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spk05: Ladies and gentlemen, welcome to Luckin Coffee's first quarter 2022 earnings conference call. All participants will be in a listen-only mode during management's prepared remarks. Today's conference is being recorded. At this time, I would now like to turn the call over to Mr. Bill Zimmer at ICR for opening remarks and introductions. Please go ahead, sir.
spk00: Hello, everyone, and thank you for joining us on today's call, the company's first investor conference call in two years. Luckin Coffee announced its first quarter 2022 financial results earlier today. A press release is now available on the company's IR website at investor.lkcoffee.com. Today, you will hear from Jinny Guo, Chairman and CEO of Luckin Coffee, Reinhard Schackel, CFO and CSO of the company, and Chan Jiang, Senior Vice President of Due to time constraints, we will not have a Q&A session on this call. We will be referring to a slide presentation on today's call, which can be found via a conference call webcast link as well as on the company's IR website. Again, the IR website link is investor.lkcoffee.com. During this call, the company will be making some forward-looking statements regarding future events and results. Statements that are not historical facts, including but not limited to statements about the company's beliefs and expectations, are forward-looking statements. Four looking statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in the company's filings with the SEC. With respect to any non-GAAP measures discussed during the call today, the accompanying reconciliation information related to those measures can be found in the earnings press release issued earlier. During today's call, Dr. Guo will speak in Chinese and his comments will be translated into English. With that said, I would now like to turn the call over to Dr. Guo, Chairman and CEO of Luckin Coffee, Please go ahead.
spk02: 大家好,欢迎各位参加今天的电话会。 也感谢各位对玉姓咖啡的持续关注和支持。 我是玉姓咖啡的董事长兼CEO郭锦一。 在中文中,我的名字很好记。 锦言盛行的锦,表里如一的一。 我在北京交通大学获得了交通预出规划与管理专业的工学博士学位, 透过有多年的科研、政府和企业的工作经验, My personal hobbies are running and coffee. It is also due to my passion for coffee that I participated in the creation of RuiXin Coffee in 2017. Since the establishment of the company, I have been mainly responsible for product research and development, helping RuiXin to build the first generation of product research and development framework. In May 2020, after the fake boom, I took the lead and became the CEO of the company. Two months later, the board of directors of the company recognized me as the chairman.
spk04: Hello, everyone, and welcome to today's conference call. Thank you for your ongoing interest and support of Luckin Coffee. I'm Jingyi Guo, the chairman and CEO of Luckin Coffee. In Chinese, my name is easy to remember. Jing is from the Chinese idiom jing yan shen jing, which means to be cautious in word and action. is from the Chinese idiom which means consistent indeed as well as inward. I obtained a PhD in transportation planning and management from Beijing Jiao Tong University, and I have worked for many years in scientific research, government, and business. My personal hobby includes running and coffee, and it is from my love for coffee that drove me to join Luckin Coffee in 2017. I was originally responsible for product R&D and helped Locking Coffee build the first-generation framework system of product R&D. In May 2020, during the difficult and challenging times right after our disclosure of the fabricated transaction, I was appointed by the board as CEO of Locking Coffee. Two months later, I was elected to become the chairman of the board. 过去两年对公司对我个人都是重大的考验。
spk02: Thank you to the employees of Ruixin, who are united in unity. Thank you to the consumers who are loyal and enthusiastic, so that Ruixin can be reborn as a phoenix. After two years, the company held a business communication meeting again. There was a lot of content in this meeting, and it was limited by time, and there was no set question and answer session. I really hope that in the future, I can have more and more direct communication with investors. I also hope that I can do as my name says, and do my best.
spk04: The past two years have been a great challenge for both me personally and the company. Thanks to all of our united and dedicated employees, as well as our volume and exotic consumers, we were able to rise from ashes. This is the first time we have held a conference call in the past two years, and we have a lot of information to share. Therefore, Due to certain constraints, we have not had a Q&A session on this call. We look forward to engaging with you more frequently and directly down the road. I aspire to live by the Chinese idiom from which my name is derived, which is to be present and consistent in my work and actions. We endeavor to create a transparent corporate culture, and I look forward to building a long-term relationship with all of you.
