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Luckin Coffee Inc. announces unaudited financial results for the first half of 2021

Luckin Coffee internal investigation

BEIJING, China – Luckin Coffee Inc. (in Provisional Liquidation) (“Luckin Coffee” or the “Company”) (OTC: LKNCY) today announced its unaudited financial results for the six months ended June 30, 2021. As a result of the COVID-19 pandemic, the Company’s business and financial performance in the first half year of 2020 were materially adversely affected.

The Company cautions investors to take this into account when comparing and evaluating period-over-period growth metrics.

Company Statement

“This earnings announcement is an important milestone as it enables us to return to normalized financial reporting,” said Dr. Jinyi Guo, Chairman and Chief Executive Officer of Luckin Coffee. “I am pleased with the overall performance we achieved in the first half of 2021. In particular, it is worth noting that substantial revenue growth was driven by an increase in average revenue per self-operated store. Several factors contributed to our strong performance. We further improved our brand recognition, increased customer retention and order frequency, successfully introduced new products and achieved higher net selling prices. Furthermore, we strategically expanded our Luckin Partnership stores in mostly lower-tier cities in China. Additionally, our technology driven business model and favorable cost structure enabled us to enhance store level profitability and results of operations.”

Dr. Guo added, “Today, with a refreshed Board of Directors and leadership team, as well as the execution of our strategy to focus on our core coffee business and deliver sustainable growth and profitability, we are well-positioned to drive meaningful long-term value for our shareholders, and continue to provide outstanding products and services to our customers.”

First Half Year 2021 Highlights1

  • Total net revenues in the first half year were RMB3,182.5 million (US$492.9 million), representing an increase of 106.0% from RMB1,544.5 million in the same half of 2020.
  • Revenues from product sales in the first half year were RMB2,741.3 million (US$424.6 million), representing an increase of 89.3% from RMB1,448.2 million in the same half year of 2020.
  • Revenues from partnership stores in the first half year were RMB441.2 million (US$68.3 million), representing an increase of 357.8% from RMB96.4 million in the same half year of 2020.
  • Same-store sales growth for self-operated stores in the first half year was 82.7%, compared to negative 20.3% in the same half year of 2020.
  • Average monthly transacting customers in the first half year were 10.5 million, representing an increase of 35.1% from 7.8 million in the same half year of 2020.
  • Total number of stores was 5,259 as of the end of the first half year, including 4,018 self-operated stores and 1,241 partnership stores. Self-operated stores decreased by 5.8% from 4,267 stores as of the end of the same half year of 2020 and partnership stores increased by 50.6% from 824 partnership stores as of the end of the same half year of 2020.
  • Store level operating profit – self operated stores in the first half was RMB417.3 million (US$64.6 million) with store level operating profit margin of 16.3%, compared to a store level operating loss – self operated stores of RMB531.4 million with store level operating loss margin of 39.2% in the same half year of 2020.

First Half Year of 2021 Unaudited Financial Results

Total net revenues were RMB3,182.5 million (US$492.9 million) in the first half of 2021, representing an increase of 106.0% from RMB1,544.5 million in the first half of 2020. Net revenues growth was primarily driven by the increased average selling price for the Company’s products, the increase in the number of monthly transacting customers and the number of products sold.

