Luckin Coffee Inc. (LKNCY) Q4 2024 Earnings Call
Luckin Coffee Inc. (OTCPK:LKNCY) Q4 2024 Results Conference Call February 20, 2025 8:00 AM ET
Company Participants
Jinyi Guo - Chairman & CEO
An Jing - CFO
Conference Call Participants
Ethan Wong - CLSA
Operator
Ladies and gentlemen, welcome to Luckin Coffee's Fourth Quarter and Full Year 2024 Earnings Conference Call. All participants will be in listen-only mode during the management's prepared remarks and there will be a question-and-answer session to follow. Please be advised that today's call is being recorded. Now, I would like to turn the call over to Ms. Nancy Song, [ph] Head of Investor Relations of Luckin Coffee.
Nancy, please go ahead.
Unidentified Company Representative
Thanks, operator. Hello, everyone. Welcome to Luckin Coffee's fourth quarter and the full year 2024 earnings conference call. We announced our financial results earlier today before the U.S. market opened. The earnings release is now available on our IR website and by newswire services.
Today, we will hear from Dr. Jinyi Guo our Chairman and CEO, who will share a strategic overview of our business. Following that, Ms. An Jing, our CFO, will discuss our financial results in greater detail. Afterwards, we will open up the call for questions. During today's call, we will be making some forward-looking statements regarding future events and expectations. Any statements that are not historical facts, including, but not limited to statements about our beliefs and expectations of overlooking statements.
These statements involve inherent risks and uncertainty. Further information regarding these and other risks is included in our filings with the SEC innovation for non-GAAP merits discussed today. The reconciliation information related to those measures can be found in our earnings press release. 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 the CEO of Luckin Coffee. Dr. Guo, please go ahead.
Jinyi Guo
[Foreign Language].
Hello everyone. Welcome to today's earnings conference call. Thank you for your continued interest in and the support of Luckin Coffee. 2024 marked a pivotal year for Luckin Coffee's robust growth in this dynamic market. We effectively expanded our market share on the competitive edge through strategic focus, clear objectives, and the strong execution.
For the full year, our total net revenues increased by 38% year-over-year to RMB34.5 billion. With operating profit increasing 17% to RMB3.5 billion, notably entering the second quarter of same store. Same-store metrics for self-operated stores started to improve rapidly reflecting significant efficiency gains. These achievements have further strengthened our market leadership as we drive industry-wide innovation and continue to shape the divestment of China's coffee market.
[Foreign Language].
As China's largest coffee chain brand by store count, Luckin Coffee maintained an industry-leading pace of store expansion during 2024 with over 6,000 net new stores opened for the year. We further reinforced our scale advantage, reaching a total of 22,340 stores by year end. Leveraging our strong product innovation and R&D capability, we launched a range of popular new coffee products and successfully expanded our beverage portfolio, better meeting customers' diverse needs across all types of data and consumption scenarios.
As a result, we saw our number of average monthly transaction customers increased by 48% year-over-year to $71.8 million combined with cup sold of freshly brewed beverages riding 55% to nearly $3 billion. By the end of the fourth quarter, we had over 330 million cumulative transaction customers, setting a new record for lock in in China's coffee consumption market.
Next, I will provide some highlights of our first quarter results and operational progress. Our CFO, An Jing, will share additional financial details later on this call.
[Foreign Language]
During the reported quarters, we maintained strong growth momentum as total net revenues increased by 36% year-over-year to RMB9.6 million. Operating profit surged 368% or around RMB1 million, while operating margin expanded by 7.4 percentage points year-over-year to 10.4%.
For the first time, we achieved double-digit operating margin in the fourth quarter, a period that has traditionally been a low ceiling for the industry. This stands as a strong testament for enhanced operational efficiency.
Notably, as discussed on our previous earnings call, our same-store sales growth for self-operated stores continued to improve, significantly narrowing from negative 13% in the third quarter to negative 3% in the reported quarter. More than currently, this metric turned positive last December. In addition, store level operating margin for our self-operated stores reached 19.6% in the first quarter.
[Foreign Language].
Moving on to operations, we strengthened our competitive edge through focus on three core pillars, people, products, and places. By expanding our scale advantages across store, network, and customer base, with further increase locking market share. In terms of stores, we prioritise network expansion to capture market opportunities and stay ahead of the competition sustaining industry, leading store growth, while ensuring high quality and operational efficiency. In the post-quarter, we added 991 net new stores in China, including the launch of our first five stores in Hong Kong.
