Luckin Coffee Q2 revenue increased by 35.5%, but expansion slowed down, causing US stocks to plummet by over 7% | Financial Report Insights

Luckin Coffee announced its second-quarter financial report on Tuesday, showing a 35.5% year-on-year increase in revenue for the quarter and reversing the trend of two consecutive quarters of losses. However, the company's profit fell by 13% year-on-year, and the growth rate of store numbers hit a two-year low on a quarter-on-quarter basis, leading to a 7.29% drop in the company's US stocks on Tuesday.

1) Key Financial Data

Total Revenue: The total net revenue for the second quarter was RMB 8.4026 billion, a 35.5% year-on-year increase;

Operating Profit: Operating profit for the second quarter was RMB 1.0507 billion, with an operating profit margin of 12.5%;

Net Profit: Net profit was RMB 0.8711 billion, compared to RMB 0.9987 billion in the second quarter of 2023, a 13% year-on-year decrease; non-GAAP net profit was RMB 0.971 billion;

Earnings Per Share: Both basic and diluted net earnings per American Depositary Share (ADS) were RMB 2.72; non-GAAP earnings per share were RMB 3.04;

Operating Cash Flow: Operating cash flow for the second quarter was RMB 1.5491 billion; as of June 30, 2024, Luckin Coffee had cash and cash equivalents, restricted cash, time deposits, and short-term investments totaling RMB 3.786 billion.

New Store Openings: A net of 1,371 new stores were opened in the second quarter, a quarter-on-quarter growth of 7.4%. As of the end of the second quarter, the total number of stores was 19,961, including 13,056 self-operated stores and 6,905 joint venture stores;

Customer Base: The average monthly transaction customers in the second quarter were 69.7 million, a 61.8% increase from 43.1 million in the same period of 2023;

2) Segment Revenue

Product Sales Revenue: Revenue from product sales in the second quarter was RMB 6.5524 billion, a 39.0% increase compared to RMB 4.7156 billion in the same period of 2023.

• Net revenue from freshly brewed beverages was RMB 6.014 billion, accounting for 71.6% of total net revenue in the second quarter.
• Net revenue from other products was RMB 0.4044 billion, accounting for 4.8% of total net revenue in the second quarter.

Other Business Revenue: Net revenue from other businesses in the second quarter was RMB 0.1341 billion, accounting for 1.6% of total net revenue in the second quarter.

Joint Venture Store Revenue: Revenue from joint venture stores in the second quarter was RMB 1.8502 billion (approximately USD 254.6 million), accounting for 22.0% of total net revenue in the second quarter;

Luckin attributed the business improvement to record revenue, significant increase in beverage sales volume, and a "significant increase" in the average monthly transaction customers.

Luckin Coffee CEO Guo Jin Yi stated:

"As we enter the second half of 2024, we will continue to focus on delivering value to customers while leveraging our enhanced supply chain and increased store count to introduce more innovative and high-quality products to the growing customer base. We believe we are well positioned to increase our market share, enhance product quality, and brand awareness." However, analysts believe that turning losses into profits may also benefit from Luckin Coffee's relatively slowed rapid expansion in China. According to the financial report, Luckin Coffee's 7.4% quarterly net store growth is at its lowest level since the end of 2022, significantly lower compared to an average of adding 2,500 new stores in the previous three quarters.

The financial report shows that Luckin Coffee added a net of 1,366 new stores in China in the second quarter, bringing the total number of stores to 19,924. In addition, the company also opened five net new stores in Singapore, currently its only international market, bringing the total to 37 stores.

Earlier this month, Luckin Coffee opened a new store in Beijing, reaching 20,000 stores. Guo Jinyi stated that this milestone "highlights its dominant position in the Chinese coffee chain market."

Last year, Luckin Coffee's annual sales in China exceeded Starbucks by nearly $350 million. Based in Seattle, Starbucks operates over 7,000 stores in the world's largest branded coffee shop market, with sales in China declining by 12.5% and 8% in the first two quarters of 2024.

Luckin's US stock fell 7.29% to $20.86 in midday trading on Tuesday. The stock has fallen over 20% so far this year.