorized
under the $2 trillion stimulus
package passed last week.
Smaller carriers and discount
airlines also applied.
However, carriers cautioned
on Friday that the government
help won’t be enough to see
them through what several
have described as the most se-
rious crisis they have faced.
The carriers that applied
for the grants didn’t detail the
terms they proposed. The
Treasury Department had en-
couraged airlines to apply by
Friday for the best chance at
securing funding quickly. It
will continue accepting appli-
cations until April 27.
Demand for travel has all
but evaporated as the new
coronavirus has spread and
governments have restricted
international travel and urged
people to stay home.
Delta Chief Executive Ed
Bastian wrote in a message to
employees Friday: “We know
we still haven’t seen the bot-
tom.”
Delta said it is burning
through $60 million cash a day
and projected the government
funds would only last until
June without other spending

cuts. It has asked employees to
take unpaid leaves and said
some 30,000 have volunteered.
The airline expects second-
quarter revenue to be down
90% from a year ago.
JetBlue said workers will
likely see smaller paychecks as
the funds, which are tied to
last year’s staffing levels,
won’t fully cover what its em-
ployees are used to earning
when the airline is flying a full
schedule. The airline said it is
in talks with the government
and private lenders.
“We are leaving no stone
unturned,” CEO Robin Hayes
told employees Friday. “The
good news is this law keeps
paychecks coming and it buys
us time.”
United said it plans to cut
80% of its capacity for this
month and to make even
larger capacity cuts in May.
The airline estimated that it
lost $100 million in revenue a
day in March.
Airlines and their labor
unions had lobbied for that
package to include $25 billion
in direct grants they could use
to continue paying staff. The
funds come with strings at-
tached, including a promise
not to conduct involuntary lay-
offs or furloughs until October.
The law also allows the
government to ask for equity,
stock warrants, or other finan-
cial instruments in exchange
for the grants. Some carriers
have been asking Treasury
Secretary Steven Mnuchin to
go easy on requests for equity
stakes, fearing shareholder di-
lution, people familiar with
the talks have said.
Union leaders, including
heads of major flight attendant
unions and three former lead-
ers of the Air Line Pilots Asso-
ciation, have said the govern-
ment could put jobs at risk if it
insists on terms that the air-
lines won’t accept. The stimu-
lus package also set aside an-
other $25 billion for loans to
passenger airlines, as well as
additional funds for cargo car-
riers and airline contractors.
Airline shares have tumbled
in recent weeks. American’s
shares closed at a low Friday,
and lost most of the gains
they made since the stimulus
package was announced last
week.

BYALISONSIDER
ANDDOUGCAMERON

Airlines

Apply for

Aid, Call

View Dire

Carriers said they

will still need more

cash as they face a

deepening crisis.