Wednesday 29 June 2022

Luckin Coffee reports unaudited 1Q 2022 financial results

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BEIJING, China — Luckin Coffee Inc. yesterday announced its unaudited financial results for the three months ended March 31, 2022. Total net revenues in the first quarter were RMB2,404.6 million (US$379.3 million), representing an increase of 89.5% from RMB1,268.7 million in the same quarter of 2021.

Net new store openings in the first quarter was 556, resulting in a quarter-over-quarter store unit growth of 9.2% from the number of stores by the end of the fourth quarter of 2021, ending the first quarter with 6,580 stores which includes 4,675 self-operated stores and 1,905 partnership stores.

Average monthly transacting customers in the first quarter were 16.0 million, representing an increase of 83.0% from 8.7 million in the same quarter of 2021.

Revenues from self-operated stores in the first quarter were RMB1,714.7 million (US$270.5 million), representing an increase of 66.2% from RMB1,031.5 million in the same quarter of 2021.

Same-store sales growth for self-operated stores in the first quarter was 41.6%, compared to 94.5% in the same quarter of 2021.

Store level operating profit – self-operated stores in the first quarter was RMB348.5 million (US$55.0 million) with store level operating profit margin of 20.3%, compared to RMB64.1 million with store level operating profit margin of 6.2% in the same quarter of 2021.

Revenues from partnership stores in the first quarter were RMB549.3 million (US$86.7 million), representing an increase of 239.3% from RMB161.9 million in the same quarter of 2021.

GAAP operating income in the first quarter was RMB16.1 million (US$2.5 million), compared to a loss of RMB364.0 million in the same quarter of 2021. Non-GAAP operating income in the first quarter was RMB92.1 million (US$14.5 million), compared to a loss of RMB307.6 million in the same quarter of 2021, which represents a significant improvement of operating results.

Company Statement:

“Our team continues to execute on our strategic plan, delivering another quarter of improved financial and operational results,” said Dr. Jinyi Guo, Chairman and Chief Executive Officer of Luckin Coffee. “Despite continued pandemic-related headwinds, we reported strong bottom and top-line performance, with net revenue growth of 89.5% and same-store sales growth for our self-operated stores of over 40% from the prior year. We also delivered our first quarterly operating profit since our founding. This is an important milestone and serves as validation of our strategic plan and relentless focus on execution.”

Dr. Guo added, “Our efficient store operations and greater scale and operating leverage generated strong store level margins for our self-operated stores of just over 20%, especially given that historically, the first quarter had been our weakest quarter for our self-operated stores as a result of fewer purchases during the Chinese New Year holidays. We introduced 34 new freshly brewed products during the quarter which contributed materially to our results and that success continued in April when our new “Coconut Cloud Latte” sold over 4.95 million cups in the first week after its launch. We further expanded and had 556 net new store openings to meet the growing demand for our products through a mix of self-operated and partnership stores. Our partnership platform, which is highly complementary to our self-operated store model, was further expanded during the quarter and revenues from our partnership stores represented roughly a quarter of our total first quarter revenues.”

Dr. Guo concluded, “While we expect pandemic-related market pressures to continue having an adverse impact on our business in the near-term, our board of directors and management team are confident in our ability to both meet and drive demand through continued investment in our core initiatives. With our strong financial position, premier brand recognition and operating efficiency and leverage, we believe we are well positioned to capture the significant growth opportunities in the China coffee market while delivering sustainable long-term value for our shareholders.”

Impact of Covid-19

The global economy, Chinese markets and the Company’s business have been adversely affected by the COVID-19 pandemic. As cases of the Omicron variant emerged in China and spread to several major cities at the end of 2021, many provinces and municipalities activated the highest response to this public health crisis.

As a result, the Company’s temporary store closures gradually increased during the first quarter of 2022, with March being the most impacted. The Company experienced around 700 daily store closures on average during March 2022. Starting from April 2022, there was a nearly complete lockdown in Shanghai, resulting in a further increase of average daily store closures. For the period between April 1, 2022 and the day prior to this earnings release, the daily average number of temporary store closures was around 950.

