| China

Luckin Coffee reports first profit but fresh Covid restrictions dent recovery

The technology-led coffee chain has achieved the important milestone of its first ever operating profit, with first quarter revenue increasing nearly 90% – but Covid-19 lockdowns in China are expected to dent margins in its second quarter

Luckin Coffee has turned its first quarterly profit since the company was founded in late 2017 | Photo credit: via Shutterstock

Luckin Coffee has turned its first quarterly profit since the company was founded in late 2017, an important milestone for the Chinese coffee chain still recovering from the pandemic and the recent completion of bankruptcy proceedings. 

Announcing its unaudited financial results for the three months ended 31 March 2022, Luckin reported net revenues of RMB2.4bn ($379.3m) and achieving corporate level profitability for the first time since its founding in 2017.

GAAP operating income in the first quarter was RMB16.1m (US$2.5m), compared to a loss of RMB364m in the same quarter of 2021.

Revenues from self-operated stores in the first quarter were RMB1.7bn (US$270.5m), an increase of 66.2%.

The Chinese coffee chain, operating under new management since restructuring its debts and financial obligations in 2021, said the 89.5% revenue increase from the same quarter in 2021 (RMB1,268.7m) was the result of increased product sales, an increase in the number of monthly transacting customers to 16 million in the three-month period, and outlet expansion. 

Luckin Coffee reported 556 net new location openings in the first quarter, ending the period with 6,580 sites, 4,675 of which are self-operated stores and 1,905 franchised.

However, temporary store closures gradually increased during the first quarter of 2022 as a result of lockdowns across China, with Luckin Coffee recording an average 700 daily store closures during March 2022. For the period between 1 April and the quarterly report release, the daily average number of temporary store closures was around 950.

Dr. Jinyi Guo, CEO of Luckin Coffee, said in a company statement that pandemic-related market pressures are likely to continue having an adverse impact on business in the coming months but that continued investment in Luckin’s core initiatives is expected to meet and drive demand.

“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,” said Dr. Jinyi Guo.

The results further underscore Luckin’s gradual recovery from a 2020 financial scandal that rocked the coffee chain and resulted in the sacking of its senior management. The Xiamen-based coffee chain was subsequently delisted from the Nasdaq and later filed for bankruptcy in the US

However, since embarking on a path to ‘normalise’ its reporting, the coffee chain has made progress in improving its finances, attempting to regain the trust of shareholders and resuming outlet growth.

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