BEIJING: Luckin Coffee Inc turned in a larger-than-expected loss, as costs were ballooned at store openings and heavy discounts to compete with Starbucks Corp., driving the Chinese company's US-listed shares sharply Wednesday.
The startup, which opened its doors early last year and listed its shares in May, aggressively used and opened 593 new stores in the June quarter, the first as a public company.
While rapid spending drove a seven-fold jump in revenue growth over the period, the losses and costs ballooned more than three times as it offered cut-price alternatives to the American coffee house giant Starbucks.
Interest and Taxes (EBIT), a target that Luckin's CFO said investors were concerned about.
"Our shareholders want us to focus on sales growth and profitability at the store level … they expect us to also get some sort of EBIT level break-even point sometime towards the end of next year," CFO Reinout Schakel told Reuters.
The way to achieve that would be to offer coupons more smartly and through dynamic pricing, Schakel said, suggesting that the company may have fewer campaigns than before.
The company's stock closed nearly 1[ads1]7% at $ 20.44 on Wednesday, but it's still about 20% above the IPO price.
For the third quarter, Luckin expects turnover between 1.35 billion yuan ($ 192.4 million) and 1.45 billion yuan. Analysts were expecting revenue of $ 229.4 million.
On an adjusted basis, Luckin lost 48 cents per share in the quarter ended June 30. Analysts expected a loss of 43 cents, according to IBES data from Refinitive.
was 2,963, about 1,000 fewer than Starbucks. By the end of the year, Luckin aims to open 4,500 stores.
Luckin's rapid expansion is in stark contrast to Starbucks, which opened its first store in China in 1999 and spent two decades reaching its current store figure.
The American chain was responsible for the rise of coffee drinkers in the largely drinking country.
To avert competition in China, Starbucks has entered into a delivery partnership with Alibaba and opened last month its first express store – with a barista at the concierge to help customers with ordering and pickup – in a direct challenge to Luckin's pick-up store format .
Luckin CEO Qian Zhiya said the company was on track to break evenly at the store level in each store during the third quarter because increasing scale would give it more bargaining power to lower entry costs. Store-level costs exclude marketing costs.
Ben Cavender, Shanghai-based principal of the China Market Research Group, warned that it may prove to be a tall order.
"It's difficult because they've trained consumers to just want to go to stores when there are big discounts," he said, adding that each store "doesn't attract enough customers to cover operating costs.
"In the end, they will probably have to cut stores that are not performing and find a way to convince people that they have improved their coffee quality along with slightly higher prices. "
Luckin has also expanded beyond coffee, allowing customers to buy food and other beverages through its app.
Qian said that Luckin recently launched tea products that could complement a fall in coffee sales in the afternoon and tested the possibility of to launch coffee machines in places such as small office buildings and gas stations.
The company previously said it was also looking for partners to expand in other countries. Reuters