While the Company is encouraged by recent government initiatives to introduce measures to support the local economy and has recently seen a partial re-opening in Shanghai, the Company anticipates that its operations will continue to be negatively affected by pandemic-related market pressures for the foreseeable future. The extent of these impacts is difficult to predict given the nature of the COVID-19 pandemic and the severity of the effects on the global economy.

Luckin Coffee: First quarter of 2022 unaudited financial results

Total net revenues were RMB2,404.6 million (US$379.3 million) in the first quarter of 2022, representing an increase of 89.5% from RMB1,268.7 million in the same quarter of 2021. Net revenues growth was primarily driven by the increased number of products sold, the increase in store footprint, the increase in the number of monthly transacting customers and higher average selling price for the Company’s products.

  • Revenues from product sales were RMB1,855.3 million (US$292.7 million) in the first quarter of 2022, representing an increase of 67.6% from RMB1,106.8 million in the same quarter of 2021.
    • Net revenues from freshly brewed drinks were RMB1,652.6 million (US$260.7 million), representing 68.8% of total net revenues in the first quarter of 2022, compared to RMB966.6 million, or 76.2% of total net revenues, in the same quarter of 2021.
    • Net revenues from other products were RMB109.1 million (US$17.2 million), representing 4.5% of total net revenues in the first quarter of 2022, compared to RMB81.2 million, or 6.4% of total net revenues, in the same quarter of 2021.
    • Net revenues from others were RMB93.6 million (US$14.8 million), representing 3.9% of total net revenues in the first quarter of 2022, compared to RMB59.1 million, or 4.6% of total net revenues, in the same quarter of 2021.
  • Revenues from partnership stores were RMB549.3 million (US$86.7 million) in the first quarter of 2022, representing 22.8% of total net revenues, which is an increase of 239.3% compared to RMB161.9 million, or 12.8% of total net revenues, in the same quarter of 2021. For the first quarter of 2022, revenues from partnership stores included sales of materials of RMB365.7 million (US$57.7 million), profit sharing of RMB66.1 million (US$10.4 million), sales of equipment of RMB58.2 million (US$9.2 million), delivery service of RMB54.3 million (US$8.6 million) and other services of RMB5.0 million (US$0.8 million).

Total operating expenses were RMB2,388.5 million (US$376.8 million) in the first quarter of 2022, representing an increase of 46.3% from RMB1,632.7 million in the same quarter of 2021. The increase in total operating expenses was predominantly the result of the Company’s business expansion. Meanwhile, operating expenses as a percentage of net revenues decreased to 99.3% in the first quarter of 2022 from 128.7% in the same quarter of 2021, mainly driven by a reduction of general and administrative expenses as a percentage of net revenues due to increased economies of scale and the Company’s technology-driven operations and a decrease in losses and expenses related to Fabricated Transactions and Restructuring in the first quarter since the Company had successfully completed dismissal of provisional liquidation in March 2022.

