Luckin (Minutes): Management remains cautious on profit margin outlook

Below is the$Luckin Coffee(LKNCY.US) earnings call Minutes for FY25 Q1. For financial report analysis, please refer to《Not Content with Being a Miser, Is Luckin Coffee Stirring Up Trouble Again?》

1. Key Financial Highlights

1. Revenue Growth:

1) Total net revenue in Q1 2025 increased 41% YoY to approximately RMB 8.9 billion.

2) Growth was primarily driven by a 42% YoY increase in GMV to RMB 10.4 billion.

3) Product sales revenue rose 42% YoY to RMB 6.8 billion, accounting for 70%-77% of total net revenue.

4) Partnership store revenue grew 38% YoY to RMB 2.1 billion, representing 23% of total net revenue.

5) Self-operated store revenue increased 41% YoY to RMB 6.5 billion.

2. Profitability:

1) Operating profit rebounded to nearly RMB 740 million, with operating margin improving to 8.3%.

2) SSSG for self-operated stores returned to positive growth at 8.1%.

3) Store-level operating profit surged 245% YoY to RMB 1.1 billion, with store-level operating margin expanding by 10.1 percentage points to 17.1%.

4) GAAP operating profit significantly improved from RMB -65 million in Q1 2024 to RMB 737 million, with operating margin rising from -1% to 8.3%.

5) Non-GAAP operating profit grew YoY to RMB 864 million, with operating margin at 9.7%.

6) Net profit dramatically improved from RMB -83 million in Q1 2024 to RMB 525 million, with net margin increasing from -1.3% to 5.9%.

7) Non-GAAP net profit rose YoY to RMB 649 million, with net margin at 7.3%.

3. Costs & Expenses:

1) Material costs increased 21% YoY to RMB 3.6 billion, but their proportion of total net revenue dropped from 47% in Q1 2024 to 40%, mainly due to production structure optimization and enhanced supply chain advantages that expanded gross margin.

2) Store rental and other operating costs rose 27% YoY to RMB 2.3 billion, with their proportion of total net revenue decreasing from 29% in Q1 2024 to 26%. The absolute increase was primarily due to store expansion and higher labor, rent, utilities, and other operational costs.

3) Delivery expenses grew 54% YoY to RMB 689 million, driven by increased delivery orders, though per-order costs decreased due to economies of scale.

4) Sales & marketing expenses increased 52% YoY to RMB 496 million, mainly from continued strategic branding investments and higher commissions for third-party food delivery/livestreaming platforms.

5) G&A expenses rose 22% YoY to RMB 681 million, but their proportion of total net revenue declined from 8.9% in Q1 2024 to 7.7%. The increase was primarily due to higher R&D investments, equity incentives, and payroll costs.

4. Balance Sheet & Cash Flow:

1) Net operating cash flow in Q1 2025 was RMB 897 million.

2) As of March 31, 2025, total cash/cash equivalents, restricted cash, time deposits, and short-term investments stood at RMB 6.1 billion vs. RMB 5.9 billion as of December 31, 2024.

II. Earnings Call Details

2.1 Management Commentary

1. Strategic Overview:

1) Dr. Jinyi Guo, Co-Founder & CEO, stated that Luckin delivered impressive results in Q1 2025 through growth-focused strategies, further expanding market share and competitive advantages.

2) The company welcomed Mr. Hui Li back to Luckin's board as new Chairman. His extensive experience in business management and strategy execution will driveLuckin's sustained development and global expansion.

Luckin remains committed to its core values, advancing its mission to create long-term sustainable value for shareholders and stakeholders.

2. Store Expansion:

1) In Q1 2025, Luckin operated 24,097 stores, adding 1,743 net new stores in China (total: 24,032 - 15,541 self-operated + 8,491 partnership stores).

2) Internationally, 14 new stores opened (total: 65 - 57 self-operated in Singapore + 8 franchised in Malaysia).

3) The company will prioritize strategic expansion, evaluating high-potential locations while maintaining industry-leading speed.

3. Product Innovation:

1) In Q1 2025, Luckin launched 15 new beverages and other products aligned with its brand philosophy.

2) The company strengthened global supply chains, sourcing premium ingredients.

3) Cumulative sales of Coconut Cloud Latte exceeded 1.3 billion cups, while the new Coconut Cloud Jelly Latte refreshed the signature series.

4) Upgraded tea series (e.g., Fresh Jasmine Milk Tea) received positive feedback.

4. Customer Growth:

1) Q1 2025 added >20 million transacting users (cumulative: >350 million).

2) MAUs grew 24% YoY to >74 million.

3) The company continues competitive pricing (e.g., RMB 9.9 coffee promotions) and localized operations to cultivate coffee habits and brand loyalty.

5. ESG Initiatives:

1) Luckin's Beijing flagship store earned LEED Platinum certification - a first for Chinese coffee brands.

2) The company plans to extend such certifications to new stores while promoting eco-awareness.

6. Market Outlook:

1) Dr. Guo views China's coffee market as being in a golden era of penetration and frequency growth.

2) Despite macro/competitive dynamics, Luckin will leverage organizational strength and operational agility.

3) Focus remains on sustainable growth through digital supply chain upgrades and efficiency improvements.

2.2 Q&A

Q: SSSG drivers (price/volume split)? SSSG trend for upcoming quarters?

A: Q1 growth was primarily volume-driven. SSSG improvement reflected:

(1) External factors: China's expanding coffee demand + maturation of new stores + warmer winter boosting cup sales.

(2) Internal factors: High-quality store network validated strategic decisions. Branding, product diversity, and supply chain advantages optimized per-cup costs and sales volume.

8% Q1 SSSG reflected solid fundamentals + tailwinds. Expect normalization toward more moderate SSSG ahead, but remains focused on sustainable positive SSSG.

Q: Key net profit drivers? Sustainability? Full-year net profit expectations?

A: China's coffee market remains in early-stage rapid growth. Scale/share priorities continue with no price hikes planned - using competitive pricing to unlock demand.

Micro profit pressures:

1) Historically high coffee bean costs may more significantly impact H2 gross margins.

2) Increased competition requires continued branding/marketing investments.

Plan to offset pressures via scale/operational efficiency. Q1 operating profit improvement mainly from product mix + economies of scale:

Product mix: Higher-margin lighter drinks (e.g., Americano series) grew ~10pp in sales mix YoY, boosting margins.

Scale: Attractive pricing + effective marketing drove high-single-digit daily cup growth per store, releasing operating leverage.

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