Luckin Coffee Doubles Sales in 'Milestone' Transparency Push

Under the new chairman, the Chinese coffee chain is reviving its books and stabilizing its finances. And fighting off demands for control from parties related to the former chairman.
Oct. 21, 2021 17:29
Luckin Coffee Doubles Sales in 'Milestone' Transparency Push

(CapitalWatch, Oct. 21, New York) Chinese coffee chain with a troubled past, Luckin Coffee (OTC: LKNCY) is set on a strong comeback, posting doubled revenue and narrowed losses for the first half-year.

The company said in a statement on Thursday that revenue in the six months through June 2021 increased 106% year-over-year to $492.9 million, attributed in part to weak business during the Covid-19 lockdowns last year.

Luckin's chairman and CEO, Jinyi Guo, noted other improvement factors: "We further improved our brand recognition, increased customer retention and order frequency, successfully introduced new products and achieved higher net selling prices." In addition, Guo said, Luckin has expanded its network of stores in "mostly lower-tier cities" in China.

As of June, Luckin operated 5,259 stores, of which 80% were self-operated, compared with 4,267 stores a year ago. The number of average monthly customers reached 10.5 million, a 35% year-over-year increase. Luckin achieved a 16% store level profit margin, according to the report.

The report today also listed $24 million in losses related to "fabricated transactions and restructuring" as part of operating expenses. Total expenses were at $556.6 million, in-line with the company expansion, and net loss was $32.7 million, or 16 cents per share.

As of June 30, Luckin had $787.3 million in cash, cash equivalents, and investments.

Guo said the financials filing marked "an important milestone" and a "return to normalized financial reporting" for Luckin.

Indeed, under the new chairman, Luckin has been recovering with hope to regain investor trust. Just last month, Luckin released its 2020 annual report, announced the arranged settlement in all class-action securities litigation filed, and advanced on its debt restructuring plan.

Luckin's stock peaked at $16.94 per share early on Thursday – a near 85% recovery year-to-date and a 235% jump from a year ago. That's striking growth for a Chinese stock that in 2020 swiftly fell from grace and delisted from Nasdaq after confirming fraud.

A Dragging Ownership Conflict?

Last week, Luckin "unanimously" adopted a shareholder rights plan "to Protect ALL Shareholders from Potentially Harmful Actions by External Entities or Groups." If triggered, the plan will dilute the ownership of any acquiring party and is meant to prevent a hostile takeover by an outsider.

Luckin did not disclose whether it feels threatened, but the Chinese coffee chain has been shaken by some internal scandals.

Last spring, the founding managers of Luckin were ousted in connection to fake sales and Guo, a director and former acting CEO of Luckin, was appointed to the top executive role. Soon, several of Guo's colleagues turned against him and accused of "corruption, abuse of power to eradicate dissidents, and low capability to run the company."

At the time, Guo said the allegations were forged by Luckin founder and former chairman Charles Zhengyao Lu and former CEO Jenny Zhiya Qian. To show transparency, Guo launched an independent internal investigation into the claims, vowing not to interfere. Soon, he was reinstated on lack of evidence of the claims.

But now that Luckin is back on the expansion track and has reached its early goal of outnumbering Starbucks (Nasdaq: SBUX) in China, it's doubtful that the founders of the fast-growing company have given up. It is a while before (and if) investors see Luckin recover to its public trading highs of $50 per share of early 2020, but its financials today and a clear comeback plan lay out a promising perspective.

Furthermore, Beijing News reported earlier that certain parties related to Charles Lu have approached Luckin's creditor banks CICC, Barclays, and Morgan Stanley proposing a buyout and a termination of the winding-up proceedings. As the medium pointed out, Lu's return would potentially end Luckin's hopes of a comeback to the Nasdaq. 

Guo said in the statement today: "With a refreshed Board of Directors and leadership team, as well as the execution of our strategy to focus on our core coffee business and deliver sustainable growth and profitability, we are well-positioned to drive meaningful long-term value for our shareholders, and continue to provide outstanding products and services to our customers."

Previously, the company paid fines to both the U.S. SEC and Chinese regulators and hired a new auditor, Centurion ZD CPA & Co.

On a side note, Hindenburg Research flagged Centurion last year in connection with short allegations against Wins Finance Holdings Inc. (OTC: WINSF)

Luckin, LKNCY, LK, Stocks, China, SBUX