Luckin Coffee's "sprint to ten thousand stores" is gaining momentum, and the leader's dominance is well controlled.

Before the US stock market opened on the evening of August 1st Beijing time, Luckin Coffee (LKNCY.OO) announced its performance for the second quarter of 2023. It has been on fire for two consecutive quarters, not only because of its high cost-effectiveness in the instant coffee market, but also due to its ability to sprint after its rebirth.

1) Rapid Expansion of Stores: By the end of the second quarter, the total number of stores had reached nearly 11,000, exceeding the annual target. In terms of store openings, Luckin Coffee has been rapidly expanding both through self-operated stores (adding nearly 900) and franchise stores (adding over 600), with a single quarter's growth comparable to the total of the previous three quarters of last year.

2) Strong Growth in Same-Store Sales: Behind the rapid expansion of stores is the exceptional performance of mature stores operating under the single-store model. In the second quarter, the same-store sales of self-operated stores (comparing the sales growth of mature stores that have been in operation for at least 15 days in both the current and previous year) increased by 21% compared to the same period last year. This high growth in "soul" data further validates Luckin Coffee's need for rapid expansion.

3) Strong Same-Store Growth in Established Self-Operated Stores + Rapid Expansion of New Stores: The total revenue of self-operated stores reached 4.495 billion, an 85% year-on-year increase, contributing 50 growth points driven by the group of mature stores.

4) At the same time, the number of franchise stores has rapidly increased to over 3,600 by the second quarter, accounting for nearly 35% of the total number of stores and contributing to a revenue of nearly 1.5 billion, a year-on-year increase of over 90%.

In addition to revenue from e-commerce, unmanned vending machines, and express delivery, Luckin Coffee's total revenue in the second quarter reached 6.2 billion RMB, with a growth rate of 88% and an accelerated growth compared to the first quarter.

4) The second quarter's performance goes beyond revenue growth, as the quality of operations has also significantly improved: The operating profit margin of self-operated stores has increased to 29%, achieving a quarterly operating profit of 1.3 billion. At the same time, the continuous reduction of losses in franchise stores, e-commerce, and self-service sales has led to a company-wide operating profit of 1.1 billion, with an operating profit margin close to 19%, reaching a historical high.

5) Another impressive data point is that from the perspective of customer acquisition and operations, Luckin Coffee's active buyer count in the second quarter exceeded 43 million, a year-on-year increase of over 100%. In June alone, it became a national-level coffee brand with 50 million Chinese people drinking its coffee, and the cumulative number of buyers reached 170 million. The rapid expansion of stores is also a testament to the brand's dominance in the instant coffee market.

Dolphin's Overall View:

Originally, the market's expectation for Luckin Coffee was to maintain a same-store sales growth rate of within 10%. With the maturity of existing stores and the incremental growth brought by self-operated and franchise stores, a revenue growth rate of 40-50% and a moderate recovery in profit margin were the benchmark assumptions for this year. However, due to competition from companies like Kudi, it cannot be ruled out that market marketing may be necessary.The possibility of a decline in profitability.

However, in reality, Luckin Coffee has basically achieved the dual expansion of "expanding existing stores and opening new stores" in the first half of this year. At the same time, profitability has continued to accelerate improvement under the scale effect.

Considering that at the end of May, Luckin Coffee started the "franchise with store" model, 2023 is destined to be the year when Luckin Coffee occupies a dominant position. During the period of exploring new stores, the main contribution will be pure revenue increment, while as long as the existing stores can maintain a same-store growth rate of over 10%, this year will be a year of "EPS+ valuation" expansion for Luckin Coffee.

Since the net profit in the second quarter has reached 1 billion RMB, there is a good chance of achieving a net profit of 3.5-4 billion RMB for the whole year. For the chain store format during the expansion period, a PE ratio of 25-30 times is a reasonable state, and the reasonable valuation should be above 12 billion US dollars, which still leaves room for relatively certain upward movement compared to the current market value of 9 billion US dollars.

If you are interested in the management's communication during the earnings conference call, Dolphin will subsequently share the summary of the conference call through the Longbridge App community platform or the investment research group. Users who are interested are welcome to add the assistant's WeChat account "dolphinR123" to join the Dolphin investment research group and get the information in real time.

Related charts:

1. Number of Stores