After "retroactive subsidy", Q2 struggles to turn losses around, Luckin Coffee still focuses on "increasing market share"

In the peak season of beverage consumption in the second quarter, Luckin Coffee (LKNCY.PINK), which was caught in a price war, managed to turn losses around.

On the evening of July 30th, Luckin Coffee released its second-quarter financial report, achieving a quarterly revenue of 8.403 billion yuan, a year-on-year increase of 35.5%; achieving a net profit of 871 million yuan, a year-on-year decrease of 13%, reversing the loss of 83 million yuan in the first quarter.

Luckin's key financial indicators exceeded market expectations.

Luckin CEO Guo Jin attributed the performance rebound to improved external factors such as weather, proactive adjustments, and the full play of Luckin's model advantages.

The growth in Luckin's second quarter was mainly due to the expansion of stores, with a net increase of 1,371 stores to 19,961 stores during the reporting period, including 13,056 self-operated stores and 6,905 joint venture stores.

The average monthly transaction customers in the second quarter reached 69.69 million, a year-on-year increase of 61.8%, reaching a historical high.

During the reporting period, self-operated stores generated revenue of 6.552 billion yuan, a year-on-year increase of 39.6%; joint venture stores generated revenue of 1.85 billion yuan, a year-on-year increase of 24.5%.

However, the profit margin at the store level for Luckin, which is deeply involved in a price war, has not yet returned to the level of the same period last year.

Luckin recorded an operating profit of 1.051 billion yuan in the second quarter, with an operating profit margin of 12.5%, a year-on-year decrease of 6.4 percentage points. The operating profit margin of self-operated stores was approximately 21.5%, a year-on-year decrease of 7.6 percentage points.

On the same day, Starbucks (STARBUCKS.NASDAQ), which released its first-quarter financial report, also saw a year-on-year decline of 11% in same-store sales in the Chinese market.

Starbucks CEO Nasihan admitted, "In the past year, the unprecedented expansion of stores in the Chinese market, and the large-scale price war at the expense of same-store sales and profitability, have caused significant disruptions to the operating environment."

Luckin attributed the decline in operating profit margin to the decrease in average selling price of products.

In terms of product gross profit margin, Luckin did not decrease much. The gross profit margin in the second quarter reached 59.9%, an increase of 6.8 percentage points compared to the previous quarter, and only a slight decrease of 0.4 percentage points year-on-year.

One reason may be that Luckin has limited the frequency of 9.9 discounts, reducing the range of discounts while lowering the frequency of promotions;

On the other hand, Luckin introduced more high-margin new products during the peak season to offset the negative impact of the price war on profits.

According to Guo Jin, in the second quarter, a total of 25 new limited drinks were launched in the domestic market, accounting for 24% of the total cup volume in China.

Taking the single product Lemon Iced Tea, which sold 5.08 million cups in the first week, as an example, the biggest difference in cost compared to traditional coffee is the elimination of the roasting and grinding process of raw beans, instead directly blending raw bean coffee liquid with juice.

A private equity investor in East China told Wall Street News · Xinfeng (ID: TradeWind01) that in terms of single cup cost, the cost of freshly ground coffee is relatively higher than that of light coffee drinks, the latter having a higher gross profit margin, and the fewer operational steps of light coffee drinks also save on manpower.

The above-mentioned person cited the example of Migu Ice City's large Lemon Water product, with a gross profit margin as high as 70%, lower costs than competitors, and faster serving speed, with orders being served in less than 20 seconds Wall Street News · TradeWind (ID: TradeWind01) inquired with Luckin Coffee related personnel about the impact of new products on profit margins and gross profit margins in the second quarter, but as of the deadline for this article, no response has been received.

Under the pressure of CooDi Coffee's three-year "all items for 9.9 yuan" promotion without backtracking, Luckin Coffee seems to be more focused on expanding its scale, which is key in the current competitive coffee industry.

Luckin CEO Guo Jinyi stated that Luckin believes that the coffee industry will still be in a long-term strategic opportunity period of high-speed growth, insisting on market share as the core goal of the company's current development, adjusting the pace quickly according to the competitive situation, and continuously monitoring market share.

In July of this year, Luckin Coffee just opened its 20,000th store in Beijing.

However, Luckin's expansion speed has noticeably slowed down, with 971 fewer stores opened in the second quarter compared to the first quarter of this year.

Due to the fierce battle with CooDi, there are even voices from the outside suggesting that "Luckin missed the best opportunity to 'kill' CooDi".

CooDi is targeting locations in convenience stores, chain restaurants, and hotels, launching the convenient store model "COTTI Express".

Under this model, franchisees need to pay a deposit of 50,000 yuan to CooDi Coffee (this deposit can also be used as the first batch of goods payment), while cabinets and equipment are rented out monthly to franchisees by CooDi Coffee.

Recently, CooDi announced plans to open 8,000 convenient stores within the year and aims to reach 30,000 stores in the next three years.

If it achieves its goal of opening convenient stores within the year, combined with its existing scale of over 7,000 stores, CooDi Coffee's total scale will reach approximately 15,000 stores, further narrowing the gap with Luckin Coffee.

Facing CooDi's price butcher knife, Luckin Coffee, which is gradually "filling in the gaps", now needs more means to attract consumers. High-margin light coffee beverages are one option, but not enough.

After the performance announcement, Luckin fell by 6.67% in the pink sheet market to $21/ADS