On Tuesday, July 30, Luckin Coffee (LKNCY.US) announced its second quarter financial report for 2024, which attracted widespread attention. The financial report shows that Luckin Coffee’s total net income in the second quarter of 2024 was 8.403 billion yuan (unit: RMB, the same below), a year-on-year increase of 35.5%, setting a new single-quarter revenue record; operating profit under GAAP standards was 1.051 billion yuan, Operating profit margin was 12.5%. Overall, Luckin Coffee’s total net revenue in the first half of the year reached 14.681 billion yuan, a year-on-year increase of 38%. Luckin Coffee’s impressive performance in the first half of this year has attracted the attention of investors. So, what is the current business situation of Luckin Coffee? Is it worth the investment? What is the growth potential?

Luckin Coffee second quarter financial report analysis

Data show that the GAAP operating profit in the second quarter was 1.051 billion yuan, and the GAAP operating profit margin was 12.5%, compared with 1.173 billion yuan in the same period of 2023, and the GAAP operating profit margin was 18.9%. The financial report mentioned that the decline in operating profit margin was mainly caused by the decline in product average selling prices and continued fluctuations in market competition. Although Luckin Coffee's total net income has grown significantly, its net profit in the second quarter was 871 million yuan, a year-on-year decrease of 13%, and its net profit margin was 10.4%, compared with 16.1% in the same period last year. The decline in profit margins was mainly caused by the significant increase in the expansion costs of Luckin Coffee’s business. Therefore, second-quarter earnings information is still a major positive signal.

Guo Jinyi, chairman and CEO of Luckin Coffee, expressed overall satisfaction with the performance in the second quarter during the conference call and analyzed the reasons for the revenue growth. He believed that there were two main reasons: First, external factors such as weather The improvement of factors has reduced the impact of negative seasonal factors, and the number of stores has increased rapidly, effectively reaching more consumers during the peak season; secondly, the store structure has been actively laid out in advance in the early stage, and the cup volume of single stores in shopping malls and street stores has performed well , causing the overall cup volume in the store to also show an upward trend.

• In terms of sales: Luckin Coffee’s total product sales exceeded 750 million in the second quarter. It launched 25 new products in China, including Coconut King Latte, Lemon C American Style, and Light Coffee Extra Large Cup Series. Among them, the single product Light Coffee Lemon Tea was launched in the first week. Sales volume exceeded 5.08 million cups, and new product sales accounted for 24% of the total domestic cups.
• In terms of costs: Luckin Coffee’s total operating expenses in the second quarter were 7.352 billion yuan, a year-on-year increase of 46.2%. The financial report mentioned that the increase in total operating expenses was mainly due to Luckin’s business expansion. At the same time, operating expenses accounted for 87.5% of net income from 81.1% in the same period in 2023 to 87.5% in the second quarter of 2024, mainly due to the decline in the average selling price of products, resulting in store rent and other operating costs and material costs accounting for 87.5% of net income. Percentage increase in revenue.
• Store: 1,371 net new stores were opened in the second quarter, including 5 new stores in Singapore. The total number of stores increased by 7.4% month-on-month. At the end of the second quarter, there were 19,961 stores, including 13,056 self-operated stores and 6,905 joint ventures. store. Guo Jinyi emphasized in the conference call that the total number of Luckin Coffee stores reached 20,000 in July this year.
• In terms of users: the average number of monthly transaction customers in the second quarter hit a record high, reaching 69.69 million, a year-on-year increase of 61.8%. In the first half of this year, the average monthly number of transaction customers was 64.8 million, a year-on-year increase of 78.6%. At the same time, the number of new transaction users of Luckin Coffee in the second quarter was 24.87 million.

Luckin Coffee still faces huge challenges in the future

Although Luckin Coffee's second-quarter performance exceeded expectations, it is still inevitable that some indicators have reached saturation, which means that it must seek new changes in the future.

First of all, Luckin Coffee is about to face pressure from store expansion. The current economy is in a downturn. Judging from the number of new stores opened in the second quarter, Luckin Coffee's new store openings slowed down significantly in the second quarter, especially self-operated stores. After all, supplier subsidies in multiple quarters have had a negative impact on net cash flow. Some pressure. The growth rate of franchise stores has also slowed down significantly due to the impact of the economic environment. However, the company previously revealed that its store opening target this year is to reach 230 million stores by the end of the year. As of July 18, the company announced that the number of stores worldwide has reached 20,000 (including 37 overseas stores), which means that it needs to continue to add 3,000 net stores in the remaining five and a half months.

Secondly, Luckin Coffee has been facing fierce competition in the industry. In the first half of this year, Luckin Coffee had a fierce battle with its rival Cudi Coffee, and neither party could decide a clear winner. Moreover, industry saturation is accelerating, and cross-border competitors such as milk tea are emerging. It is worth noting that Luckin Coffee’s current revenue growth is mainly driven by store expansion. The revenue growth rate of self-operated stores is 40%, mainly due to the increase in the number of new stores. The growth rate of franchise revenue continued to slow down to 24.5%. Although the number of franchise stores increased by 89%, the sales of single stores dropped significantly year-on-year, which affected the growth rate of raw material sales, equipment sales and store profit sharing collected by Luckin.

Is it profitable to invest in Luckin Coffee now?

The current price of Luckin Coffee stock is US$21.000. On July 30, the stock price fell sharply by 6.67% from the high. Considering the impact of the second quarter financial report, some investors predict that there is a large profit margin to buy at the bottom. At present, Ruixing Coffee’s total market value is 5.897 billion.

Source: uSMART SG

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