How did Luckin Coffee turn a profit after its fraud scandal?
Luckin Coffee posted its first quarterly profit in the first three months of fiscal 2022, with net revenue of RMB 2.4046 billion, up 89.5 percent year on year. Operating profit under U.S. GAAP reached RMB 16.1 million, against a loss of RMB 364 million a year earlier. Total stores hit 6,580 as of March 31, 2022, including 4,675 self-operated and 1,905 partnership outlets.
The result follows a financial fraud scandal that drew global attention and a four-year recovery effort. Luckin added 556 net stores in the quarter, a 9.2 percent rise from the previous quarter, overtaking Starbucks in store count in China. Starbucks, by contrast, saw its China sales fall 23 percent amid COVID-19 outbreaks and control measures. Coconut Latte and Coconut Cloud Latte have driven growth.
Luckin Coffee, once mired in a crisis due to financial fraud, has now delivered a remarkable report card. According to its latest first-quarter financial report for fiscal year 2022, Luckin not only saw a substantial increase in net revenue but also achieved overall profitability for the first time. Meanwhile, its total number of stores has grown to 6,580, surpassing Starbucks to become one of the largest coffee chain brands in the Chinese market. From hit products like Coconut Latte to Coconut Cloud Latte, Luckin's R&D capabilities have become a key driving force behind its turnaround. This article will take you through Luckin's road to a comeback and analyze the growth logic behind it.
The financial fraud scandal previously exposed at Luckin Coffee once drew global attention. After that, the company embarked on a journey of self-redemption. Over four years, Luckin experienced dramatic ups and downs, and now it has regained its footing. The first-quarter financial report for fiscal year 2022 released on May 24, New York time, showed that Luckin achieved profitability for the first time.
The financial report data showed that Luckin's net revenue for the quarter reached RMB 2.4046 billion, an increase of 89.5% compared with RMB 1.2687 billion in the same period of 2021.
It is worth noting that this was the first time Luckin Coffee achieved overall profitability. Calculated under U.S. GAAP, operating profit for the first quarter of this year was RMB 16.1 million, compared with a loss of RMB 364 million in the same period last year. Under Non-GAAP, operating profit for the first quarter was RMB 92.1 million, compared with a loss of RMB 307.6 million in the same period last year.
Luckin's old rival Starbucks, in its latest quarterly financial report, saw its sales in China fall by 23% due to repeated COVID-19 outbreaks and prevention and control policies. By contrast, Luckin appeared not to have been significantly affected by the pandemic, and its number of stores in China has even surpassed that of Starbucks.
In the first quarter of 2022, Luckin added 556 net stores, a quarter-on-quarter increase of 9.2%. As of March 31, 2022, Luckin's total number of stores reached 6,580, including 4,675 self-operated stores and 1,905 partnership stores, ranking among the largest coffee chain brands in China.
Among them, revenue from self-operated stores was RMB 1.7147 billion, up 66.2% year on year; revenue from partnership stores was RMB 549.3 million, up 239.3% year on year. Luckin CEO Guo Jinyi pointed out that based on past performance, revenue from self-operated stores in the first quarter is usually relatively weak because purchases decline during the Spring Festival. However, this quarter's financial report showed that self-operated stores delivered strong store-level profit margins.
Luckin was founded in 2017 and listed on the U.S. Nasdaq in just 18 months. Less than a year after listing, its financial fraud was exposed, and its stock price once plunged 80%, with trading suspended multiple times during the session. It was not until April 12 this year that Luckin Coffee completed its financial debt restructuring and formally ended its bankruptcy protection proceedings. After enduring many hardships, Luckin is now moving in a bright direction.
The frequent launch of hit products played an important role in driving Luckin's turnaround, and its product R&D capabilities were indispensable. The "Coconut Latte" launched in 2021 quickly became popular after hitting the market, and the combination of "coconut milk + coffee" prompted many coffee and even tea beverage brands to imitate it, with Tims, Pacific Coffee, Heytea and others following up with similar products. As of early April this year, cumulative sales of Luckin's Coconut Latte had exceeded 100 million cups.
Also in April, Luckin partnered with Coconut Palm Coconut Juice to launch "Coconut Cloud Latte." With its "extremely rustic" packaging design, it attracted a large number of consumers to try it and share it on social platforms, successfully breaking out and becoming a new hit; signing EDG as a recommendation officer and launching the returning hit "Coconut Ice Extract" instead sparked complaints from netizens; the zero-sugar product "Orange Gold Sparkling Americano" led many netizens to joke: it felt like waiting for a fickle scumbag to come back.
Now that Luckin has achieved profitability, how it will develop in the future is something we may as well wait and see.
Image source: Internet
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The above content is compiled by CoffeeHunters, a coffee news website.
