Luckin Coffee Tops 6,000 Stores as Q4 Store-Level Margin Slips Sequentially

This is an English adaptation of a FoodBud historical article originally published on March 29, 2022.

On March 24, Luckin Coffee reported results for the fourth quarter and full year ended December 31, 2021. Chairman and CEO Guo Jinyi said the company delivered strong performance in both Q4 and FY2021. Luckin opened more than 350 net new stores in the quarter, taking its store base above 6,000 and making it one of China's largest coffee chains.

Q4 2021 Highlights

• Total net revenue was RMB 2.4327 billion (US$381.7 million), up 80.7% from RMB 1.3459 billion in the same period of 2020.
• Net new store openings were 353. Luckin ended the quarter with 6,024 stores: 4,397 self-operated stores and 1,627 partnership stores.
• Average monthly transacting customers reached 16.2 million, up 67.1% from 9.7 million in Q4 2020.
• Revenue from self-operated stores was RMB 1.8372 billion (US$288.3 million), up 61.0% from RMB 1.1411 billion a year earlier.
• Same-store sales at self-operated stores grew 43.6% year on year, compared with 9.2% growth in Q4 2020.
• Store-level operating profit from self-operated stores was RMB 383.4 million (US$60.2 million), with a store-level operating margin of 20.9%, compared with RMB 98.9 million and an 8.7% margin in Q4 2020.
• Revenue from partnership stores was RMB 448.8 million (US$70.4 million), up 248.4% from RMB 128.8 million in Q4 2020.
• Luckin expected costs related to fabricated transactions and restructuring to decline in Q2 2022 after the expected completion of provisional liquidation in Q1 2022.
• GAAP operating loss was RMB 120.8 million (US$19.0 million), compared with RMB 488.9 million in Q4 2020. Non-GAAP operating loss was RMB 23.6 million (US$3.7 million), a substantial improvement from a loss of RMB 368.8 million a year earlier.

Cost and Margin Detail

Total operating expenses in Q4 2021 were RMB 2.5534 billion (US$400.7 million), up 39.2% from the same quarter in 2020. The increase was mainly driven by business expansion. As a percentage of net revenue, operating expenses fell to 105.0% from 136.3% in Q4 2020, supported by greater scale and technology-driven operational refinement. This was partly offset by higher expenses related to fabricated transactions and restructuring, mainly legal and financial advisory services linked to the completion of provisional liquidation.

Raw material costs were RMB 979.0 million (US$153.6 million), up 56.9% from RMB 623.9 million in Q4 2020, broadly in line with higher product sales volume and increased material sales to partnership stores.

Store rental and other operating costs were RMB 633.4 million (US$99.4 million), up 48.0% from RMB 427.9 million a year earlier. Luckin attributed the increase mainly to higher labor-related accrued expenses, more rent from a larger store base, and higher utility and other store operating costs as product sales volume rose.

Depreciation and amortization expenses were RMB 100.4 million (US$15.8 million), down 18.0% from RMB 122.5 million in Q4 2020.

Delivery expenses were RMB 230.0 million (US$36.6 million), up 83.8% from RMB 127.0 million, mainly due to more delivery orders.

Sales and marketing expenses were RMB 98.7 million (US$15.5 million), up 54.2% from RMB 64.0 million, mainly due to higher advertising expenses and commissions paid to third-party delivery platforms as delivery order volume increased.

Pre-opening and other store expenses were RMB 7.7 million (US$1.2 million), compared with RMB 0.5 million in Q4 2020, mainly because more stores opened during the quarter.

The Q4 store-level operating margin for self-operated stores improved year on year to 20.9% from 8.7%, driven by higher average selling prices, higher product sales volume, and scale benefits. Sequentially, however, it fell from 25.2% in Q3 2021, mainly because sales of higher-margin iced coffee and non-coffee products declined, while store employee wage expenses increased in Q4.

Luckin's Q4 operating loss was RMB 120.8 million (US$19.0 million), compared with an operating loss of RMB 488.9 million in Q4 2020.

As of December 31, 2021, cash and cash equivalents, restricted cash, and short-term investments totaled RMB 6.555 billion (US$1.0287 billion), compared with RMB 5.189 billion as of December 31, 2020. The increase was mainly due to proceeds from the issuance of senior preferred shares.

FY2021 Highlights

• Total net revenue was RMB 7.9653 billion (US$1.2499 billion), up 97.5% from RMB 4.0334 billion in FY2020.
• Net new store openings were 1,221. Luckin ended the year with 6,024 stores: 4,397 self-operated stores and 1,627 partnership stores.
• Average monthly transacting customers reached 13.0 million, up 55.2% from 8.4 million in FY2020.
• Revenue from self-operated stores was RMB 6.1927 billion (US$971.8 million), up 78.3% from RMB 3.4728 billion in FY2020.
• Same-store sales at self-operated stores grew 69.3%, compared with a 7.8% decline in FY2020.
• Store-level operating profit from self-operated stores was RMB 1.2528 billion (US$196.6 million), with a store-level operating margin of 20.2%. In FY2020, self-operated stores recorded a store-level operating loss of RMB 434.7 million and a store-level operating loss margin of 12.5%.
• Revenue from partnership stores was RMB 1.3061 billion (US$205.0 million), up 312.5% from RMB 316.6 million in FY2020.
• GAAP operating loss was RMB 539.1 million (US$84.6 million), significantly narrower than RMB 2.5873 billion in FY2020.
• Non-GAAP operating loss was RMB 236.3 million (US$37.1 million), compared with RMB 2.4938 billion in FY2020. Non-GAAP operating loss did not adjust for losses and expenses related to fabricated transactions and restructuring, which were RMB 339.6 million (US$53.3 million) in FY2021 and RMB 475.3 million in FY2020.

Note: Forward-looking restructuring timing and share-issuance figures are historical, based on Luckin Coffee's 2021 results disclosure.