  • Revenues from product sales were RMB2,741.3 million (US$424.6 million) in the first half of 2021, representing an increase of 89.3% from RMB1,448.2 million in the first half of 2020.
    • Net revenues from freshly brewed drinks were RMB2,422.2 million (US$375.1 million), representing 76.1% of total net revenues in the first half of 2021, compared to RMB1,248.1 million, or 80.8% of total net revenues, in the first half of 2020.
    • Net revenues from other products were RMB176.5 million (US$27.3 million), representing 5.5% of total net revenues in the first half of 2021, compared to RMB129.4 million, or 8.4% of total net revenues, in the first half of 2020.
    • Net revenues from others were RMB142.6 million (US$22.1 million), representing 4.5% of total net revenues in the first half of 2021, compared to RMB70.7 million, or 4.6% of total net revenues, in the first half of 2020.
  • Revenues from partnership stores were RMB441.2 million (US$68.3 million) in the first half of 2021, representing 13.9% of total net revenues, which is an increase of 357.8% compared to RMB96.4 million, or 6.2% of total net revenues, in the first half of 2020. For the first half of 2021, revenues from partnership stores included sales of materials of RMB269.3 million (US$41.7 million), sales of equipment of RMB82.6 million (US$12.8 million), profit sharing of RMB42.0 million (US$6.5 million) and other of RMB47.3 million (US$7.3 million).
  • Total operating expenses were RMB3,594.0 million (US$556.6 million) in the first half of 2021, representing an increase of 13.0% from RMB3,180.4 million in the first half of 2020. The increase in operating expenses was in line with the Company’s business expansion. Meanwhile, operating expenses as a percentage of net revenues decreased to 112.9% in the first half of 2021 from 205.9% in the first half of 2020, mainly driven by increased economies of scale and the Company’s technology-driven operations.
  • Cost of materials were RMB1,299.7 million (US$201.3 million) in the first half of 2021, representing an increase of 54.1% from RMB843.1 million in the first half of 2020, in line with the increase in the number of products sold.
  • Store rental and other operating costs were RMB887.9 million (US$137.5 million) in the first half of 2021, representing a decrease of 0.3% from RMB890.7 million in the first half of 2020, mainly due to the decrease in store rental costs from the closure of certain stores, which was offset by increases in payroll cost and utilities as a result of the rise in sales volume.
  • Depreciation and amortization expenses were RMB229.0 million (US$35.5 million) in the first half of 2021, representing a decrease of 3.7% from RMB237.8 million in the first half of 2020, mainly due to a decline in the number of self-operated stores in the first half of 2021 compared the same period last year.
  • Sales and marketing expenses were RMB460.4 million (US$71.3 million) in the first half of 2021, representing a decrease of 11.0% from RMB517.5 million in the first half of 2020. Sales and marketing expense decreased primarily because advertising expenses and free product promotion expenses decreased, as the Company adopted more cost-effective approaches, such as cultivation of private domain traffic pools since April 2020, and ceased its free product promotion activities in May 2020. Delivery expenses increased substantially in the first half of 2021 as the number of delivery orders increased compared to the same period last year.
  • General and administrative expenses were RMB559.8 million (US$86.7 million) in the first half of 2021, representing an increase of 12.3% from RMB498.6 million in the first half of 2020. The increase in general and administrative expenses was mainly driven by the increased share-based compensation following the adoption of the 2021 Equity Incentive Plan as announced on January 25, 2021.
  • Store preopening and other expenses were RMB2.7 million (US$0.4 million) in the first half of 2021, compared to RMB7.2 million in the first half of 2020, mainly due to decreased rental costs before opening as a result of optimized site selection and improved efficiency for new store openings.
  • Losses and expenses related to Fabricated Transactions and Restructuring were RMB154.7 million (US$24.0 million) in the first half of 2021, representing a decrease of 15.6% from RMB183.2 million in the first half of 2020, which consist primarily of (i) legal fees under indemnification for security holders, underwriters of the Company’s initial public offering and follow-on offering, directors and officers; (ii) legal fees incurred to respond to a number of legal proceedings; (iii) professional fees related to the Internal Investigation; (iv) professional fees and expenses reimbursed for the JPLs and (v) other advisory service fees.

Operating loss was RMB411.5 million (US$63.7 million) in the first half of 2021, representing a decrease of 74.8% from a loss of RMB1,635.9 million in the first half of 2020. Non-GAAP operating loss was RMB284.1 million (US$44.0 million) in the first half of 2021, representing a decrease of 82.5% from a loss of RMB1,619.6 million in the first half of 2020. For more information on the Company’s non-GAAP financial measures, please see the section of “Use of Non-GAAP Financial Measures” and the table captioned “Reconciliation of Non-GAAP Measures to the Most Directly Comparable GAAP Measures” set forth at the end of this press release.

Net loss was RMB211.4 million (US$32.7 million) in the first half of 2021, representing a decrease of 86.4% from a loss of RMB1,555.2 million in the first half of 2020. Non-GAAP net loss was RMB84.0 million (US$13.0 million) in the first half of 2021, compared to a loss of RMB1,538.9 million in the first half of 2020.

Basic and diluted net loss per ADS was RMB0.80 (US$0.16) in the first half of 2021, compared to a loss of RMB6.16 in the first half of 2020.

Non-GAAP basic and diluted net loss per ADS was RMB0.32 (US$0.08) in the first half of 2021, compared to a loss of RMB6.08 in the first half of 2020.

Net cash generated from operating activities was RMB129.6 million (US$20.1 million) in the first half of 2021, compared to RMB1,972.8 million in net cash used in in the first half of 2020. The improvement was primarily driven by the Company’s improved business operations, realized store level profitability and enhanced ability to generate revenue.

Cash and cash equivalents and short-term investments were RMB5,083.0 million (US$787.3 million) as of June 30, 2021, compared to RMB5,056.0 million as of December 31, 2020. The increase was primarily driven by the improvement of operating cash flow.