Our unparalized scale continues to lead the market with our total store count in China reaching 22,289, including 14,540 self-operated stores and 7,749 partnership stores. We believe that as more consumers develop coffee-drinking habits in China, coffee consumption demand will grow deadly, both in terms of customer base and the per captive consumption.
This will create significant opportunities for us to increase store density in high-tier cities and further penetrate into lower-tier markets. Relating to our international markets. We added six new stores in Singapore, bringing our total to 51 stores there. This January, we officially entered the Malaysian market via a franchise model opening the first two lock-in stores there, another key milestone in our overseas expansion.
In the relatively mature international coffee market. We'll adopt flexible and tailored operational models to build up our overseas experience while continuously exploring new market entry opportunities.
[Foreign Language].
In terms of products, our deep user insights and data support fueled continuous product development and innovation, allowing us to better meet customers' evolving needs. With innovative product launches, we continue creating new tastes and experiences for our customers, unlocking greater consumption potential.
In this reported quarter, we introduced 18 new beverages and several light meals, bringing the full-year new SKUs to 119. Along with these new offerings, we're also focused on free-to-evergreen bestsellers to cultivate a loyal and stable customer mix. For example, the Lidou Wagyu Latte launched in late September 2024 quickly became the number two bestseller in the fourth quarter, only behind our signature product, coconut milk latte.
Another case in point is our Apple Americano launched in the fourth quarter. This co-branded offering with PINGU also performed well, delivering promising repurchases and starting to build a dedicated group of loyal customers for this product category.
[Foreign Language].
Through our strong product appeal and engaging co-branded campaigns, our expertly profited and great-tasting beverage portfolio has consistently attracted new customers and boosted engagement, steadily increasing the number of active transaction customers. In the fourth quarter, we added over 25 million new customers with average monthly transaction customers exceeding 77 million. Supported by our accessible store network, we are well positioned to meet growing customer demand for our products of high quality and high affordability. Throughout 2024, we added more than 100 million new transacting customers, setting a new record and laying a more solid customer foundation for our future growth.
[Foreign Language].
Driven by growing customer demand and a strong market potential, we are enhancing our supply chain capabilities and integration, paving the way for high-quality sustainable long-term development.
During the fourth quarter, we deepened our strategic cooperation with the Brazilian trade and investment promotion agency, ApexBrasil, sending a new memorandum of understanding to extend our coffee bean procurement scale from the original 120,000 metric tons over two years to 240,000 metric tons over the next five years. This initiative allows Luckin to secure a stable supply of high-quality coffee beans from upstream production areas, building a strong mode for our global supply chain.
In addition, leveraging the strength of our industry value chain, we actively drive win development across the industry through optimized partnership subsidies, reduced raw material markups, as well as systematic and holistic support. We empower large teen partners to share in the industry success, increasing their investment return potential and expansion capabilities. Our shared interest with partners highlights our corporate responsibility as a market leader while strengthening our industry influence and leadership.
[Foreign Language].
Turning to ESG, as China's leading coffee chain brands, working actively and consistently executes a sustainability strategy called being a force for a brighter future alongside our rapid business expansion. We are leading the industry's intelligence and the green transformation while deepening multi-dimensional preparation with global coffee-producing regions, addressing quality control across the supply chain and continuously innovating healthy choices.
In addition, we are actively creating a vibrant value respecting and a growth empowering work environment to energize Luckin's sustainable high-quality development. In 2024, our sustainable practices garnered several ESG honors and awards, including the 2024 China fast ESG trial year by Valiant. Building upon our visibility roadmap, we remain dedicated to long-term healthy and sustainable development, working together with our partners to drive more impactful social value for a brighter future
[Foreign Language].
Looking ahead, we remain confident in the vast growth potential of China coffee market. In this dynamic and a competitive market environment, we believe Luckin is strategically positioned to capture these opportunities, driving long-term sustainable and high-quality growth.
In 2025, we will remain later focused on expanding our scale and the market share to further enhance our competitive edge. As we adopt a balanced and a well-paced growth strategy, we will also remain agile and adaptive to market dynamics. In terms of store growth, we aim to maintain our industry-leading store opening pace with a focus on quality and efficiency. Building on our core competitive advantage of economies of scale, we continuously enhanced operational efficiency through our powerful digitalization capabilities.
