23 years to achieve the goal of ten thousand stores (Minutes of the Luckin Coffee Performance Conference)

The following is the summary of Luckin Coffee's Q4 2022 earnings call, ADR.US. Financial report review can refer to "New Luckin "Reborn from Fire"".

1. Performance

1. Revenue: In Q4 2022, the net revenue was RMB 3.695 billion, YoY+51.9%. In 2022, the net revenue was RMB 13.293 billion, breaking the RMB 10 billion revenue scale for the first time, YoY+66.9%.

2. Profit: In Q4 2022, the operating profit was RMB 313.2 million, operating profit margin was 8.5%. In 2022, the operating profit was RMB 1.156.2 billion, turning losses into profits for the first time, and operating profit margin was 8.7%.

3. Store Operations:

• In Q4 2022, the operating profit of self-operated stores was RMB 614.5 million, and the operating profit margin of self-operated stores was 23.6%. In 2022, the operating profit of self-operated stores was RMB 2.482 billion, and the operating profit margin of self-operated stores was 26.4%.

• In Q4 2022, the same-store sales growth rate of self-operated stores was 9.2%; in 2022, the same-store sales growth rate of self-operated stores was 20.6%.

• As of the end of 2022, there were 8214 stores, including 5652 self-operated stores and 2562 joint venture stores.

2. Management Remarks

1. Overview

In Q4 2022, the recurring outbreak of the epidemic brought huge pressure to the consumer industry, and Luckin Coffee also suffered significant negative impact. But thanks to its strong brand marketing, supply chain system, digital system and the support and love of consumers, the overall performance of store scale, user growth and revenue and profit throughout the year remained strong. This once again demonstrated Luckin Coffee's effective and highly resilient business model.

The past year was of great significance for Luckin Coffee. In terms of handling historical issues, the debt restructuring was successfully completed, and the related litigation of overseas investors is coming to a close. This marks the completion of the handling of overseas-related issues. In terms of serving customers, as of the end of 2022, Luckin Coffee has accumulated nearly 135 million consumer customers and provided 900 million cups of drinks in 2022, launching phenomenal products such as cheese latte.

2022 is also the fifth anniversary of the establishment of Luckin Coffee, which has entered a new development stage. It will focus on the promising coffee field and strive to build a world-class coffee brand. The company will continue to invest in the industry chain, constantly expand market share and leading advantages, and achieve long-term, healthy and sustainable development of the business.

2. Performance

Specifically, due to the impact of the COVID-19 pandemic and the subsequent strict control measures, Luckin Coffee's performance in Q4 2022 was also significantly affected. However, compared with the same period last year, the growth rate of performance remained strong. The total net revenue was RMB 3.7 billion, a YoY increase of 51.9%; the operating profit margin was 8.5%, and the operating profit margin of self-operated stores was 23.6%; the same-store sales growth rate was 9%. 2% growth with an increase of 368 stores.

Looking back at the whole of 2022, Luckin Coffee produced a number of pleasing achievements in the Chinese coffee market. The company's revenue surpassed 10 billion yuan for the first time, with overall operating profit also turning from loss to profit for the first time. This demonstrates the company's ability to improve profitability by enhancing operational efficiency and expanding scale. Currently, the number of stores has exceeded 8,200, making Luckin Coffee the coffee chain with the most stores in China.

3. Development Strategy

"People, Product, Place"

In 4Q22, based on the three pillars of the business model, "people, product, place," Luckin Coffee continued to play to its strengths and consolidate its position of leadership.

1. From the perspective of "people," the brand momentum continued to increase. In 2022, cross-border co-branded products with well-known IPs such as Han Meilin and JOJO were welcomed by consumers, and Luckin Coffee won the "Annual Consumer Brand" award in the 2022 EDGE Global Innovation Awards hosted by Titanium Media.

2. From the perspective of "product," nearly 140 new SKUs were launched in 2022, including over 100 new beverages. Adhering to the "professional + delicious" product strategy, Luckin Coffee continued to innovate its products, constantly launching explosive products that meet the multi-level needs of different types of coffee consumers, including the popular series such as cheese latte and the professional Soe series such as Tian Tang Zhuang Yuan and Gui Xia. Among them, the cheese latte also won the "Innovative Flavor Leadership Award" at the 2022 China Annual Newcomer List Awards hosted by New Weekly.

