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Luckin's Losses Mount on Aggressive Expansion

Anna Vodopyanova 2019-08-14 22:50 PM

Luckin Coffee Inc. (Nasdaq: LK) reported high losses for the second quarter, sinking its shares nearly 15 percent in early trading Wednesday.

China’s fast-growing coffee chain, which sees outnumbering Starbucks locations in the country as its top priority, said in a statement today that its losses for the three months through June has more than doubled year-over-year to $99.2 million, or 96 cents per share.

Revenue soared to $132.4 million, Luckin said, an increase of 648 percent from a year ago.

In response to the report, the stock in Luckin tumbled to $20.88 per American depositary share, down $3.67, on Wednesday morning.

The company has previously stated that it focuses on expanding its network and becoming larger than Starbucks in China, something that inevitably weighs on expenses in the short-term. During the second quarter, Luckin opened 593 additional stores, operating a total of 2,963 cafes by the end of June. Starbucks Corp. (Nasdaq: SBUX), meanwhile, has 3,600 stores in China, according to its official website.

“We remain on track to become the largest coffee network in China in terms of number of stores by the end of 2019,” Luckin’s chief executive officer, Jenny Zhiya Qian, said in a statement today.

In addition to its main coffee business, Luckin has launched a fresh-brewed tea line. As CW analyst Steve Kanaval wrote last month, China’s coffee market is significantly smaller than in the United States, and it was only expected for the company to diversify into tea sales.

Meanwhile, its coffee business is expanding overseas for the first time. In July, Luckin partnered with Americana Group, a Kuwait-based company, to set up shops in the Middle East and India.

Operating expenses in the three-month period were $232.9 million, up 244 percent year-over-year, the company said.

Luckin also reported its cumulative number of transacting customers soared to 22.8 million during the second quarter from 2.9 million a year ago.

The fast-growing coffee chain became publicly traded in May in New York, raising $561 million. The company offered its shares at $17 per share and has mostly stayed above that level since then, with a high of $27.12 per share and a low of $13.71 per ADS.