spk02: In the first quarter of 2022, despite being affected by the pandemic, The company's performance is still growing steadily and has achieved the first financial profit transfer. This proves the business model of Ruixin Coffee. Here, I would like to thank the hard work of nearly 27,000 Ruixin partners, and thank the knowledge and love of the vast number of customers, as well as the full trust of the investors. Over the past two years, Ruixin Coffee has achieved fundamental improvement in strategy, operation, governance mechanism, management structure, and organizational culture,
spk04: In the first quarter of 2022, despite the impact of COVID-19, our performance continued its strong momentum and we achieved our first quarterly reported operating profit since our inception. This validates the Latin COVID business model. Now, I want to say thank you to our 27,000 Luckin team members for their persistent efforts, to our customers for their ongoing value and support, and to our investors for their trust. Over the past two years, Luckin Coffee has implemented fundamental improvements in the areas of strategy, operations, corporate governance, management structure, and organizational culture. Although the company has retained the same name, Lucky Coffee has been reborn and is essentially a new company. Over the past two years, the previous Board of Directors have helped lead us out of our darkest period and guided our turnaround. Last week, to further enhance our corporate governance and strategic capability, we made changes to our Board of Directors, including welcoming four new members. The current Board of Directors combines old and new members with experienced backgrounds in the areas of strategy, operation, finance, and legal. We believe our new Board of Directors will lead Luckin Coffee to achieve new heights.
spk02: The core management of the company has seven members. Except me, Cao Wenbao is in charge of operations, Zhou Weiming is in charge of products and supply chain, Yang Fei is in charge of platform influence and growth as the company's chief executive officer and co-founder. WUGANG Branch for external cooperation. This time, Rhinos and Jiangshan Branch, who attended the communication meeting with me, are in charge of finance and internal and internal regulation work. They are also the specific responsible people in charge of related historical issues such as foreign countries. The related work will be introduced to you in detail later. The core management team of Yuxing has good academic and professional backgrounds. We have gone through difficult times together and will continue to stick together.
spk04: As can be seen on slide three, our core management team has a total of seven members. In addition to myself, Mr. Wenbao Tao is currently in charge of company operations. Mr. Lei Mingxiu is in charge of product and supply chain. Co-founder Mr. Fei Yang is acting as the company's chat growth officer, is in charge of brand marketing and sales growth. And Mr. Zhang Wu is in charge of public affairs and strategic cooperation. Mr. Raina Shaka and Mr. Shen Jiang, who have joined me on the earnings call today, are in charge of finance and internal control and compliance, respectively. They are also the individuals responsible for solving historical issues, including the restructuring of our financial indebtedness. Raina and Sam will each provide insight into their efforts later in the call. I'm proud that we have assembled this core management team with strong academic credentials and professional experience. This core management team has been working together during our most challenging period and will continue to work hard together for Lock-In Coffee's future.
spk02: Looking back at the 2022 season, we have achieved significant growth due to the outbreak. The net income of more than 24 million yuan increased by 90%. The sales growth rate of the same chain of stores has increased by 42%. The number of stores has increased by 556, and the growth rate has increased by 276. This is the first time that the business profit has changed. In the future, our CFO will share more details about the company's performance and financial performance. In the past two years, WeChat Coffee has been transformed into a company led by a team of professional managers under the modern governance structure.
spk04: This has the impact of COVID-19 outbreaks. We still managed to achieve strong growth in the first quarter of 2022. Total net revenue exceeds RMB 2.4 billion, representing a year-over-year increase of 90%. While the first quarter same-store sales growth rate of our self-operating store reached 42% year-over-year. the number of new stores opened was 556, increasing by 276% year over year. And our operating profit turned positive for the first time in our history. Our CFO right now will share more details on the company's financial performance later on during the call. Over the past two years, Black & Coffee has transformed and developed into a company with an appropriate corporate government structure, lead by professional managers, Our continuous efforts to strengthen our system of internal controls and compliance has enabled us to cut high with the past.
spk02: For the past two years, our board and management have been thinking deeply about and rethinking the company's culture. Regarding the mission of Ruixin, the moment of creation is the original intention of our business, and it is also the source of the name Ruixin. We hope that this cup of coffee can bring a blessing and a beautiful experience to consumers. Coffee is a particularly attractive drink. We also hope to inspire consumers' enthusiasm for a good life through our coffee. Regarding the vision of RuiHsing, in my opinion, world-class coffee brands, their connotations, brand value, number of users, sales volume, number of stores, financial data, and so on, should all be world-class. According to the data that can be seen in the public sector, the number of stores in RuiHsing has become the number one in China. But from other perspectives, there is still a lot of room for improvement. We will continue to work hard.
