Luckin Coffee Q3 Revenue Reached RMB 2.35 Billion as Expansion Became Cash-Funded

This is an English adaptation of a FoodBud historical article originally published on December 10, 2021.

Luckin Coffee reported third-quarter results on December 9, 2021. Net revenue for Q3 was RMB 2.35 billion, or about US$364.7 million, up 105.6% from RMB 1.143 billion in the same period of 2020. Product sales revenue was RMB 1.934 billion, up 83.9% from RMB 1.051 billion a year earlier.

Net loss narrowed sharply to RMB 23.5 million, down 98.6% from RMB 1.711 billion in the prior-year quarter.

Operating Momentum

In Q3, same-store sales at self-operated stores increased 75.8%. Revenue from partnership stores reached RMB 416 million, up 355% from RMB 91.5 million in the same period of 2020.

Average monthly transacting customers reached 14.7 million, compared with 8.2 million a year earlier, an increase of 79.2%.

For the first three quarters of 2021, net revenue was RMB 5.533 billion, up about 106% from RMB 2.688 billion in the same period of 2020.

Store Network

By the end of Q3, Luckin had 5,671 stores:

• 4,206 self-operated stores, up 6.4% from 3,952 a year earlier
• 1,465 partnership stores, up 66.7% from 879 a year earlier

Self-operated store profit in Q3 was RMB 452 million, with a store-level operating margin of 25.2%. In the same period of 2020, self-operated stores recorded an operating loss of RMB 2.1 million and an operating loss margin of 2%.

Revenue Mix

Freshly made coffee generated net revenue of RMB 1.716 billion, accounting for 73% of total revenue. In the same period of 2020, freshly made coffee revenue was RMB 909 million, or 79.6% of total revenue.

Other products generated RMB 107 million, or 4.6% of total revenue, compared with RMB 86.7 million and 7.6% a year earlier. Other revenue was RMB 110 million, or 4.7% of total revenue, compared with RMB 55.4 million and 4.8% a year earlier.

Costs, Marketing, And Cash

Total operating expenses in Q3 were RMB 2.3569 billion, up 46.8% from RMB 1.606 billion in the same period of 2020. Materials costs were RMB 920 million, up 74.1%. Store rent and other operating costs were RMB 516 million, up 26.3%.

Marketing expenses were RMB 363 million, including RMB 266 million in delivery fees, compared with RMB 168 million a year earlier, an increase of 116%. The company attributed the rise in marketing and selling expenses mainly to growth in delivery order volume.

As of September 30, 2021, Luckin held RMB 5.0 billion in cash and cash equivalents. Net cash flow from operating activities for the first nine months of 2021 was RMB 138 million.

Luckin’s market value on the pink-sheet market was still US$3.27 billion.

Fraud-Related And Restructuring Costs

In Q3 2021, losses and expenses related to Luckin’s prior financial fabrication incident and restructuring were RMB 75.5 million, down 62.6% year on year.

Comparison With The First Half Of 2021

In the first half of 2021, Luckin’s revenue was RMB 3.182 billion, roughly double the same period of 2020. Total operating costs increased only 13%. The company was still loss-making, but net loss narrowed substantially from RMB 1.6 billion a year earlier to RMB 400 million.

Self-operated stores remained the main revenue source, contributing 86% of revenue. Partnership-store revenue grew faster, increasing 357.6%.

From a store-count perspective, Luckin closed a small number of self-operated stores in the first half, reducing that base from 4,267 to 4,018. However, revenue per self-operated store doubled. The source attributes this to two factors: a 41.4% increase in sales volume per store and a 33.9% increase in average item price, from RMB 10.69 to RMB 14.32.

The increase in per-store sales volume came mainly from higher monthly active customers, up 33%, rather than from higher purchase frequency per customer, which rose 9.5%.

Under tighter cost control, Luckin doubled per-store revenue mainly by acquiring more customers per store and improving pricing power. The source notes that pricing power was especially striking: in Luckin’s 2019 fabricated financial statements, the average product price was only RMB 11.26, while by the first half of 2021 it had reached RMB 14.32.

Q3 Unit Economics

In Q3, Luckin’s self-operated stores sold an average of 304.7 cups per store per day. Average selling price per cup continued rising to RMB 15.22.

The company had almost no store closures in August and September, and growth in self-operated store count accelerated noticeably. The source argues that the self-operated business adjustment period had largely ended, with self-operated stores expected to become the main growth driver. During the earlier adjustment period, partnership stores had helped absorb pressure; with operating performance improving, Q3 earnings were reinvested into the business while cash levels remained steady, suggesting that Luckin had begun funding expansion from its own operations.

Note: market value and forward-looking expansion comments are historical figures and views from the 2021 source article.