Luckin Coffee (Minutes): Same-store sales growth has turned positive year-on-year
Luckin Coffee (Minutes): Same-store sales growth has turned positive year-on-year
The following is the minutes of Luckin Coffee's Q4 2024 earnings call. For the interpretation of the financial report, please visit Survived 9.9! Luckin's turnaround, Kudi's survival
I. Review of Key Financial Information
1. Significant improvement in same-store sales growth: Total revenue in the fourth quarter increased by 36% year-on-year to RMB 9.6 billion, driven by our continuously expanding store network and the growth of monthly transacting customers. The net revenue from freshly brewed beverages was RMB 6.9 billion, accounting for 72% of total revenue; net revenue from other products was RMB 496 million, accounting for 5% of total revenue. Same-store sales growth has significantly improved, operating profit margin at the store level expanded by 6.1 percentage points year-on-year to 19.6%, reflecting our improved operational efficiency and a more balanced operational rhythm between store growth and customer growth. Additionally, our total customer base exceeded 330 million by the end of the year. The maturation of coffee drinking habits among Chinese consumers and the increase in coffee consumption frequency are the foundation for our long-term sustainable growth.
2. Raw material costs have risen: Material costs increased by 10% year-on-year to RMB 3.8 billion, but the proportion of total revenue decreased from about 50% in the same period of 2023 to 40% (this improvement is attributed to our stronger supply chain advantages and changes in product mix), driving the expansion of gross margin. However, the rise in coffee bean prices may have a certain negative impact on this cost item in 2025, but the company expects to mitigate this impact through improving operational efficiency and economies of scale. Additionally, due to enhanced economies of scale, the cost per delivery has decreased.
3. Improvement in internal operational efficiency, decline in expense ratio. General and administrative expenses as a percentage of total revenue decreased from 8% in the same period of 2023 to 6.6%, reflecting the efficiency gains brought about by our larger operational scale; selling expenses increased by 44% year-on-year to RMB 573 million, mainly due to our continued strategic investments in brand building to enhance brand influence among customers.
4. Highlights: Achieved double-digit operating profit margin for the first time in the traditionally off-peak fourth quarter, demonstrating our improved operational efficiency. Additionally, same-store sales growth (SSSG) turned positive year-on-year in December.
II. Detailed Content of the Earnings Call
2.1 Key Information from Executive Statements
1. Overall Performance:
Same-store metrics for self-operated stores have rapidly improved since the second quarter, reflecting significant efficiency gains. This indicates that the company has achieved robust growth through strategic focus and effective execution in market competition, further consolidating its market leadership position. By focusing on three core pillars—people, products, and places—we have further strengthened our competitive advantage. By expanding the scale advantages of our store network and customer base, we have further enhanced Luckin's market share 2. Store Expansion Situation:
Domestic Stores: In 2024, we will maintain an industry-leading store expansion pace, with over 6,000 net new stores opened throughout the year, bringing the total number of stores to 22,340 by year-end. We believe that as Chinese consumers develop coffee drinking habits, the demand for coffee consumption will steadily grow in terms of customer base and per capita consumption, creating opportunities for the company to increase store density in high-tier cities and further penetrate lower-tier markets.
International Stores: We added 6 new stores in Singapore, bringing the total number of local stores to 51. In January of this year, we officially entered the Malaysian market for the first time using a franchising model, opening the first 2 stores. In the relatively mature international coffee market, the company will adopt a flexible and tailored operating model to accumulate overseas experience while continuously exploring new market entry opportunities.
3. Product Innovation and Customer Growth:
New Product Launches: With strong product innovation and R&D capabilities, we have launched a series of popular new coffee products, expanding our beverage product line. In the reporting quarter, we introduced 18 new beverages and several other products, reaching a total of 119 new SKUs for the year. For example, the Little Butter Latte launched in late September 2024 quickly became the second best-selling product in the fourth quarter, second only to our signature product, the Fresh Coconut Latte; the Apple C Americano launched in the fourth quarter also performed well, establishing a loyal customer base.
