Luckin Coffee Inc. Announces Second Quarter 2022 Financial Results
Mon, August 8, 2022 at 4:00 AM
Second Quarter Net Revenues Increased 72%; 615 Net New Store Openings
Continued Improvement in Profitability Profile
Sustainable Development Committee Formed to Advise on ESG Initiatives, Policies and Disclosures
BEIJING, Aug. 08, 2022 (GLOBE NEWSWIRE) -- Luckin Coffee Inc. (“Luckin Coffee” or the “Company”) (OTC: LKNCY) today announced its unaudited financial results for the three months ended June 30, 2022.
SECOND QUARTER 2022 HIGHLIGHTS1
Total net revenues in the second quarter were RMB3,298.7 million (US$493.2 million), representing an increase of 72.4% from RMB1,913.7 million in the same quarter of 2021.
Net new store openings in the second quarter was 615, resulting in a quarter-over-quarter store unit growth of 9.3% from the number of stores at the end of the first quarter of 2022, ending the second quarter with 7,195 stores which include 4,968 self-operated stores and 2,227 partnership stores.
Average monthly transacting customers in the second quarter were 20.7 million, representing an increase of 68.6% from 12.3 million in the same quarter of 2021.
Revenues from self-operated stores in the second quarter were RMB2,331.1 million (US$348.6 million), representing an increase of 52.4% from RMB1,529.3 million in the same quarter of 2021.
Same-store sales growth for self-operated stores in the second quarter was 41.2%, compared to 71.8% in the same quarter of 2021.
Store level operating profit – self-operated stores in the second quarter was RMB712.2 million (US$106.5 million) with store level operating profit margin of 30.6%, compared to RMB353.2 million with store level operating profit margin of 23.1% in the same quarter of 2021.
Revenues from partnership stores in the second quarter were RMB777.5 million (US$116.3 million), representing an increase of 178.4% from RMB279.3 million in the same quarter of 2021.
GAAP operating income in the second quarter was RMB241.6 million (US$36.1 million), representing a GAAP operating income margin of 7.3%, compared to a GAAP operating loss of RMB47.5 million in the same quarter of 2021. Non-GAAP operating income in the second quarter, which adjusts for share-based compensation expenses, was RMB342.6 million (US$51.2 million), representing a non-GAAP operating income margin of 10.4%, compared to RMB23.5 million, or a non-GAAP operating income margin of 1.2% in the same quarter of 2021, which represents a significant improvement of operating results.
COMPANY STATEMENT
“We are proud to announce that Luckin Coffee delivered another quarter of outstanding financial and operational results despite continued pandemic-related headwinds,” said Dr. Jinyi Guo, Chairman and Chief Executive Officer of Luckin Coffee. “We reported net revenues growth of over 70% compared to the same quarter last year, same-store sales growth for self-operated stores of over 40% and our partnership store revenues continued to increase as a percentage of total revenues. Furthermore, we successfully launched 34 new products during the second quarter and sold over 24 million cups of our “Coconut Cloud Latte” from its launch in April 2022 through the end of the second quarter.
Dr. Guo continued, “During the second quarter, we had 615 net new store openings and entered 11 new lower-tier cities through our partnership stores and three new lower-tier cities through our self-operated stores. We remain focused on achieving further market penetration through a combination of our self-operated stores and retail partnership models, which allow us to meet increasing customer demand in an agile and flexible manner. Our growing scale and operating leverage continues to drive improved returns, with a store level operating profit margin for self-operated stores of over 30% and a reported operating profit margin of over 7%.”
Dr. Guo concluded, “I am also pleased to announce that, after the successful completion of the restructuring of our financial indebtedness in the first quarter, we have made substantial progress on resolving outstanding U.S. securities litigations. We received final court approval for the federal class settlement and we also made substantial progress in resolving remaining opt-out litigations. This marks another important milestone for Luckin Coffee in resolving all of its historical issues. While we continue to foresee adverse effects of the pandemic on our business in the near-term, the Board and management team remain confident in our ability to capture growth opportunities in the China market and drive long-term value and sustainable growth for our shareholders.”
Established Sustainable Development Committee
To enhance the Company’s environmental, social and corporate governance (ESG) initiatives, the Board has established a Sustainable Development Committee, comprised of certain directors, executives and external experts, to advise the Board in fulfilling its oversight responsibilities with regard to sustainability matters. The Sustainable Development Committee is co-chaired by Mr. Weihao (Michael) Chen and Dr. Jinyi Guo, who will be responsible for developing and implementing sustainability related initiatives, policies and disclosures. The Company plans to publish its first Corporate Governance Report in the fourth quarter of 2022, in an effort to provide stakeholders with greater transparency on its ESG-related efforts and progress.