spk04: For the past two years, our board of directors and the management team have worked hard to think about the re-shift of our culture. Our mission, to create lucky moments and inspire, is our original intention of our business and the source of our name. We hope our products can bring luck and an enriched positive life experience to our customers. coffee is increasingly consumed as there is no beverage in China. And we aim to inspire our customers to achieve a better life through coffee. Our vision, in our opinion, being a world-class coffee brand means achieving world-class level in all aspects of the business, including brand reputation, number of customers, cost of coffee sold, store count, and financials. Based on publicly available information, We are already the largest coffee chain in China in terms of store count, but there are still room for growth in other indicators, and we will continue to strive for it.
spk02: Regarding the value of WeChat, this is the DNA of our team. By reflecting on the history, we have demonstrated our business model, and summarized the lives of employees and consumers, to form these five values. Seeking truth is the key standard of WeChat's value judgment and value selection. Our values, and like in coffee, our core values are part of our DNA.
spk04: We have established five core values which reflect our history, our business model, and the thoughts of our employees and customers alike. Integrity is the most fundamental and important criteria guiding our judgment and choice. Craftsmanship, which is a consistent pursuit of Locking Coffee. Innovation is a major driving force for our long-term growth. Ownership represents the dedication of Locking Coffee's employees. Cooperation. is the powerful bond among our Luckin Coffee stakeholders, both internal and external, who work together and create value to our society.
spk02: The key to the change is to clearly and thoroughly reconstruct the overall strategy and business logic of the company's development. We are more focused and focused on the coffee channel. We believe that the Chinese coffee market has a very high potential for growth. On the business side, The focus of our transformation is to clearly and softly rethink our overall strategy and business. We believe China's coffee industry is the largest market with strong growth potential.
spk04: and therefore we want to focus on our core business, namely our coffee business. From an operation standpoint, this leads that technology will continue to be the driving force in building a new consumption and new retail business model, supported by the three pillars of people, products, and place, to continuously provide products and service with high quality, high affordability, and high convenience.
spk02: In terms of brand sales and growth, we insist that Professional, young, fashionable, healthy brand tone Professional represents WeChat's basic pursuit of product quality. Young and fashionable are the important tone differences between WeChat and traditional brands. We insist on innovation. From products to sponsorships, we are deeply loved by young people. In 2021, in the selection of the consumers' report of the Times Media Group, we won the most popular brand of young consumers of the year. Health is WeChat's continuous trend in life. In terms of brand marketing and sales growth, we have viewed our brand based on professionalism, use, fashion, and value. Professionalism represents our fundamental pursuit of high product quality, use, and fashion.
spk04: It's an important distinction between us and other traditional brands. We adhere to innovation, and our products and brands' ambassadors are well-liked, in particular by the younger generation in China. This is illustrated by our recognition as the 2021 Young Consumer's Favorite Brand by China Consumer Reports. Wellness. We continue to advocate for a healthy lifestyle. Coffee is a well-recognized drink around the world with many healthy benefits. Recently, we launched a new zero-calorie sugar series of iced coffee, which is very popular because of its low-calorie and low-fat features.
spk02: We had average monthly transaction customer of nearly 16 million during the first quarter of 2022.
spk04: with over 29 million subscribers to our official WeChat account. By its publishing multiple self-owned user traffic posts, driven by data and technology, we have managed to reach users through multiple marketing channels and continuously attract and retain new users. In turn, this enables us to realize effective and targeted customer engagement, further driving our performance. This effort has enhanced our brand recognition and reputation, concluding Lacking Coffee into a leading coffee brand in China. In fact, in 2021, Lacking Coffee was ranked number one in the coffee chain industry for the first time in the top brand report, a research report conducted by Yi Magazine, which has evaluated brand preference in China for the last 13 years.
spk02: From the product category, we insist on two-handed grasping. One hand for the professional, one hand for the delicious. For the extreme pursuit of coffee professionalism, we can't live without our continuous investment in the coffee professional supply chain. In terms of raw material procurement, RuiXing has become one of the largest raw bean import companies in China. In 2021, the total import of coffee beans was 15,808 tons. Through the cooperation of world-class coffee bean traders, we purchased high-quality coffee beans with a global advantage. In the second quarter of 2021, WeChat has purchased more than 3,000 tons of high-quality coffee beans from Asia. We have become the largest buyer of Aizai Huakui in China. In April 2021, our first coffee baking factory was officially launched in Fujian. The design capacity is 150,000 tons. Our second coffee baking factory is also in the selection process. In addition to the upstream coffee bean industry chain, In terms of our product strategy, our focus on professionalism and good flavor is critical to our development and success.
