Luckin Coffee: Will continue to expand in the future and explore innovative international operation models (3Q24 Summary)
The following is the summary of the Q3 2024 earnings conference call for $Luckin Coffee(LKNCY.US) . For the financial report interpretation, please refer to After the Storm, Has Luckin's Brief Honeymoon Period Arrived? .
1. Core Financial Report Information Review:
2. Detailed Content of the Financial Report Conference Call
2.1. Executive Team's Core Information Statement:
1）Business Progress
1. Store Expansion
a. Domestic Store Layout: A net increase of 1,374 new stores, a quarter-on-quarter growth of 6.9%, bringing the total number of stores in mainland China to 21,298, including 13,891 self-operated stores and 7,407 joint-operated stores.
b. International Market: Added 8 new stores in Singapore, with a total of 45 stores. Although not yet profitable, losses have narrowed.
c. Future Outlook: Luckin will continue to focus on high-density first-tier city layouts while expanding into lower-tier cities; the company plans to continue overseas expansion in the future and explore innovative international operation models.
2. Product Side
a. New Product Launches: Launched 28 new fresh-made beverages this quarter and added light food options. The light milk tea series launched in August, with monthly sales of the lightly jasmine tea exceeding 44 million cups.
b. Multi-Brand Collaborations: Collaborated with IPs such as Black Myth: Wukong, Loopy, and Butter beer, receiving widespread acclaim and further enhancing brand influence.
c. User Growth: The cumulative number of transaction users exceeds 300 million, with a month-on-month increase of over 10 million transaction users, reaching 79.85 million.
3. Supply Chain and Procurement
a. Supply Chain Investment: Launched the construction of a new innovation and production center in August, planning to jointly build a baking supply network with two major baking factories in Jiangsu with an annual production capacity of 100,000 tons.
b. Global Coffee Bean Procurement: Plans to procure about 120,000 tons of coffee beans from Brazil over the next two years and accelerate procurement from regions such as Southeast Asia, Africa, Central America, and South America to enhance product quality.
c. Sustainable Development: Organized experts to train local coffee farmers at the coffee processing plant in Baoshan, Yunnan, to improve production quality and protect the ecological environment; the company has also launched a global coffee research project in Brazil, deeply collaborating with Brazilian coffee-producing regions to promote sustainable agriculture and agricultural production technology innovation
2) Financial Performance
1. Overall Overview
a. Total Revenue: Total revenue for the third quarter of 2024 reached RMB 10.2 billion, a year-on-year increase of 41.4%.
b. Product Sales Revenue: Product sales revenue was RMB 7.8 billion, a year-on-year increase of 46.3%, with revenue from core product category ready-to-drink beverages reaching RMB 7.2 billion.
2. Store Performance
a. Self-operated Store Revenue: Reached RMB 7.5 billion, a year-on-year increase of 45.9%. Same-store sales growth was -13.1%, a significant decline from 19.9% in the same period last year, mainly affected by last year's high base.
b. Joint Venture Store Revenue: Reached RMB 2.3 billion, a year-on-year increase of 27.2%.
c. International Market: In the first three quarters of 2024, revenue from the Singapore market was RMB 91.4 million, with losses gradually narrowing and business performance developing positively.
3. Profitability
a. Operating Profit: Operating profit for this quarter was RMB 1.6 billion, with an operating profit margin of 15.3%, an increase from 13.4% in the same period last year, mainly due to product structure adjustments that improved gross margin.
b. Self-operated Store Profit Margin: The profit margin for self-operated stores was 23.3%, basically flat compared to 23.1% in the same period last year.
c. Net Profit: Net profit for this quarter was RMB 1.3 billion, with a net profit margin of 12.8%, slightly down from 13.7% in the same period last year.
