Luckin Coffee Announces Maiden Earnings in Q2 2019
COVID-19 and China
Image credit: Fu Yingwei

Luckin Coffee (LK:NASDAQ) released its financial results for the second quarter of 2019 on August 14. The total net revenue for the quarter jumped to USD 126.7 million, an increase of 698.4% from the same period last year. Net loss widened to USD 99.2 million, double the loss a year ago.

Store - level operating loss in the quarter amounted to USD 8.1 million, down 31% from a loss of USD 11.8 million in the second quarter of 2018.

The ambitious Chinese coffee brand, which set a new world record with its US initial public offering completed within 18 months of its inception, has expanded to 2,963 stores by the second quarter in 2019, adding 593 new stores to in its existing outlets.

QIAN Zhiya (钱治亚), CEO of Luckin Coffee, announced at the Global Partner Conference and Global Coffee Industry Development Forum on May 29 that the company will reach the growth target of 10,000 chain stores by the end of 2021.

The aggregate number of transacting customers rocketed to 22.8 million from 2.9 million in the same period last year. During the second quarter of 2019, the company acquired 5.9 million new transacting customers, it claims.

Though in big quarterly loss due to rapid expansion, Qian said in a conference call that the company is on track to reach the store-level break-even point in the third quarter of 2019, despite the USD 8.1 million operating loss reported for the second quarter.

“The media describe our business model as running about madly with eyes shut,” said LU Zhengyao (陆正耀), the first investor and president of Luckin Coffee at the May forum. “But it’s half the truth; we are running about wildly, but not blindly. Every decision is deliberately considered and every step is precisely calculated.”

Besides store expansion, the company has been enlarging its SKUs continuously. After launching new SKUs such as juice, bread, salad and snacks to offset the afternoon decrease in coffee sales, Luckin Coffee unveiled Xiaolucha, a new-style tea drink mixing tea with juice and topped with a layer of cheese – in a clear challenge to HeyTea and other bubble tea brands.

Luckin is also testing the feasibility of putting vending machines in places such as small office buildings and gas stations to sell freshly brewed coffee.

On July 22, Luckin Coffee and Americana Group signed an agreement of strategic cooperation in Beijing. The two parties planned to set up a joint venture to conduct new coffee retail business in the Greater Middle East area and India.

In contrast to building a coffee supply chain, Luckin’s focus in its cooperation with Americana Group seems to be highlighting its technological capabilities instead of committing to coffee only.

After all, the firm has positioned itself as "a pioneer of a technology-driven new retail model” that aspires to provide “coffee and other products of high quality, high affordability, and high convenience to customers."

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