Luckin Coffee : Second Quarter 2023 Earnings Transcript

Luckin Coffee, Inc.

Q2 2023 Earnings Conference Call

Transcript

Tuesday, August 1, 2023 / 8:00 AM ET.

PARTICIPANTS

Jinyi Guo Chairman and CEO, Luckin Coffee

An Jing CFO, Luckin Coffee

Alicia Guo Investor Relations Director, Luckin Coffee

PRESENTATION

Operator

Ladies and gentlemen, welcome to Luckin Coffee's second quarter 2023 earnings conference call. All participants will be in listen-only mode during management's prepared remarks, and there will be a question-and-answer session to follow. Today's conference is being recorded.

At this time, I would like to now turn the call over to Ms. Alicia Guo, the head of Investor Relations of Luckin Coffee, for prepared remarks and introductions. Please go ahead, Alicia.

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Alicia Guo

Investor Relations Director, Luckin Coffee

Hello, everyone, and thank you for joining us on today's call. Luckin Coffee announced its second quarter 2023 financial results earlier today.

Today, you will hear from Dr. Guo Jinyi, Chairman and CEO of Luckin Coffee, and Ms. An Jing, CFO of Luckin Coffee. After the Company's prepared remarks, the management team will conduct a question-and-answer session based on questions submitted via the Company's webcast.

We will be referring to a slide presentation on today's call, which can be found via a conference call webcast link as well as on the Company's IR website. The IR website link is investor.lkcoffee.com.

During today's call, the Company will be making some forward-looking statements regarding future events and results. Statements that are not historical facts including, but not limited to statements about the Company's beliefs and expectations are forward- looking statements. Forward-looking statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in the company's filings with the SEC.

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With respect to any non-GAAP measures discussed during the call today, the accompanying reconciliation information related to those measures can be found in the earnings press release issued earlier.

During today's call, Dr. Guo will speak in Chinese, and his comments will be translated into English.

Now I would like to turn the call over to Dr. Guo Jinyi, Chairman and CEO of Luckin Coffee. Dr. Guo, please go ahead.

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Jinyi Guo

Chairman and CEO, Luckin Coffee

(Translated) Hello everyone, welcome to today's earnings conference call, and thank you for continuing to support Luckin Coffee. I am the Chairman and CEO, Guo Jinyi.

In the second quarter of this year, in the face of an increasingly competitive market environment, we continued to achieve high revenue and profit growth by virtue of our unique business model, operational efficiency and scale advantage. During the second quarter, we reached a major milestone of surpassing ten thousand stores in China, making us the first coffee chain brand in China with more than ten thousand stores. To commemorate this achievement, we launched a new brand concept called "Luck in Hand". Additionally, as a token of our appreciation to the continuing support of our customers, we initiated the "ten thousandth store celebration event" promotion, offering discounted high-quality coffee to millions of consumers to enjoy one cup of coffee for just RMB9.9 each week.

The promotional campaign has been well received by consumers. Through this initiative, consumers can enjoy high-quality coffee at a more favorable price, which has not only increased our customers' understanding and appreciation of coffee, but also has enabled us to expand our market share and strengthen our brand influence. Our achievements today would not have been possible without the support of our millions of customers. Therefore, we have decided to extend the RMB9.9 promotional campaign for at least two years, as a way to reward our customers for their loyalty. We hope that this campaign will accelerate the increase in our market share and promote the continuous development of the coffee market in China.

Specifically, with our business scale advantage, our second quarter revenue and profits reached new highs. We achieved total net revenues of RMB6.2 billion, representing an 88.0% year-on-year growth. Our operating profit margin was 18.9%, and our profit margin for self-operated stores was 29.1%, with a same-store sales growth rate of 20.8%. In addition, there were 1,485 net new store openings in the second quarter, bringing the

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total number of stores to 10,836, and the number of cumulative transacting customers has surpassed 170 million, while the number of average monthly transacting customers reached 43.07 million in the second quarter.

Our CFO An Jing will provide further details on the financials later.

Reaching the 10,000 stores milestone would not have been possible without the collective efforts of our 50,000 Luckin Coffee employees. With growth comes greater social responsibility, so as our business grows at a rapid pace, we remain committed to increasing our investments in sustainable development.

On May 15, 2023, we joined the United Nations Global Compact (UNGC). As the world's largest corporate sustainability initiative, the UNGC has more than 20,000 businesses and other stakeholders from 170 countries around the world.

In the future, we will work with UNGC members around the world to uphold the Ten Principles of the Global Compact and contribute to the achievement of the United Nations Sustainable Development Goals through our cooperation and partnership with the UNGC.

To this end, we will deeply integrate the principles of sustainable development into our operations and management, maintain a strong focus on social responsibility and continuously optimize our sustainable development strategy. We will take advantage of digital technology and continue to increase our investments in the three strategic directions of sustainable business model, sustainable value chain and sustainable social ecology, which can help integrate sustainability into our business and drive the long-term development of the business, and enhance our influence in sustainable development.

In the second quarter, we became the first coffee chain in China to surpass ten thousand stores, and we remain committed to continuing our rapid growth. As of the end of the second quarter, we had 10,829 stores in China, with 7,181 self-operated stores and 3,648 partnership stores. As competition intensifies in the Chinese coffee market with the influx of more brands, we will continue to expand our presence in top-tier cities and accelerate our penetration into new markets through our partnership model.

In terms of overseas markets, as of the end of the second quarter, we reached a total of seven stores in Singapore, adding five new stores on top of the two stores that opened during the first quarter, and we are excited about the performance of those stores. We will continue to expand our presence in international markets, so that more consumers around the world can enjoy Luckin Coffee's high-quality coffee.

During the "Ten thousandth store" opening event, we introduced a new brand proposition

• "Luck in hand." We believe that luck does not come by chance, but rather, it is achieved through steadfastness and hard work.

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As of the end of the second quarter, the number of cumulative transacting customers surpassed 170 million. In June alone, the number of transacting customers surpassed 50 million, a new record monthly high.

In terms of products, we focus not only on creating innovative and popular beverages but also on strengthening our professional capabilities in research and development, supply chain management and expansion. In the second quarter, we launched 24 beverages, including Iced Minty Coconut Latte, Waxberry Exfreezo, Iced Americano series, and Chinese Tea Coffee products. During the May holiday, product sales reached a record- breaking 23.07 million cups, doubling the sales of the prior year.

In terms of coffee expertise and quality, we continue to deepen our supply chain. Following the launch of the "Odyssey to the God Shot" at the beginning of the year, our Ethiopian office was officially established in the capital city of Addis Ababa in May. We will establish strict quality control standards and standardized processes at the country of origin to further enhance our ability to control the quality of coffee beans.

These are the key highlights of our business in the second quarter. Next, we invite our CFO An Jing to present the financial data and commentary.

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An Jing

CFO, Luckin Coffee

Thank you very much, Jinyi

Good morning, afternoon, and evening everyone. Thank you for joining us today. Our team has delivered a record-breaking quarter, and I am excited to present our outstanding performance and share our remarkable results. I would like to express my gratitude to our dedicated employees, loyal customers, esteemed partners, and valued investors for their support.

Now, I will take some time to highlight our 2023 second quarter results in detail.

Let's start with the financials. I am very pleased to announce that we achieved record- breaking results in the second quarter with total net revenues surpassing RMB6.2 billion. This represents a strong increase of 88.0% year-over-year. Our impressive net revenue growth can be attributed to several key factors.

First, the increase in the number of products sold has significantly contributed to our revenue growth. As we continue to innovate and expand our product offerings, we have witnessed heightened customer interest and engagement, driving higher sales volumes.

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