After earnings, the stock price fell nearly 7%! How did Luckin Coffee perform in the second quarter?

On July 30th (local time), two well-known coffee chain brands, Luckin Coffee (LKNCY.US) and Starbucks (SBUX.US), respectively announced their financial performance for the most recent quarter.

Luckin Coffee achieved significant revenue growth in the second quarter of 2024 (the three months ending on June 30), but its profit declined compared to the same period last year. As a result, Luckin Coffee's stock price dropped by 6.67% on July 30.

Meanwhile, Starbucks also faced a profit decline in the third quarter of 2024 (the three months ending on June 30), but its stock price rose by 3.63% after hours.

Outstanding Second Quarter Revenue Performance, Setting a New Single Quarter Record

The report shows that in the second quarter, Luckin Coffee's revenue was RMB 8.403 billion, a year-on-year increase of 35.5%, setting a new single quarter revenue record. As a result, in the first half of the year, Luckin Coffee's revenue reached RMB 14.681 billion, a year-on-year increase of 38.0%.

In comparison, in the third quarter of this year, Starbucks achieved revenue of USD 9.114 billion, a year-on-year decrease of 0.6%, falling short of expectations.

It can be seen that Luckin Coffee's second quarter revenue performance is quite impressive, not only setting a new single quarter record but also showing a significantly stronger growth rate than Starbucks.

Behind the revenue growth in the second quarter, Luckin Coffee had an average monthly transaction customers of 69.7 million, a year-on-year increase of 61.8%.

Additionally, during the period, Luckin Coffee opened a net of 1,371 new stores, with the total number of stores at the end of the second quarter being 19,961, including 13,056 self-operated stores and 6,905 joint-operated stores. Among them, self-operated stores generated revenue of RMB 6.277 billion, a year-on-year increase of 39.6%, but same-store sales declined by 20.9%; joint-operated stores generated revenue of RMB 1.85 billion, a year-on-year increase of 24.5%.

Starbucks' latest financial report also shows that in the third quarter (ending on June 30), its same-store sales declined by 3%, with same-store sales in the U.S. dropping by 2% for two consecutive quarters, while same-store sales in China dropped by 14% **

In terms of geographical distribution, in the second quarter, Luckin Coffee added a net of 1366 new stores in China, bringing the total number of stores to 19,924. Additionally, Luckin Coffee opened five net new stores in Singapore, which is currently its only international market, bringing the total to 37 stores.

Comparatively, as of June 30, 2024, the stores in the United States and China accounted for 61% of Starbucks' global portfolio, with 16,730 and 7,306 stores respectively.

In the Chinese market alone, Luckin Coffee clearly has more stores. Last year, Luckin Coffee's annual sales in China surpassed Starbucks for the first time.

In terms of products, Luckin Coffee launched 30 new products in the second quarter, including favorites such as Coconut Latte, Lemon C Americano, and Large Cup Light Coffee series. Among them, the single Lemon Tea Light Coffee had sales exceeding 5.08 million cups in the first week; in April, on the third anniversary of the launch of Luckin's Coconut Latte, sales exceeded 700 million cups.

It is worth mentioning that the previously popular Soy Latte has been removed from shelves in some cities. Luckin Coffee responded that in some cities across the country, once the ingredients are used up, they will no longer be sold.

Profit Decline Year-on-Year, but Turnaround Quarter-on-Quarter

Although revenue in the second quarter increased significantly by 35.5% year-on-year, Luckin Coffee's operating expenses increased by 46.2% to 7.352 billion RMB, mainly due to the company's business expansion.

Therefore, under the US Generally Accepted Accounting Principles (GAAP), in the second quarter, Luckin Coffee's operating profit was 1.051 billion RMB, a 10.4% year-on-year decrease, with an operating profit margin of 12.5%; the net profit attributable to shareholders was 871 million RMB, a 12.8% year-on-year decrease.

In comparison, in the third quarter (ending on June 30), Starbucks achieved a net profit attributable to shareholders of 1.055 billion USD, a 7.6% year-on-year decrease.

It can be seen that despite the much better revenue performance compared to Starbucks, Luckin Coffee's profit performance is still inferior to the latter, which may be an area of concern for Luckin Coffee going forward.

However, the good news is that Luckin Coffee's net profit attributable to shareholders was a loss of 83 million RMB in the first quarter of 2024, so the company successfully turned a profit in the second quarter.

In the second quarter, Luckin Coffee's operating profit margin for self-operated stores was 21.5%, a decrease of 7.6 percentage points year-on-year, but an increase of 15 percentage points quarter-on-quarter, mainly due to the decrease in average selling price of products offset by the economies of scale from increased product sales It is reported that during the conference call, the CEO of Luckin Coffee stated that we are generally satisfied with the performance in the second quarter, which was influenced by external factors such as improved weather. However, more importantly, it was the result of our proactive adjustments and the full play of Luckin's model advantages.

Regarding the second half of 2024, the CEO of Luckin Coffee wrote in the financial report that we are still focused on providing value to customers, while leveraging our strengthened supply chain and increased stores to introduce more innovation and high-quality products to our growing customer base. We believe that we are fully capable of increasing our market share, improving the quality of our products, and enhancing our brand awareness