In terms of customer growth, we remain committed to meeting customers' evolving needs with high-quality coffee that offer great value and a distinct appeal, sustaining healthy business investment.
[Foreign Language].
Finally, we would like to once again express our heartfelt gratitude to our customers for their support, our partners for their help and our investors for their trust. We would also like to extend our sincere thanks to the over 130,000 individuals who contribute to Luckin's growth for their dedication and hard work. Working together, we remain committed to building a world-class brand and embracing long term value for our customers, partners and shareholders.
With that, I will turn the call over to An Jing to go through our financial results in detail.
An Jing
Thank you, Jinyi. Good day, everyone. Thank you for joining today's call. We finished the year with solid results. Not only did we expand our leadership position, we expanded the scale across our store network and customer base. We also achieved notable efficiency gains towards the second half of 2024, a strong testament to our robust business model and a solid foundation for future growth.
Now, I will share more details on our financial results. In the first quarter, our total net revenue increased by 36% year-over-year to RMB9.6 billion. This growth was mainly driven by increased product sales supported by our expanding store network and the growth in monthly transacting customers. In terms of the revenue components, revenues from productive sales increased by 43% year-over-year to RMB7.6 billion. As a result of our enhanced ability to fulfill customers' diverse and growing needs through the strong appeal of our products and the convenient delivery supported by our broad net store network, breaking down our product sales into three streams.
Net revenues from freely brewed drinks were RMB6.9 billion, about 72% of total net revenues. Net revenues from other products were RMB496 million, about 5% of total net revenues. Net revenues from others were RMB147 million, about 2% of total net revenues. Revenues from our partnership store increased by 16% year-over-year to RMB2 billion, reflecting our expanding partner network.
These partnership stores accounted for 21% of total net revenues. Now, to provide further color on our self-operated stores. Revenues from our self-operated stores increased by 42% year-over-year to RMB7.2 billion. We were particularly encouraged by the improved same-store sales growth, which increased notably to negative 3.4% from negative 13.1% in the prior quarter. Our store-level operating profit margin expanded by 6.1 percentage points year-over-year to 19.6%. This improvement reflects our enhanced operational efficiency as well as a more balanced operational pace between store growth and customer growth.
Moving on to store expansion, we opened 997 new stores on a net basis during this quarter. Our total store count was 22,340 at the quarter end, comprising 14,591 self-operated stores and 7,749 partnership stores. With more stores falling into our same-store sales category, our industry-leading network has paved the way for our sustainable development in the coming years. Looking at our customer growth, in the fourth quarter, we added 25 million new transacting customers.
Our average monthly transacting customers increased by 25% year-over-year to around 78 million with a new recorded of, with a new recorded of over 100 million new customers acquired in 2024, we expanded our total customer base to over 330 million by year end, positioning us for sustainable future growth as coffee drinking habits mature and overall coffee consumption frequency rises in China.
Turning to profitability, I will first highlight a few key expensive items. Cost of materials increased by 10% year-over-year to RMB3.8 billion. Cost of materials as a percentage of the total net revenues decreased to 40% from about 50% in the same period of 2023, resulting in gross margin expansion. This improvement resulted from our stronger supply chain advantages as well as changes in production mix. On the other hand, we did see an upward trend in the price of coffee beans, which could negatively affect these cost items in 2025 to some extent. But we are expecting our enhanced operational efficiency and economies of scale to partly mitigate such impact.
Delivery expenses increased by 79% year-over-year to RMB839 million mainly due to an increase in delivery orders. As a result, delivery expenses as a percentage of the total net revenue increased to 8.7% from 6.6% in the same period of 2023.
However, delivery expenses for order decreased as a result of a greater economy of scale. Sales and marketing expenses increased by 44% year-over-year to RMB573 million, mainly due to continued strategic investment in strengthening our brand power among customers as well as increase the commission fee paid to the third-party food delivery platform.
Sales and marketing expenses as a percentage of total net revenue increased to 6% from 5.6% in the same period of 2023. General and administrative expenses increased by 13% year-over-year to RMB638 million as a result of increased investments in research and development, increased share-based compensation and an increase in professional fees, partially offset by reduced payroll costs.