spk04: The pursuit of professionalism in the coffee industry goes hand in hand with our continuing investment in the professional coffee supply chain. In terms of procuring raw material, we have become one of the largest importers of green coffee beans in China, importing a total of 15,808 tons of coffee beans in 2021. We source premium green coffee beans from renowned plantations around the world through the world's top coffee bean suppliers. In the first quarter of 2022, we sourced more than 3,000 cups of high-quality green coffee beans from Ethiopia, becoming the largest buyer of Ethiopia's Handela beans in China. In April 2021, we opened our first coffee roasting facility in Fujian province, designed with a capacity of 15,000 cups. In addition, we are currently finalizing site selection for our second roasting facility. Upstream expansion in the coffee bean supply chain allows us to visualize the quality of raw materials in the long run and optimize control over procurement cost of raw materials. This reduces cost while boosting efficiency. We believe continuous investment in our supply chain will help create one of our strongest competitive advantage over the long term. 至于好喝的追求,来自于产品团队优秀高效的数字化研发机制与策略。
spk02: The most important work of our R&D department is not just to produce a certain product, but to build a complete digital R&D system. At present, it has formed a positive cycle that supports each other from the front-end business data to the back-end R&D innovation. From cold latte to raw coconut latte to liquid latte, R&D has become a trend force that leads China's product innovation. Through product flavor form alternative innovation,
spk04: The pursuit of good flavor is achieved by our excellent product development team, which employs efficient digitalization in R&D mechanism and strategy. The most important work of our product development team is not simply to develop popular products, but also to establish a comprehensive digitalized R&D framework. Therefore, we have achieved the virtual circle of combining front-end operational data and back-end product development. Our innovative beverage, such as New Year Latte, Coconut Milk Latte, and Coconut Cloud Latte, have enabled us to become a leading force in beverage innovation in China. By offering innovative products with unique flavor and form, we are able to continuously attract young customers.
spk02: Based on the data that can be seen in the public domain, WeChat has become the number one joint coffee brand in China. By the end of 2020, In terms of our retail store strategy, we have become the largest coffee network in China in terms of the numbers of the store at the end of 2021, based on publicly available information.
spk04: As of March 31st, 2022, we had 6,518 stores in total. Among them, our self-operative store network had a presence in over 50 cities across China, and our partnership store network spent over 220 cities in 27 provinces. Going forward, we will continue to maintain our store expansion strategy through a well-balanced mix of self-operative store and partnership stores. While we expect to continue to expand in Tier 1, Tier 2, and Tier 3 cities through our self-operating store model, we also intend to quickly penetrate into lower-tier cities through the retail partnership model. This will further solidify our market penetration. We believe there is a great potential in China's coffee market, and we are confident in our future store expansion. 技术优势是瑞幸区对于一般传统餐饮企业的最重要优势之一,
spk02: through technology and data to drive the transformation of people and factories to realize all-in-one technology. Weixin's technology ability covers all business chains, covering from data-supporting door-to-door selection, algorithm-driven supply chain purchase, to user sales automation, and door-to-door equipment, Internet management, and other business connections. It is such a digital gene that allows us to quickly meet the needs of consumers, improve supply chain and door-to-door efficiency, use technology to drive research, Our technological advantage is what sets us apart from other traditional F&B companies.
spk04: We leverage our capability in technology and data analytics to drive the evolution of our people-products-play strategy to achieve full technology coverage in every aspect of our business, including data-supported site selection, algorithm-driven supply chain procurement, automated user engagement, and IoT-based store equipment management. Such digital features allow us to quickly respond to customer demands improve supply chain and store operation efficiency, drive research and development, and enhance quality control. This will continue to increase our investment in data algorithms, IoT, and other technology initiatives, including investing in new talent, technology-driven sales and marketing, smart store, and smart supply chain management systems.
spk02: Since March, the outbreak of local unrest has brought a lot of difficulties and uncertainty to the company's business. But in the first step, we have still seen a strong growth in revenue, and for the first time, we have achieved a profit-benefit transition. This benefits our multiple advantages. First, the door-to-door is scientific. Through the different management models of direct sales and direct sales, we are flexible in dealing with the different characteristics of different cities. In addition, the door-to-door type and the long-term structure of Lixing also have a natural anti-wind resistance. In the long-term view, By March of 2022, the outbreaks of COVID-19 in various cities has brought difficulties and uncertainties to our operation. Despite these challenges,
spk04: We continue to achieve strong revenue growth this quarter and achieved, for the first time, quarterly reported operating profits since our inception. Much of this strong performance was fueled by our competitive advantage, including, first, the strategic rollout of our store network. Through our multi-store approach, self-operated store and partnership store, we can flexibly respond to evolving customer needs in different cities. Our store model and location strategy can help us mitigate the challenges posed by the COVID-19 pandemic. For example, as of March 31, 2022, among our self-operative store base, 48% were located in office building and 12% in college. Generally speaking, we were able to remind normal operations in this relatively closed-off location except during strict city lockdown.