“Operating sustainably is crucial to the long-term success of Luckin Coffee,” said Dr. Guo. “We are committed to ensuring that we operate in line with the best-in-class environmental, social and corporate governance standards and are looking forward to the publication of our Corporate Governance Report, which will give shareholders more visibility into this important priority.”
IMPACT OF COVID-19
The global economy, the Chinese markets and the Company’s business have been and continue to be 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.
Following the impact on daily store closures in the first quarter of 2022, the Company experienced around 900 daily store closures on average in April and May 2022. With the gradual lifting of COVID-19 pandemic related restrictions, the Company experienced around 152 daily store closures on average in June 2022 and around 96 daily store closures on average in July 2022. While the negative impact of the COVID-19 pandemic on the Company has lessened in the second quarter of 2022, the COVID-19 situation remains highly unpredictable.
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 uncertainties relating to the spread of the pandemic and its impacts on the local and national economies.
SECOND QUARTER 2022 FINANCIAL RESULTS
Total net revenues were RMB3,298.7 million (US$493.2 million) in the second quarter of 2022, representing an increase of 72.4% from RMB1,913.7 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 RMB2,521.2 million (US$377.0 million) in the second quarter of 2022, representing an increase of 54.3% from RMB1,634.5 million in the same quarter of 2021.
Net revenues from freshly brewed drinks were RMB2,256.8 million (US$337.5 million), representing 68.4% of total net revenues in the second quarter of 2022, compared to RMB1,455.6 million, or 76.1% of total net revenues, in the same quarter of 2021.
Net revenues from other products were RMB148.4 million (US$22.2 million), representing 4.5% of total net revenues in the second quarter of 2022, compared to RMB95.3 million, or 5.0% of total net revenues, in the same quarter of 2021.
Net revenues from others were RMB116.0 million (US$17.3 million), representing 3.5% of total net revenues in the second quarter of 2022, compared to RMB83.6 million, or 4.3% of total net revenues, in the same quarter of 2021.
Revenues from partnership stores were RMB777.5 million (US$116.3 million) in the second quarter of 2022, representing 23.6% of total net revenues, which is an increase of 178.4% compared to RMB279.3 million, or 14.6% of total net revenues, in the same quarter of 2021. For the second quarter of 2022, revenues from partnership stores included sales of materials of RMB500.3 million (US$74.7 million), profit sharing of RMB105.3 million (US$15.7 million), sales of equipment of RMB89.4 million (US$13.4 million), delivery service of RMB77.5 million (US$11.6 million) and other services of RMB5.0 million (US$0.8 million).
Total operating expenses were RMB3,057.1 million (US$457.1 million) in the second quarter of 2022, representing an increase of 55.9% from RMB1,961.3 million in the same quarter of 2021. The increase in total operating expenses was predominantly the result of the Company’s business expansion and a full impairment provided for Luckin Coffee Express machines of RMB221.8 million (US$33.2 million) due to historical underperformance and updated strategy and business projections for Luckin Coffee Express machines determined by the management in the second quarter of 2022. Meanwhile, operating expenses as a percentage of net revenues decreased to 92.7% in the second quarter of 2022 from 102.5% in the same quarter of 2021, due to increased economies of scale and the Company’s technology-driven operations.
Cost of materials were RMB1,261.9 million (US$188.7 million) in the second quarter of 2022, representing an increase of 66.0% from RMB760.3 million in the same quarter of 2021, generally in line with the increase in the number of products sold and the increase in sales of materials to partnership stores.
Store rental and other operating costs were RMB662.5 million (US$99.1 million) in the second quarter of 2022, representing an increase of 41.8% from RMB467.2 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 second quarter of 2022. Store rental and other operating costs increased proportionately less than the revenues as a result of economies of scale.
Depreciation and amortization expenses were RMB97.2 million (US$14.5 million) in the second quarter of 2022, representing a decrease of 14.8% from RMB114.2 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 second quarter of 2022, offset by the increase of depreciation expenses of additional equipment put into use in new stores in the second quarter of 2022. Furthermore, the overall depreciation of equipment increased by 6.3%, which was proportionately less than the increase in net revenues as a result of economies of scale.
Delivery expenses were RMB314.6 million (US$47.0 million) in the second quarter of 2022, representing an increase of 67.4% from RMB188.0 million in the same quarter of 2021, mainly due to the increase in the number of delivery orders.
Sales and marketing expenses were RMB129.0 million (US$19.3 million) in the second quarter of 2022, representing an increase of 61.4% from RMB79.9 million in the same quarter of 2021, mainly due to the increase in advertising expenses and commission fees paid to third-party delivery platforms in line with the increase in the number of delivery orders. Sales and marketing expenses amounted to 3.9% of net revenues in the second quarter of 2022, compared to 4.2% of net revenues in the same quarter of 2021.
