Monday 23 May 2022

Luckin Coffee reports 3Q net revenues of $364.7m up 105.6% yoy, reduces net loss to $1m

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BEIJING, China — Luckin Coffee Inc. yesterday announced its unaudited financial results for the three months ended September 30, 2021. “We are seeing strong performance across the business in the third quarter with increased customer retention and order frequency, greater brand recognition, and our products achieving higher average selling price. Specifically, some of our innovative products, such as iced coconut latte, were very well received by our customers, benefiting from the relatively hot weather (compared to other seasons).” said Dr. Jinyi Guo, Chairman and Chief Executive Officer of Luckin Coffee.

“Further, we continued to execute against our strategic plan with the expansion of our Luckin Partnership stores contributing significantly to revenue growth. Our improved profitability is demonstrated through the significant reduction in operating losses for the quarter, as well as our store level operating margin increasing to over 25%.”

Dr. Guo added, “We appreciate the dedication and contribution of all Luckin Coffee employees and the continuous trust and support of our customers. While we are pleased with the latest quarterly results, we remain focused on the execution of our long term strategic plan — continue providing outstanding and innovative products and services to our customers and driving long-term value for shareholders.”

Luckin Coffee: Third quarter 2021 highlights

  • Total net revenues in the third quarter were RMB2,350.2 million (US$364.7 million), representing an increase of 105.6% from RMB1,143.0 million in the same quarter of 2020.
  • Revenues from product sales in the third quarter were RMB1,934.1 million (US$300.2 million), representing an increase of 83.9% from RMB1,051.6 million in the same quarter of 2020.
  • Revenues from partnership stores in the third quarter were RMB416.1 million (US$64.6 million), representing an increase of 355.0% from RMB91.5 million in the same quarter of 2020.
  • Same-store sales growth for self-operated stores in the third quarter was 75.8%, compared to 0.3% in the same quarter of 2020.
  • Average monthly transacting customers in the third quarter were 14.7 million, representing an increase of 79.2% from 8.2 million in the same quarter of 2020.
  • Total number of stores was 5,671 as of the end of the third quarter, including 4,206 self-operated stores and 1,465 partnership stores. Self-operated stores increased by 6.4% from 3,952 stores as of the end of the same quarter of 2020 and partnership stores increased by 66.7% from 879 partnership stores as of the end of the same quarter of 2020.
  • Store level operating profit – self operated stores in the third quarter was RMB452.1 million (US$70.2 million) with store level operating profit margin of 25.2%, compared to a store level operating loss – self operated stores of RMB2.1 million with store level operating loss margin of 0.2% in the same quarter of 2020.

Third quarter of 2021 unaudited financial results

Total net revenues were RMB2,350.2 million (US$364.7 million) in the third quarter of 2021, representing an increase of 105.6% from RMB1,143.0 million in the same quarter 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, the increase in our store footprint and the number of products sold.

  • Revenues from product sales were RMB1,934.1 million (US$300.2 million) in the third quarter of 2021, representing an increase of 83.9% from RMB1,051.6 million in the same quarter of 2020.
    • Net revenues from freshly brewed drinks were RMB1,716.4 million (US$266.4 million), representing 73.0% of total net revenues in the third quarter of 2021, compared to RMB909.5 million, or 79.6% of total net revenues, in the same quarter of 2020.
    • Net revenues from other products were RMB107.5 million (US$16.7 million), representing 4.6% of total net revenues in the third quarter of 2021, compared to RMB86.7 million, or 7.6% of total net revenues, in the same quarter of 2020.
    • Net revenues from others were RMB110.2 million (US$17.1 million), representing 4.7% of total net revenues in the third quarter of 2021, compared to RMB55.4 million, or 4.8% of total net revenues, in the same quarter of 2020.
  • Revenues from partnership stores were RMB416.1 million (US$64.6 million) in the third quarter of 2021, representing 17.7% of total net revenues, which is an increase of 355.0% compared to RMB91.5 million, or 8.0% of total net revenues, in the same quarter of 2020. For the third quarter of 2021, revenues from partnership stores included sales of materials of RMB263.5 million (US$40.9 million), sales of equipment of RMB51.3 million (US$8.0 million), profit sharing of RMB49.2 million (US$7.6 million) and other of RMB52.1 million (US$8.1 million).

Total operating expenses were RMB2,356.9 million (US$365.8 million) in the third quarter of 2021, representing an increase of 46.8% from RMB1,605.5 million in the same quarter of 2020. The increase in total operating expenses was in line with the Company’s business expansion. Meanwhile, operating expenses as a percentage of net revenues decreased to 100.3% in the third quarter of 2021 from 140.5% in the same quarter of 2020, mainly driven by increased economies of scale and the Company’s technology-driven operations.