Key Operating Data

Key Definitions

  • Total net revenues include revenues from product sales and revenues from partnership stores.
  • Revenues from product sales include net revenue from the sales of freshly brewed and non-freshly brewed items through self-operating stores, unmanned machines, e-commerce and revenue from delivery.
  • Revenues from partnership stores include net revenue from the sales of materials, equipment, profit sharing and other services from retail partnership stores.
  • Same-store sales growth for self-operated stores. Defined as growth rate of total revenue from stores that has been in operation as at comparable period beginning and was not closed before current period ending with the number of average operating days over 15 per month over both current period and last year’s comparable period.
  • Store level operating profit (loss) – self-operated stores. Calculated by deducting cost of direct materials (including wastage in stores), cost of delivery packaging materials, storage and logistics expenses, store depreciation expense (including decoration loss for store closure), store rental and other operating costs, net delivery expense, transaction fees, rental deposit of closed stores and rental expense for pre-opening stores from our self-operated store revenues.
  • Store level operating profit (loss) margin – self-operated stores. Calculated by dividing store level operating profit (loss) by total net revenues from self-operating stores.
  • Total number of stores. The number of stores opened as at period ending, excluding unmanned machines.
  • Cumulative number of transacting customers. The total number of transacting customers since our inception. This includes those of partnership stores and those only consumed with free-coupons.
  • Average monthly transacting customers. The total number of transacting customers divided by the number of months during the period (includes those of partnership stores and those only consumed with free-coupons).
  • Average monthly total items sold in self-operated stores and unmanned machines. Total number of items (including freshly brewed and non-freshly brewed items) sold in self-operating stores and unmanned machines divided by the number of months during the period.
  • Non-GAAP operating loss. Calculated by operating loss excluding share-based compensation expenses and impairment of long-lived assets.
  • Non-GAAP net loss. Calculated by net loss excluding share-based compensation expenses and impairment of long-lived assets.
  • Non-GAAP net loss attributable to the Company’s ordinary shareholders. Calculated by adjusting net loss attributable to the Company’s ordinary shareholders excluding share-based compensation expenses, impairment of long-lived assets.
  • Non-GAAP basic and diluted net loss per share. Calculated as non-GAAP net loss attributable to the Company’s ordinary shareholders divided by weighted average number of basic and diluted share.
  • Non-GAAP basic and diluted net loss per ADS. Calculated as non-GAAP net loss attributable to the Company’s ordinary shareholders divided by weighted average number of basic and diluted ADS.

Use of Non-Gaap Financial Measures

In evaluating the business, the company consider and use adjusted operating loss and adjusted net loss, each a non-GAAP financial measure, in reviewing and assessing the company’s operating performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. The company present these non-GAAP financial measures because they are used by the company’s management to evaluate operating performance and formulate business plans. The company believe that the non-GAAP financial measures help identify underlying trends in the company’s business, provide further information about the company’s results of operations, and enhance the overall understanding of the company’s past performance and future prospects.

The non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. The non-GAAP financial measures have limitations as analytical tools. The company’s non-GAAP financial measures do not reflect all items of income and expense that affect the company’s operations and do not represent the residual cash flow available for discretionary expenditures. Furthermore, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore their comparability may be limited. The company compensate for these limitations by reconciling the non-GAAP financial measures to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating performance. The company encourage investors and others to review the company’s financial information in its entirety and not rely on a single financial measure.

The company define non-GAAP operating loss as operating loss excluding share-based compensation expenses and impairment loss of long-lived assets, non-GAAP net loss as net loss excluding share-based compensation expenses and impairment loss of long-lived assets, and non-GAAP net loss attributable to the company’s ordinary shareholders as net loss attributable to the company’s ordinary shareholders excluding share-based compensation expenses and impairment loss of long-lived assets.

For more information on the non-GAAP financial measures, please see the table captioned “Reconciliation of Non-GAAP Measures to the Most Directly Comparable GAAP Measures” set forth at the end of this press release.

Exchange Rate Information

This announcement contains translations of certain RMB amounts into U.S. dollars (“US$”) at specified rates solely for the convenience of the reader. Other than proceeds from the issuance of Series B-1 convertible redeemable preferred shares, IPO and the concurrent private placement stated, all translations from RMB to US$ were made at the rate of RMB 6.4566 to US$1.00, the exchange rate on June 30, 2021 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ amounts referred could be converted into US$ or RMB, as the case may be, at any particular rate or at all.

1 Please refer to the section “KEY DEFINITIONS” on Page 4 for detailed definitions on certain terms used.