G&A expenses as a percentage of total net revenues decreased to 6.6% from 8% in the same period of 2023, demonstrating enhanced efficiency resulting from our larger operational scale.
Turning to profit and margin performance, our GAAP operating profit increased significantly by 368% year-over-year to RMB995 million. Operating margin expanded by 7.4 percentage points year-over-year to 10.4%, marking significant efficiency gains.
On a non-GAAP basis, operating profit increased year-over-year to RMB1.1 billion with operating margin at 11.4%. Net profit increased significantly by 184% year-over-year to RMB841 million with net margin expanding by 4.5 percentage points to 8.7% for the quarter. On a non-GAAP basis, net profit increased year-over-year to RMB928 million with net margin at 9.7%.
Finally, looking at our balance sheet and cash flow items, in the fourth quarter, our net operating cash inflow was RMB1.6 billion. As of December 31, 2024, we had around RMB5.9 billion in cash, including cash and cash equivalents, restricted cash, term deposits and short-term investments, compared to RMB3.8 billion as of December 31, 2023. Our disciplined strategy and strong cash reserves preserve the strength and the flexibility of our balance sheet, allowing us to effectively navigate dynamic macro and the market environment as well as to swiftly capture the business opportunities.
Before we begin the Q&A portion of the call, I will briefly touch on a few full-year 2024 financial highlights. Compared to 2023, total net revenues increased by 38% to RMB34.5 billion. GAAP operating profit increased by 17% of RMB to RMB3.5 billion with operating margin at 10.3%. Non-GAAP operating profit increased by 20% to RMB3.9 billion. With non-GAAP operating margin at 11.3%.
Net profit increased by 3% to RMB2.9 billion with net margin at 8.5%. Non-GAAP net profit increased by 4% to RMB3.3 billion with net-GAAP net margin at 9.5%. In closing, we are encouraged by our fourth quarter and full-year results. Looking ahead, our laser-focused strategy and the strong execution provide us with greater confidence in our sustained future growth in the years to come.
With that, we will open the call for questions. Operator, please.
Question-and-Answer Session
Operator
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. And our first question will come from Ethan Wong of CLSA. Please go ahead.
EthanWong
Thank you, operator. [Foreign language]. I will translate my question. Good evening, management. So, Congratulations on the results. And my question is based on the same-store sales growth. I think the highlight of this result improving for the second quarter and already achieved positive growth in December.
So, if management can help us to break it down into price and volume, that will be very helpful. And for 2019, if we look longer, what is management's current view on our same-store sales growth? Thank you.
JinyiGuo
[Foreign language].
Thank you for your question. I will have An Jing to explain in further detail regarding the breakdown between price and the volume. I will first give you some high-level comments on the macro and why we think of how we think of the fluctuations of SSG metrics. So, SSG metrics is a very crucial operating metric for large chain catering enterprise. We pay very great attention to and very closely monitor these metrics.
Overall speaking, its fluctuations over the past few quarters were well in line with our expectations. Our continued improvement in the fourth quarter is also consistent with what we have been communicating to the market all along.
Since 2023, China's coffee market has been growing rapidly, while competition has also begun to intensify. Looking at these trends, we saw great market potential and driving customer demand. Therefore, we strategically and defensively accelerated our store expansion pace, effectively gaining market share for sure and extending out of stand out from the competition with our industry-leading scale advantages.
So as our stores require time to mature and the customer consumption habits take some time to develop our SSG experienced short-term volatility, which is well in line with our strategic judgment and expectation.
[Foreign language].
So, looking into 2025, as we continue to strengthen and expand our industry leadership, our economy of scale, cost and the efficiency advantages have become more evident, will give us a new stage in our business development. As we maintain our rapid growth, we will remain deeply committed to healthy and sustainable operations. So, we are confident in our ability to further enhance our SSG performance.
[Foreign language].
Yeah. We know you guys are very want to know about the drivers behind the short-term SSG improvement and also the long-term drivers. So, looking at the short term, we will leverage our extensive store network that covers different consumption scenarios, drive product innovation and the catering expansion and implement a very set of marketing campaigns to offer our customers more choices of expertly crafted and great-tasting drinks as well as its emotional value.
We believe this approach will help us to attract more customers and improve cup sales performance across our stores. So, for the mid to long-term, one of the key characteristics of coffee consumption is the potential for its increasing frequency. In China, coffee consumption is still at its relatively early stage.