  • Cost of materials were RMB919.9 million (US$142.8 million) in the third quarter of 2021, representing an increase of 74.1% from RMB528.3 million in the same quarter of 2020, in line with the increase in the number of products sold.
  • Store rental and other operating costs were RMB515.5 million (US$80.0 million) in the third quarter of 2021, representing an increase of 26.3% from RMB408.0 million in the same quarter of 2020, mainly due to the increase in payroll, store rental and utilities costs as a result of the increased number of items sold per store and increased number of stores in the third quarter of 2021 compared to the same period last year.
  • Depreciation and amortization expenses were RMB136.0 million (US$21.1 million) in the third quarter of 2021, representing an increase of 10.5% from RMB123.1 million in the same quarter of 2020, mainly due to a one-off write-down of decoration of Beijing office building of RMB26.1 million (US$4.0 million).
  • Sales and marketing expenses were RMB363.9 million (US$56.5 million) including delivery expenses of RMB266.9 million (US$41.4 million) in the third quarter of 2021, representing an increase of 116.0% from RMB168.5 million including delivery expenses of RMB108.7 million in the same quarter of 2020. This increase in sales and marketing expenses was primarily due to the increase in delivery expenses as a result of the increase in the number of delivery orders.
  • General and administrative expenses were RMB321.2 million (US$49.8 million) in the third quarter of 2021, representing an increase of 85.5% from RMB173.1 million in the same quarter 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 RMB6.0 million (US$0.9 million) in the third quarter of 2021, compared to RMB2.3 million in the same quarter of 2020, mainly due to increased rental costs for new store openings.
  • Impairment loss of long-lived assets were RMB19.0 million (US$2.9 million) in the third quarter of 2021, which was provided for a set of equipment and machines that were specially adapted to Luckin Tea stores and products such as filters and refrigerators as the Company removed certain Luckin Tea products off shelves and adjusted the store opening plan in the third quarter of 2021 to suspend opening new Luckin Tea stores in the foreseeable future. There was no impairment loss of long-lived assets in the same quarter of 2020.
  • Losses and expenses related to Fabricated Transactions and Restructuring were RMB75.5 million (US$11.7 million) in the third quarter of 2021, representing a decrease of 62.6% from RMB202.2 million in the same quarter of 2020, which consist primarily of (i) legal fees incurred to respond to a number of legal proceedings; (ii) professional fees and expenses reimbursed for the JPLs; (iii) legal fees under indemnification for security holders, underwriters of the Company’s initial public offering and follow-on offering, directors and officers; and (iv) other advisory service fees.

Operating Loss was RMB6.7 million (US$1.0 million) in the third quarter of 2021, compared to an operating loss of RMB462.5 million in the same quarter of 2020. Non-GAAP operating income was RMB71.4 million (US$11.1 million) in the third quarter of 2021, compared to a non-GAAP operating loss of RMB505.4 million in the same quarter of 2020.

Net loss was RMB23.5 million (US$3.6 million) in the third quarter of 2021 including a one-off loss of RMB14.2 million (US$2.2 million) on uncollectable deposit due to relocating our Beijing office, representing a decrease of 98.6% from a net loss of RMB1,711.2 million in the same quarter of 2020. Non-GAAP net income was RMB54.6 million (US$8.5 million) in the third quarter of 2021, compared to a non-GAAP net loss of RMB614.1 million in the same quarter of 2020.

Basic and diluted net loss per ADS was RMB0.08 (US$0.01) in the third quarter of 2021, compared to a net loss of RMB6.80 in the same quarter of 2020.

Non-GAAP basic and diluted net income per ADS was RMB 0.24 (US$0.00) in the third quarter of 2021, compared to a net loss of RMB2.40 in the same quarter of 2020.

Net cash generated from operating activities was RMB8.3 million (US$1.3 million) in the third quarter of 2021, compared to RMB272.1 million in net cash used in in the same quarter 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 RMB5,032.0 million (US$781.0 million) as of September 30, 2021, compared to RMB5,056.0 million as of December 31, 2020. The slight decrease was primarily driven by the cash used in investing activities partially offset by cash generated from operating activities.

Luckin Coffee: 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 for self-operated stores.
  • Revenues from partnership stores include net revenue from the sales of materials, equipment, and other services provided to partnership stores and profit sharing from 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 for self-operated stores including 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 and, store preopening and other expenses 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 income/loss. Calculated by operating loss excluding recurring item of share-based compensation expenses and non-recurring item of impairment of long-lived assets upon its occurrence (see reconciliation on Page 11).
  • Non-GAAP net income/loss. Calculated by net loss excluding recurring item of share-based compensation expenses and non-recurring items inclusive of impairment of long-lived assets and impairment of trust investments upon their occurrence (see reconciliation on Page 11).
  • Non-GAAP net income/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 income/loss per share. Calculated as non-GAAP net income/loss attributable to the Company’s ordinary shareholders divided by weighted average number of basic and diluted share.
  • Non-GAAP basic and diluted net income/loss per ADS. Calculated as non-GAAP net income/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 considers and uses adjusted operating income/loss and adjusted net income/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 presents these non-GAAP financial measures because they are used by the Company’s management to evaluate operating performance and formulate business plans. The Company believes 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 compensates 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 the Company’s performance. The Company encourages investors and others to review the Company’s financial information in its entirety and not rely on a single financial measure.

The Company defines non-GAAP operating income/loss as operating loss excluding recurring item of share-based compensation expenses and non-recurring item of impairment loss of long-lived assets upon its occurrence, non-GAAP net income/loss as net loss excluding recurring item of share-based compensation expenses, non-recurring items inclusive of impairment loss of long-lived assets and impairment of trust investments upon their occurrence and non-GAAP net income/loss attributable to the Company’s ordinary shareholders as net loss attributable to the Company’s ordinary shareholders excluding share-based compensation expenses, impairment loss of long-lived assets and impairment of trust investments.

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 6.4434 to US$1.00, the exchange rate on September 30, 2021 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ amounts referred could be converted into US$ or RMB, as the case may be, at any particular rate or at all.

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