4.Expense Management
a. Management Expenses: Management expenses accounted for 6.3% of revenue, lower than 6.7% in the same period last year, with expenses increasing by 32.3% year-on-year, mainly due to increased labor costs, R&D expenditures, and stock-based compensation.
b. Sales and Marketing Expenses: Accounted for 5.8% of revenue, higher than 5.3% in the same period last year, with expenses increasing by 53.2% year-on-year.
c. Other Expenses: Losses from previously reported fraudulent transactions and related restructuring amounted to -RMB 102.5 million this quarter, reflecting income from shareholder compensation.
5. Assets, Liabilities, and Cash Flow
a. Cash Flow: Net cash inflow from operating activities in the third quarter was RMB 1.3 billion, unchanged from the same period last year.
b. Cash and Cash Equivalents: As of September 30, 2024, the company held approximately RMB 4.8 billion in cash, restricted cash, time deposits, and short-term investments.
2.2 Q&A Analyst Q&A
Q: How do you view the volatility of the same-store sales growth (SSSG) metric? Additionally, can you provide further insights into the future outlook for the SSSG metric?
A: The company has been closely monitoring the same-store sales growth (SSSG) metric. In recent quarters, SSSG has shown significant volatility, mainly due to the rapid growth of the coffee market in China and intensified industry competition. Additionally, the 9.9 promotional activities and rapid expansion of the store network since June 2023 have also impacted SSSG Overall, these fluctuations are in line with expectations, and we believe that last year's rapid expansion will support the company's long-term development. Currently, our number of stores has exceeded 20,000, creating significant scale advantages.
This quarter, the SSSG for self-operated stores was negative 13.1%, which is an improvement compared to previous quarters, mainly due to the reduction in the average sales price compared to the same period last year. With the pace of expansion slowing and the price gap further narrowing, we expect SSSG to improve further in the coming quarters.
Looking ahead, as the company enters a more stable growth phase, we will continue to closely monitor SSSG as a key indicator, using it as an important reference for assessing market performance. We will leverage these insights to optimize store layouts, ensuring that new store openings align with market demand. Additionally, through sales trend analysis, the company will actively promote product innovation, continuously enhancing overall competitiveness to achieve robust and sustainable growth.
Q: Can you provide more details about Luckin's overseas expansion strategy? What are the latest developments in Luckin's global capital market strategy?
A: The company places great importance on overseas expansion and is committed to building a world-class coffee brand that becomes a part of daily life. Achieving this goal requires not only focusing on financial metrics such as revenue, profit, and market capitalization but also reaching world-class levels in store numbers, brand image, and international influence.
Domestic Market: The company believes that the Chinese market has a large customer base and consumption potential, especially with the rapid development of coffee consumption habits in recent years, presenting a broad market outlook. The company will continue to focus on the domestic market, strengthening the store network to consolidate and expand its industry-leading position, fully capitalizing on the opportunities presented by the industry's rapid growth.
Overseas Market: The company's overseas business is still in the early exploration stage, and it will continue to invest in store network expansion, supply chain optimization, and brand building, gradually forming core advantages in cost structure and customer experience. Although the exploration of the Singapore market has resulted in some financial losses, it has provided valuable operational experience and market insights. The company is patient and confident about future international expansion.
U.S. and Other Markets: Given the maturity and intense competition of the U.S. coffee market, the company will adopt cautious strategies and strict execution plans when entering the U.S. market. At the same time, it is also actively evaluating opportunities in other markets.
Looking ahead, we will closely monitor the progress of overseas business and communicate with the market in a timely manner. We will also actively explore and innovate organizational models suitable for international business, expanding our overseas market presence through more appropriate methods and flexible strategies.
In terms of overseas capital markets, the company will continue to pay attention to the U.S. capital market, but the current focus remains on executing business strategies. Given the complexity of the market and regulatory environment, there is no clear timetable for an IPO at this time. The company will focus on business development, increasing market share, and creating sustainable long-term value for shareholders.
Risk disclosure and statement of this article: Dolphin Investment Research Disclaimer and General Disclosure