So as coffee drinking habits continue to develop, coffee consumption frequency will naturally rise, leaving significant room for growth in per capita coffee consumption. So, this will give us the driver for our future SSD growth. So, I will have Jing An give more details on the fourth quarter SSG performance.
AnJing
Thanks Doctor. Guo. The continued improvement in our fourth quarter SSG resulted from the strong execution of our real case expansion strategy. As customer demand is steadily growing, our store performance continues to improve along with efficiency gains.
Looking at our comparable stores in terms of pricing, our cup price in the fourth quarter remained largely stable compared to the same quarter of 2023. In terms of cup sales, rising customer demand drove consistent improvement in cup cost sales performance, with post-sale daily cost sold in the fourth quarter almost returning to the level seen in the same quarter of 2023.
Notably, our post-sale daily cost sales in December 2024 exceed those of December 2023, driving positive as SSG for that month. Looking ahead to this year, we expect the per-cup price to remain stable compared to last year. As more of our wholesale-operated stores reach majority, we are expecting a gradual year-over-year interest in the number of our port store daily cups sold, supported by our wider selections of high-quality coffees and engaging coffee experiences. This will further drive overall SSD improvement. Thanks.
Operator
The next question comes from Saiji Lin [ph] of CICC. Please go ahead.
UnidentifiedAnalyst
[Foreign Language].
So, thank you, management and Saiji [ph] from CICC. Congrats for the strong results. I have one question that recently we've seen a significant rise in coffee beans price. So how should we evaluate the impact on us and what measures will be taken to address this issue? For example, we will consider to raise price to mitigate the impact. Thank you.
JinyiGuo
[Foreign language].
Thank you for your question. So, the rising coffee bean prices indeed draw great attention across the industry and from the broader market. So, I will give you more color behind what our thinking. So overall, this will create some cost pressure, but we expect to partially mitigate such impact by leveraging our robust supply chain and the competitive mode we have built through our full value chain investment.
So, our scale advantage and enhanced efficiency can give us some buffer to absorb such pressure. So therefore, we think the impact of this rising coffee bean prices is largely manageable for us for the moment.
[Foreign Language].
As you may see, we actually have been investing across the coffee industry value chain from upstream sources to end sales. We have built up our full value to spend, which covers procurement from producing regions, import and export rate, processing and developing all the way down to retail operations. As I mentioned earlier, last November, we deepened our cooperation with ApexBrasil, spending a new MoU to purchase 240,000 metric tons of coffee beans over the next 5 years. So, this will help us with -- this will provide us with a stable supply of high-quality coffee beans, creating significant upstream supply chain advantages for us.
So, benefiting from our own roasting facilities, including our Kunshan Jiangsu plant, which started operation last year as well as our Jiangsu plant, which is set to launch this year. and our existing Jiangsu facility. So, we are expecting we will have an annual roasting capacity of 100,000 tones by this year-end. This will give us a stable supply of high quality and high value for money [indiscernible] coffee beans.
[Foreign language].
So, we also see a few IPOs of several key beverage companies recently. So, market implementation in the Freshly Brewed Beverage industry could further intensify. So potentially posing challenges to our market penetration advantages. So, we will continue strengthening our marketing and branding efforts to maintain our market leadership. So, in the face of this rising coffee bean prices and the market compensation, we will remain dedicated to our mission and the customer-centric values.
We will continue to reward our customers. And currently, back to your question, currently, we don't have plans to increase selling prices. Furthermore, our RMB9.9 [ph] coffee promotion will consistently be available to our customers, while cultivating coffee consumption habits, we aim to allow more customers to conveniently enjoy high-quality coffee experience at very competitive prices, strive to make high-quality coffee become a part of everyone's daily life.
[Foreign language].
So finally, I want to address as a marketing leader in this industry, we will leverage with our upstream and downstream partners to pass on these positive impacts of rising coffee bean prices to pricing reasons as well, allowing coffee farmers to ultimately benefit from this trend promoting a sustainable coffee trade while driving long-term success and a healthy development across the entire industry. Thank you.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Unidentified Company Representative
Thank you, everyone, for joining our call today. If you have any further questions, please feel free to contact our IR team. This concludes today's call. We look forward to speaking with you again next quarter. Thanks.
Operator
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