3. From the perspective of "place," as of 4Q22, there were a total of 8,214 stores, with a net increase of 368 for the quarter, maintaining the market-leading position in both urban coverage and store numbers.

(2) Brand

Luckin Coffee's professional, youthful, fashionable, and healthy brand character successfully attracted more new users, and a wide range of themed co-branded events generated extensive online discussion. By the end of 2022, Luckin Coffee had cumulatively attracted 135 million paying customers, with an average of 24.56 million transactional customers per month.

(3) Product

Luckin Coffee has always believed that product strength is the greatest brand strength. In 4Q22, the first week sales of Luckin Coffee's cheese latte reached 6.59 million cups, becoming the undisputed king of bestsellers and once again leading the new trend in coffee consumption in China. At the same time, Luckin Coffee continued to increase the investment in training to enhance coffee expertise, and its team's professional capabilities were among the best in the country. At present, a total of 48 employees in Luckin Coffee's production and research team have obtained Q-Grader certification, which is known as the highest-level professional certificate in the global coffee industry. Luckin Coffee's coffee beans also won the gold award for five consecutive years in the IAC International Coffee Cupping Competition.

3. Sustainable Development

(1) Strategic Direction

In November 2022, Luckin Coffee released its first corporate governance report titled "Transforming and Reshaping Luckin Coffee: 2020-2022 Corporate Governance Report." At the same time, it completed the development of management measures and committee statutes for sustainable development. In December, it distributed over 9,000 sustainable development surveys to stakeholders. Based on the deduction from the important issue matrix and a clear understanding of key issues, Luckin Coffee has initially clarified the strategic direction for its sustainable development. Future, Luckin plans to leverage advantages digitalization and internet to promote sustainable business model, build sustainable value chain and create sustainable social ecology, connecting more partners in the value chain. It strives to create value for economy, society, and natural ecology. Based on this, Luckin is expected to develop a goal and strategy for sustainable development and promote sustainable development practice in an all-round way in 2023 with a scientific and prudent attitude.

(2) Industrial Chain

Luckin's perseverance in professionalism is also reflected in continuous investment in the industrial chain.

By deeply cultivating the supply chain source, scientifically designing formulations, and accurately controlling the coffee bean roasting process, it can not only guarantee product quality, but also improve efficiency, and continuously expand the scale of supply chain. At the end of 2022, Luckin Coffee Jiangsu Roasting Base officially started construction in Kunshan, which is the second fully automated intelligent roasting base independently built by Luckin Coffee after its roasting base in Fujian. The base will roast and process 30,000 tons of coffee beans annually and will be put into operation in 2024. Kunshan Base will introduce a zero-emission mode and implement green and low-carbon throughout the entire production process to further reduce the impact of product processing on the environment and contribute to sustainable development.

In addition to practicing a sustainable development strategy in the production process, Luckin is also committed to promoting the healthy development of the entire industrial chain. At the raw materials end, Luckin cooperates with coffee farmers to cultivate excellent coffee varieties, and promotes the scale, modernization, and branding of the coffee industry in Yunnan and other places through fixed-point procurement and other methods. For cooperative enterprises in the supply chain upstream and downstream, it promotes the benign development of China's coffee industry through joint development, technical communication, and other methods.

At the consumer end, while providing high-quality products to consumers, Luckin also actively advocates the concept of green environmental protection consumption.

The company hopes to become a company that not only achieves success in the commercial field but also strives to undertake social responsibility, actively spreads positive energy, and has responsibility and warmth.

(4) Store Situation

From the publicly available information in the industry, as of the end of 2022, Luckin is still one of the Chinese chain coffee brands with the most stores and will continue to maintain high-speed growth. As of the end of 2022, it has a total of 8,214 stores, covering nearly 240 cities. In December last year, Luckin restarted recruitment of new partners. Judging from the space of the development of the Chinese coffee industry and Luckin's own model advantages, the number of stores will still maintain a high-speed growth level, and the industry's leading position will be further consolidated and expanded.

