Luckin Coffee: Currently in a Strategic Opportunity Period for the Coffee Industry (4Q23 Earnings Call Summary)
The key points of Luckin Coffee's 4Q23 performance conference call are summarized below. For a review of the financial report, please refer to "Luckin Coffee: Darkest Before Dawn".
1. Key Performance Indicators
2. Management Report
2023 was a milestone year with a record high of 16,248 stores. Despite intense industry competition, Luckin Coffee achieved record revenue through its unique business model, product innovation, and scale advantage. Overall profits remained stable and controllable, aligning with the company's expectations and strategic direction.
During this quarter, the company continued to engage consumers by hosting the "Celebration of 10,000 Stores" event, leading to a surge in transaction users and the creation of multiple popular items, breaking single-item consumption records. As of now, the cumulative number of transaction users has reached 230 million.
In 2023, Luckin Coffee launched 102 new products, selling over 2 billion items and serving more than 1.9 billion cups of coffee. By the end of 2023, 8 SKU coffee products from Luckin Coffee had sales exceeding one billion. The "Soy Latte" set a new record for single-item sales at Luckin Coffee, selling 45.83 million cups throughout the year, with single-item sales revenue surpassing 900 million yuan.
In the fourth quarter of 2023, the number of Singapore stores reached 30, with an addition of 12 stores from the third quarter.
The overall operating profit margin for the fourth quarter of 2023 was 3%, down from 8.5% in the same period last year, mainly due to a decrease in the average cup price. The decrease in cup price was offset to some extent by economies of scale.
Due to business expansion in the fourth quarter, overall operating expenses increased. However, cost optimization continued due to economies of scale and technological advancements.
(1) Administrative expenses increased by 36.6% year-on-year, but the expense ratio decreased from 11.1% in 4Q22 to 8%.
(2) Sales expenses increased by 130%, reflecting continued strategic investments in branding to enhance brand awareness and popularity.
(3) In the fourth quarter, we spent more on commissions to third-party delivery platforms, consistent with the increase in delivery orders.
In the fourth quarter, we reversed the provision for defense costs related to settlements with certain underwriters, totaling $6.3 million (44.7 million yuan), mainly including legal fees, government investigation litigation, and related expenses. Due to the conversion of a certain amount of accumulated losses into accumulated profits by the company's operating entities, the uncertainty of the company's operating performance has been greatly reduced. Therefore, the company made provisions for the reversal of part of the deferred income tax assets in the fourth quarter, recognizing a tax income of RMB 31 million.
In the fourth quarter, the net cash outflow from operations was RMB 930 million, compared to a net inflow of RMB 48.3 million in the same period of 2022. This was mainly due to our increased raw material purchases to meet our rapid expansion and business growth. As of the end of 2023, the bank deposits amounted to RMB 3.8 billion, including cash, time deposits, restricted cash, short-term investments, etc.
Analyst Q&A
Q1: How do you view the development and competitive landscape of the coffee market in 2024?
A: Currently, the Chinese coffee market is entering a crucial period of rapid development. Faced with industry competition, Luckin Coffee will continue to accelerate the expansion of its store network, increase investment in the supply chain layout, strengthen its digital advantages, optimize costs, improve efficiency, further expand and consolidate its leading position, and establish an absolute market dominance.
In the future, we will continue to focus on business growth and market share, hoping to provide everyone with delicious and affordable coffee through higher quality products and more favorable prices. Our vision is to create a world-class coffee brand and we have been striving to become a world-renowned century-old brand.
Finally, Mr. Wu Gang, Senior Vice President in charge of public affairs and strategic cooperation, will resign for personal reasons.
Q2: How does the company view the significant decline in Q4 profits? Are there any plans for price adjustments?
A: Based on the company's strategic decisions to reward customers, expand the market, seasonal factors, and adjustments in product portfolio structure, profits in the fourth quarter have declined. This is an objective law of the industry and is in line with the company's strategic expectations. We are generally satisfied with the performance this quarter, with an average of over 62 million monthly active users and over 90 million new users added throughout the year.
The Chinese coffee industry is in a crucial period of rapid growth, with increasingly fierce competition and an evolving development landscape. We will closely monitor market changes, continue to focus on customer value, and hope to expand market share by providing consumers with high-quality products, adopting more scientific and customer-friendly pricing strategies, and rewarding customers in the long term.
Q3: Will the company continue the store opening strategy in 2024 as in 2023?
A: The coffee market is still in the early stages of development. With the steady increase in China's urbanization rate, the consumer base for freshly brewed coffee is large and steadily growing. Under market education, consumers' coffee drinking habits will be further cultivated. There is still a lot of room for expansion in the coffee track.
Looking back at the data from the past few years, the cultivation of Chinese consumers' coffee consumption habits does indeed have cyclical characteristics, but currently, driven by Luckin Coffee, it is showing an accelerating trend.
In 2024, we will closely monitor store profitability while continuing rapid store expansion, actively responding to market competition, and better meeting customer needs. This article's risk disclosure and statement: Dolphin Research's Disclaimer and General Disclosure