General and administrative expenses were RMB341.6 million (US$51.1 million) in the second quarter of 2022, representing an increase of 19.1% from RMB286.7 million in the same quarter of 2021. The increase in general and administrative expenses was mainly driven by (i) the increase in share-based compensation due to more Restricted Share Units (“RSUs) issued to incentivize management and employees, (ii) the increase in payroll costs for headquarter staff and (iii) the increase in research and development expenses. General and administrative expenses amounted to 10.4% of net revenues in the second quarter of 2022, compared to 15.0% of net revenues in the same quarter of 2021.
Store preopening and other expenses were RMB7.8 million (US$1.2 million) in the second quarter of 2022, compared to RMB2.1 million in the same quarter of 2021, mainly due to more stores being opened in the second quarter of 2022 compared to the same quarter of 2021. Store preopening and other expenses amounted to 0.2% of net revenues in the second quarter of 2022, compared to 0.1% of net revenues in the same quarter of 2021.
Impairment loss of long-lived assets were RMB221.8 million (US$33.2 million) in the second quarter of 2022, which was provided for a full impairment for Luckin Coffee Express machines due to historical underperformance and updated strategy and business projections for Luckin Coffee Express machines determined by the management in the second quarter of 2022, compared to nil in the same quarter of 2021. Impairment loss of long-lived assets amounted to 6.7% of net revenues in the second quarter of 2022, compared to nil% of net revenues in the same quarter of 2021.
Losses and expenses related to Fabricated Transactions and Restructuring were RMB20.6 million (US$3.1 million) in the second quarter of 2022, representing a decrease of 67.3% from RMB62.9 million in the same quarter of 2021, as the Company had successfully completed the dismissal of provisional liquidation in March 2022. The losses and expenses related to Fabricated Transactions and Restructuring consisted primarily of professional and legal fees for U.S. securities litigations, and other advisory service fees. Losses and expenses related to Fabricated Transactions and Restructuring amounted to 0.6% of net revenues in the second quarter of 2022, compared to 3.3% of net revenues in the same quarter of 2021.
Store level operating profit margin - self-operated stores was 30.6% in the second quarter of 2022, compared to 23.1% in the same quarter of 2021, primarily due to the benefits of economies of scale from the increased number of products sold and the higher average selling price.
GAAP operating income was RMB241.6 million (US$36.1 million) in the second quarter of 2022, representing a GAAP operating income margin of 7.3%, compared to an operating loss of RMB47.5 million in the same quarter of 2021. Non-GAAP operating income was RMB342.6 million (US$51.2 million) in the second quarter of 2022, representing a non-GAAP operating income margin of 10.4%, compared to RMB23.5 million, or a non-GAAP operating income margin of 1.2% 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 loss was RMB114.7 million (US$17.2 million) in the second quarter of 2022 which includes a provision for equity litigants of RMB276.8 million (US$41.4 million) which reflects the Company’s substantial progress in resolving opt-out securities lawsuits filed in the United States relating to the Fabricated Transactions, and an income tax expense of RMB101.8 million (US$15.2 million) as a result of taxable income, compared to a net income of RMB21.0 million in the same quarter of 2021. Non-GAAP net income was RMB267.5 million (US$40.0 million), representing a non-GAAP net income margin of 8.1% in the second quarter of 2022, compared to RMB92.0 million, or a non-GAAP net income margin of 4.8% in the same quarter of 2021.
Basic and diluted net loss per ADS was RMB0.40 (US$0.08) and RMB0.40 (US$0.08) in the second quarter of 2022, respectively, compared to basic and diluted net income per ADS of RMB0.08 and RMB0.08 in the same quarter of 2021, respectively.
Non-GAAP basic and diluted net income per ADS was RMB0.88 (US$0.16) and RMB0.88 (US$0.16) in the second quarter of 2022, respectively, compared to RMB0.40 and RMB0.40 in the same quarter of 2021.
Net cash used in operating activities was RMB553.1 million (US$82.7 million) in the second quarter of 2022, which included the settlement of payable to equity litigants of US$175.0 million (RMB1,172.2 million). Excluding the payment to equity litigants, net cash provided by operating activities was RMB619.1 million (US$92.6 million) in the second quarter of 2022, compared to net cash provided by operating activities of RMB362.7 million in the same quarter of 2021.
Cash and cash equivalents and restricted cash were RMB4,473.7 million (US$668.9 million) as of June 30, 2022, compared to RMB6,555.3 million as of December 31, 2021. The decrease was primarily attributable to the repayment of senior convertible notes following the restructuring of these notes on January 28, 2022, the settlement of payable to fulfill the Company’s obligations under the federal class action settlement and purchase of property and equipment, offset by the proceeds from the issuance of senior preferred shares to Joy Capital on January 7, 2022 and operational cash generation.
