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LUCKIN COFFEE SHOWS SOLID GROWTH IN Q1 OF 2022

Luckin Coffee, China’s biggest coffee chain, has recently announced its unaudited financial results for the first quarter of 2022. The figures show promise amid the COVID-19 pandemic, but its continued success is still affected by lockdowns and store closures.

With a net revenue increase of 89.5 per cent and same-store sales growth of over 40 per cent for their self-operated outlets, Luckin Coffee delivered a tremendous bottom and top-line performance. Moreover, the company reported its first quarterly operating profit since its inception.

Our team continues to execute on our strategic plan, producing another quarter of better financial and operational outcomes.

Dr Jinyi Guo, Chairman and Chief Executive Officer of Luckin Coffee.

In the first quarter of 2022, total net revenues were RMB2,404.6 million (US$379.3 million), up 89.5 per cent from RMB1,268.7 million (circa US$199.8 million) in the same quarter of 2021.

Net income in the first quarter of 2022 was RMB19.8 million (US$3.1 million), compared to a net loss of RMB232.5 million (circa US$36.6 million) in the same quarter of 2021. In the first quarter of 2022, non-GAAP net income was RMB99.1 million (US$15.6 million), compared to a net loss of RMB176 million (circa US$27.7 million) in the same quarter of 2021.

Each year since Luckin Coffee was established, the first quarter has seen low profits due to fewer purchases during the Chinese New Year holidays. As a result, the immense jump in revenues during the first quarter of 2022 is very much welcomed.

There were 556 net new store openings, representing a 9.2 per cent increase in retail units from the previous quarter. The company now has 6,580 locations, with 4,675 self-operated locations and 1,905 partnership locations. A fairly young company that was only established in 2017 in China, Luckin Coffee officially overpowers the presence of other coffee companies in the country, including Starbucks.

In the first quarter of 2022, net revenues from freshly brewed drinks totalled RMB1,652.6 million (US$260.7 million), accounting for 68.8 per cent of total net revenues, compared to RMB966.6 million (circa US$152.1 million) accounting for 76.2 per cent in the same quarter of 2021.

However, the major impact of COVID-19 has been felt on global economic activity, Chinese markets, and Luckin Coffee’s business. By the end of 2021, several major Chinese cities had been struck by the Omicron variant, and local governments mobilized the strongest response they could muster to counter this public health crisis. Over the course of the first quarter of 2022, there were more temporary store closures, especially in March. A nearly complete lockdown in Shanghai began in April 2022, resulting in an increase in store closures on a daily basis.

Despite that, self-operated store revenues climbed by 66.2 per cent to US$270.5 million, while partnership store revenues increased by 239.3 per cent. Operating income before depreciation and amortization was RMB16.1 million (US$2.5 million), showing a significant improvement over the previous year’s loss of RMB364 million (circa US$57.3 million).

Meanwhile, material costs were RMB983.2 million (US$155.1 million), up 82.3 per cent from RMB539.3 million (circa US$93.4 million) in the same quarter of 2021, owing to an increase in the number of products sold and material sales to partnership stores.

While we expect pandemic-related market pressures to continue having an adverse impact on our business in the near term, our board of directors and management team are confident in our ability to both meet and drive demand through continued investment in our core initiatives. With our strong financial position, premier brand recognition and operating efficiency and leverage, we believe we are well-positioned to capture the significant growth opportunities in the China coffee market while delivering sustainable long-term value for our shareholders

Dr Jinyi Guo.

Xiamen-based Luckin Coffee was founded by entrepreneur Charles Lu in 2017. The company follows a technology-driven new retail model that aims to give customers high-quality, affordable, and grab-and-go coffee products. The company’s goal is to become a part of everyone’s daily routine, beginning with coffee.

N509FZ, CC BY-SA 4.0, via Wikimedia Commons

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