Luckin Coffee heads into its third-quarter report with an unusual split in its numbers. On profits, the year-ago period is about as easy a comparison as the company will see, because last summer's delivery-subsidy war pushed delivery costs to a peak of 19% of revenue and squeezed store-level margins. On sales, the same period is the hardest comparison, because those subsidies drove same-store sales up 14.4%. The upcoming report should show whether Luckin can keep rebuilding margins while store traffic laps that inflated base.

Wall Street expects earnings of $0.85 per share, up 32.8% from $0.64 a year ago. That is strong growth, and it is a clear step up from the $0.64 reported last quarter. Management does not issue formal guidance, so the consensus figure is the Street's own estimate. It assumes the margin recovery seen in the second quarter continues. In that quarter, GAAP operating margin rebounded to 13.4% from roughly 6% in the first quarter, and operating profit grew 22% to RMB2.1 billion.

The main question is whether that margin snapback holds up. Self-operated store-level margin jumped to 21.3% from 13.6% one quarter earlier, mostly because delivery expenses fell to 10% of revenue. If delivery costs keep falling as a share of sales and store-level margins stay near or above the second-quarter level, management's case gets stronger. That case is that competition in Chinese coffee has returned to a contest over product and value, which favors the largest operator. If delivery costs drift back up, or if rivals restart subsidies, the second quarter will look more like a short break than a turning point.

The pressure on same-store sales will need careful reading. Comparable sales fell 5.3% last quarter, and management warned that July and August would carry further drag from the year-ago subsidy peak. A larger decline this quarter would not on its own contradict that story. The better test is what sits underneath it. Management said demand is still growing, pointing to more than 110 million monthly transacting customers, up 23%, and a record average spend per customer helped by cup-size upgrades and new products. Continued customer growth and solid results from launches such as the Little Butter series and new non-coffee drinks would support the base-effect explanation. A slowdown in customer growth alongside weak comparable sales would suggest real demand fatigue. Revenue growth, which slowed to 29% last quarter, matters for the same reason. The store base is 39% larger than a year ago, so a sharp drop in total growth would be a warning sign.

Costs also need attention. Materials rose to 39% of revenue on expensive green coffee beans, and store rent and operating costs climbed to 27% of revenue from 22%. Some of the margin rebound could leak away if bean prices stay high. Cash flow is the other item to check, now that Luckin has used short-term borrowing to help fund its $300 million buyback, of which $195 million was spent in the second quarter. Another quarter of strong operating cash flow, after RMB2.6 billion last time, would ease concerns that buybacks are stretching the balance sheet.

Sentiment has warmed noticeably, with bullish readings rising to about 34% from roughly 10% ahead of the last report. The stock has not followed. Shares have fallen 7.9% since the last report while the S&P 500 gained 2.1%. At $32.24, the stock sits just above its post-earnings low of $31.99 and below its 200-day moving average of $33.54. The market has priced in skepticism even as the business improved. To break that pattern, Luckin likely needs to show that its margin recovery is lasting and not just a product of fading subsidies. It also needs to show that negative same-store sales reflect last year's distortion rather than a weakening customer.