(5) Conclusion

The past few years have been a difficult period for the consumption industry and enterprises. The epidemic has brought a lot of uncertainty. In the past three years, Luckin has achieved gratifying stage results through cultural reshaping, governance improvement, strategic focus, and model adjustment with the support of shareholders, investors, and all employees, and the care of customers, proving the commercial model and achieving a turning point rebound.

Standing at a new stage of development and facing the broad prospects of the Chinese coffee market, Luckin is more confident. The company will go all-out to build Luckin into a long-lasting century-old brand and a world-class coffee brand and strive to achieve long-term, healthy, high-speed, and sustainable growth in performance. Third, Q&A

Q: While the company continues to expand, there are signs of a slowdown in same-store sales growth. How does the company view the future trend of same-store sales growth?

A: Firstly, if we only look at the same-store growth in 4Q, it has indeed fallen compared to the past few quarters. This is mainly due to the impact of the epidemic, with the highest number of temporary store closures per day nationwide due to the epidemic reaching nearly 1,500 during 4Q. If we exclude cities with greater impacts from the epidemic, such as Beijing and Shanghai, same-store growth still maintains a double-digit level.

Secondly, the company is currently in a phase of rapid growth. By the end of 2022, the company's number of stores had reached 8,214, an increase of over 2,100 stores compared to the end of 2021. Faced with the huge potential of the Chinese coffee market, the company will focus more on store expansion and market share while maintaining a reasonable level of store profitability. Cover first and increase frequency later, this also conforms to the trend of cultivating coffee consumption habits.

Finally, the unique business model allows Ruixun to achieve sustainable growth and profitability at a competitive price level through technology empowerment and efficiency improvement. In the future, we will continue to maintain a competitive pricing strategy while controlling costs and creating profits through efficiency improvement. The company believes that as coffee consumption habits gradually develop, consumption frequency is also expected to further increase, thus achieving sustainable same-store sales growth.

Q: What is the impact of the epidemic in 4Q22 on performance, and will the epidemic continue to have an impact in the future?

A: Due to the impact of the epidemic, the highest number of temporary store closures per day nationwide was close to 1,500. As the impact of the epidemic weakens and people gradually return to work and production, the number of temporary store closures per day nationwide has decreased. Since the end of December 2022, consumption trends have rapidly recovered to pre-epidemic levels. Currently, store operations and consumption trends have returned to normal levels.

In November and December 2022, customer numbers were also affected to a certain extent - especially in first-tier cities with high densities of self-operated stores, such as Beijing and Shanghai. Same-store sales growth in 4Q22 was 9.2%; if we exclude Beijing and Shanghai, which were more affected by the epidemic, same-store sales achieved double-digit growth. Although negative factors in sales indirectly affected store profit margins, self-operated stores still achieved a 23% profit margin. In addition, the cheese latte launched in October was loved by consumers and partially offset the negative impact.

As restrictions are lifted and the economy gradually recovers, I believe that the impact of the epidemic on store operations will continue to decrease, and consumption trends and sales will return to normal levels. I am very happy to share with you that our sales performance during the Valentine's Day period reached an all-time high.

Q: What are the future store expansion plans and goals?

**A: **The development potential of the Chinese coffee market is huge, and the entire industry is still in the early stage of cultivation. During the past period of time, the company has still seen strong coffee demand from consumers in the broader sinking market. Therefore, at the end of last year, we restarted the recruitment of joint venture partners, further expanded the range of open cities, and launched an important initiative to accelerate the improvement of store coverage level and better meet consumer needs. At the end of December 2022, the first round of recruitment was restarted, covering 41 cities in 9 provinces. At the end of January this year, the recruitment scope was expanded to 80 cities in 15 provinces. The feedback from affiliated partners was very enthusiastic. Luckin's self-owned and affiliated models complement each other well, with self-owned models mainly concentrated in first and second-tier cities, and affiliated models mainly covering lower-tier cities.

Luckin is currently one of the chain coffee brands with the largest number of stores in China. By adopting a reasonable store opening pace and consistent store opening standards, Luckin pays attention to both the quantity and quality of store openings. At this stage, store volume growth is the main growth engine, continuously increasing density in first and second-tier cities and quickly expanding in lower-tier cities, allowing Luckin's stores to enter the daily lives of more people and bring high-quality, high-value, and high-convenience coffee products and services to more consumers. The company is confident in achieving its first goal of ten thousand stores by 2023.