Customer Growth: Through strong product appeal and attractive co-branding activities, we continuously attract new customers and enhance customer engagement. In the fourth quarter, we added over 25 million new customers, with an average of over 77 million transacting customers per month. For the entire year of 2024, we added over 100 million new transacting customers, bringing the cumulative total to over 330 million by year-end, laying a more solid customer foundation for future growth. The average number of transacting customers per month increased by 48% year-on-year, reaching 71.8 million.
4. Supply Chain and Cooperation: In the fourth quarter, we deepened our strategic cooperation with the Brazilian trade and investment agency FX Brazil, signing a new memorandum to expand the coffee bean procurement scale from 120,000 tons over the past two years to 240,000 tons over the next five years, ensuring a stable supply of high-quality coffee beans from upstream production areas and building a solid foundation for the global supply chain. Leveraging the advantages of the industry value chain, we actively promote win-win development in the industry through optimizing partner subsidies and reducing raw material markups, empowering partners to share in the industry's development achievements, enhancing their investment return potential and expansion capabilities, while also strengthening the company's industry influence and leadership.
2.2 Q&A
Q: Can you break down same-store sales growth (SSSG) into price and volume factors? What is management's outlook on same-store sales growth for 2025?
A: Overall, the fluctuations in SSSG over the past few quarters have met expectations, and the continued improvement in the fourth quarter aligns with what the company has communicated to the market. Since 2023, the Chinese coffee market has experienced rapid growth, but competition has also begun to intensify. The company has strategically accelerated the pace of store expansion to gain market share. As stores take time to mature and customer consumption habits need time to develop, SSSG has experienced short-term fluctuations, which aligns with strategic judgments and expectations Looking ahead to 2025, the company will continue to strengthen and expand its industry-leading position, with economies of scale, cost, and efficiency advantages becoming more apparent, and is confident in further improving SSSG performance. In the short term, the company will leverage its extensive store network to attract more customers and improve sales performance at each store through product innovation, category expansion, and effective marketing activities; in the medium to long term, coffee consumption in China is still in its early stages, and as coffee drinking habits develop, the frequency of coffee consumption will naturally increase, with significant growth potential for per capita coffee consumption, which will drive future SSSG growth. The continued improvement in same-store sales growth in the fourth quarter is attributed to the strong execution of the store expansion strategy. From a pricing perspective, prices in the fourth quarter remained stable compared to the same period in 2023; in terms of cup sales, the growth in customer demand has driven continuous improvement in cup sales performance, with average daily cup sales per store in December 2024 exceeding those in December 2023, contributing to positive same-store sales growth for the month. Looking ahead to this year, prices are expected to remain stable compared to last year, and with the maturation of more self-operated stores, supported by a greater selection of high-quality coffee and attractive coffee experiences, average daily cup sales per store are expected to steadily increase year by year, further driving overall same-store sales improvement.
Q: Recently, coffee bean prices have risen sharply. How should we assess the impact on the company? What measures will the company take to address this issue, and will it consider raising prices to mitigate the impact?
A: The rise in coffee bean prices has indeed attracted widespread attention in the coffee industry and market, which will bring certain cost pressures. However, the company expects to partially mitigate this impact through the competitive advantages established by a strong supply chain and investments across the entire value chain. The company's scale advantages and efficiency improvements can buffer this pressure, and the current impact of rising coffee bean prices is basically controllable. The company has been investing in the coffee industry's value chain, establishing a full value chain covering procurement from production areas, import and export, processing, to retail operations. In November last year, the company deepened its cooperation with Brazil's Apex and signed a new memorandum of understanding to purchase 240,000 tons of coffee beans over the next five years, which will provide the company with a stable supply of high-quality coffee beans. Benefiting from its own roasting facilities, the company's annual roasting capacity is expected to reach 100,000 tons by the end of this year, which will provide a stable supply of high-cost-performance coffee beans. Currently, the company has no plans to raise prices and will continue to offer coffee promotions to cultivate coffee consumption habits, allowing more customers to enjoy high-quality coffee experiences at competitive prices. As an industry leader, the company will work with upstream and downstream partners to pass on the positive impacts of rising coffee bean prices, promote sustainable coffee trade, and drive the long-term success and healthy development of the entire industry