  • Cost of materials were RMB983.2 million (US$155.1 million) in the first quarter of 2022, representing an increase of 82.3% from RMB539.3 million in the same quarter of 2021, generally in line with the increase in the number of products sold and increase in sales of materials to partnership stores.
  • Store rental and other operating costs were RMB586.0 million (US$92.4 million) in the first quarter of 2022, representing an increase of 39.3% from RMB420.6 million in the same quarter of 2021, mainly due to the increase in labor costs, store rental as well as utilities and other store operating costs as a result of the increased number of stores and items sold in the first quarter of 2022 compared to the same period last year.
  • Depreciation and amortization expenses were RMB95.7 million (US$15.1 million) in the first quarter of 2022, representing a decrease of 16.6% from RMB114.8 million in the same quarter of 2021, mainly due to the decrease in amortization of leasehold improvements for the stores whose leasehold improvements had been fully amortized before the first quarter of 2022, offset by the increase of depreciation expenses of additional equipment put into use in new stores in the first quarter of 2022.
  • Delivery expenses were RMB246.7 million (US$38.9 million) in the first quarter of 2022, representing an increase of 88.1% from RMB131.2 million in the same quarter of 2021, mainly due to the increase in the number of delivery orders.
  • Sales and marketing expenses were RMB108.4 million (US$17.1 million) in the first quarter of 2022, representing an increase of 76.8% from RMB61.3 million in the same quarter of 2021, mainly due to the increase in advertising expenses and commission fees to third-party delivery platforms in line with the increase in the number of delivery orders.
  • General and administrative expenses were RMB323.0 million (US$51.0 million) in the first quarter of 2022, representing an increase of 18.3% from RMB273.1 million in the same quarter of 2021. The increase in general and administrative expenses was mainly driven by (i) the increase in payroll costs for headquarter staff, (ii) the increase in share-based compensation due to more restricted share units issued to motivate management and employees, (iii) the increase in research and development expenses and (iv) the increase in expenditures for office supplies.
  • Store preopening and other expenses were RMB8.3 million (US$1.3 million) in the first quarter of 2022, compared to RMB0.6 million in the same quarter of 2021, mainly due to more stores being opened in the first quarter of 2022.
  • Losses and expenses related to Fabricated Transactions and Restructuring were RMB37.3 million (US$5.9 million) in the first quarter of 2022, representing an decrease of 59.3% from RMB91.8 million in the same quarter of 2021, which consisted primarily of (i) professional and legal fees for U.S. securities litigations negotiations and claims, (ii) professional and legal fees for the restructuring of convertible senior notes, (iii) professional fees and expenses reimbursed to the Joint Provisional Liquidators (“JPLs”) and (iv) other advisory service fees.
  • Store level operating profit margin – self-operated stores was 20.3% in the first quarter of 2022, compared to 6.2% in the same quarter of 2021, primarily due to the increase in the average selling price of the Company’s products and the number of products sold, as well as benefits of economies of scale.

Operating income was RMB16.1 million (US$2.5 million) in the first quarter of 2022, compared to an operating loss of RMB364.0 million in the same quarter of 2021. Non-GAAP operating income was RMB92.1 million (US$14.5 million) in the first quarter of 2022, compared to a non-GAAP operating loss of RMB307.6 million in the same quarter of 2021. For more information on the Company’s non-GAAP financial measures, please see the section “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 earnings release.

Net income was RMB19.8 million (US$3.1 million) in the first quarter of 2022, compared to a net loss of RMB232.5 million in the same quarter of 2021. Non-GAAP net income was RMB99.1 million (US$15.6 million) in the first quarter of 2022, compared to net loss of RMB176.0 million in the same quarter of 2021.

Basic and diluted net income per ADS was RMB0.08 (US$0.00) and RMB0.08 (US$0.00) in the first quarter of 2022, respectively, compared to basic and diluted net loss per ADS of RMB0.88 and RMB0.88 in the same quarter of 2021, respectively.

Non-GAAP basic and diluted net income per ADS was RMB0.32 (US$0.08) and RMB0.32 (US$0.08) in the first quarter of 2022, respectively, compared to basic and diluted net loss of RMB0.72 and RMB0.72 in the same quarter of 2021.

Net cash provided by operating activities was RMB107.7 million (US$17.0 million) in the first quarter of 2022, compared to RMB233.2 million in net cash used in the same quarter of 2021. The improvement was primarily driven by the Company’s improved business operations, enhanced ability to generate revenue and improved profitability.

Cash and cash equivalents, restricted cash and short-term investments were RMB5,021.4 million (US$792.1 million) as of March 31, 2022, compared to RMB6,555.3 million as of December 31, 2021. The decrease was primarily attributable to the repayment of senior convertible notes and purchase of property and equipment, offset by the proceeds from the issuance of senior preferred shares and operational cash generation.

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