spk02: with a small door structure and a highly intelligent door management system, which allows us to adopt a more low-cost rent and human cost structure. Third, the brand is able to push back. Weixing has become the leading coffee brand for more and more young people. In 2021, the number of social media platforms was over 100,000. In the first quarter of 2022, Weixing Coffee won the Winter Olympics.
spk04: Second, a reasonable cost structure. As we mainly operate through a small-scale pickup store, combined with an advanced and intelligent store management system, we are able to achieve a more efficient store rental and labor structure. Third, our strong brand influence. Luckin Coffee has become the coffee brand of choice for more and more young people. In 2021, our coconut milk latte achieved over 100 million topic mentions on the social media. In the first quarter of 2022, we recruited Olympic champion Ali Gu to be our brand spokesperson, resulting in a successful marketing campaign for Luckin Coffee.
spk02: This is a continuous product transformation ability. In the first quarter, we listed 34 new products, including Huakui 5.0, Walden, Huaxue Latte, Luojia Sakura Latte, etc., have all become current stock. Even in the severe April of the epidemic, the first week's sales of Ye Yun Latte, which we updated, exceeded 4.95 million cups. 50 emergency hospitals have been completed. In the case of the epidemic logistics issue, the public chain department fully utilizes the network-based supply system that now has a large number of locations to divide the warehouse, to set up emergency warehouses and mid-term stations.
spk04: Of course, our robust product development capabilities. During the first quarter, we launched 34 new beverage products, including Hanbella specialty, Weldon Chief Newer Latte, and the Vanilla Softly Flavored Weldon Latte, which all become bestsellers. Despite the challenges posed by the COVID-19 in April, our new coconut cloud latte sold over 4.95 million cups in the first week after its launch. Lastly, our well-prepared pandemic emergency plan. Facing logistical constraints during the pandemic, our supply chain department made full use of our existing grid-based warehouse network in multiple locations, quickly setting up emergency warehouse, transportation, and other measures to ensure sufficient supply
spk02: I would like to express my most sincere gratitude to our nearly 27,000 lucky employees who have stuck with us during this challenging time.
spk04: as well as to our customers for their ongoing love and support for Luckin Coffee. At this time, I'd like to turn the call over to Reino and Sam to discuss details related to the restructuring of our financial indebtedness and update on our remediation and internal control and compliance efforts and our financial performance during this quarter.
spk03: Thank you very much, Jingyi, and good morning or good evening to those who are joining us today. I would first like to give everyone an update on the restructuring of our financial indebtedness. As previously announced and as detailed on slide 12, we have successfully completed the restructuring of our financial indebtedness and emerged from all bankruptcy proceedings in all jurisdictions. There are a few milestones that I would like to highlight. With the overwhelming support of our creditors, we successfully restructured the US dollar 460 million convertible notes issued in January 2020 with a close to par recovery for the note holders. We entered into a negotiated resolution with the United States Securities and Exchange Commission. We entered into an agreement to settle the US securities class action lawsuit. This was preliminarily approved by the US courts and it's expected to get final court approval in Q3 2022. We also obtained sufficient U.S. dollar capital to fund the restructuring through a combination of a U.S. dollar $250 million investment by two of our existing shareholders and by remitting U.S. dollar $250 million of our onshore excess cash. Furthermore, in January 2022, a consortium led by Centurion and including IDG and ARIS acquired a significant amount of Luckin shares from the affiliate of Charles Liu and Ziya Qian, both former management of Luckin Coffee. For details of any pending matters, I would refer you to our 20F 2021, filed on April 14, 2022, and in particular item 8A. We are thankful to all of our stakeholders throughout this process. They were instrumental in helping us to achieve a positive outcome and ultimately emerge as a stronger company. Moving forward, our team is highly energized and laser-focused on our future prospects and delivering long-term, sustainable shareholder value. I'd now like to turn it over to Sam Jang, who leads our internal control and compliance efforts and has played and continues to play a critical role in our remediation efforts and ongoing progression.
spk01: Thank you, Gene, and Randolph. Welcome, everyone, and thanks for listening in. First, Let me introduce myself as I'm the newest member of Lucky Coffee's senior management team. My name is Shan Jiang, and I go by Sam. I joined Lucky Coffee in September 2020. I went to Columbia Law School and started my legal career with Davis Polk and Woodwell in the firm's Silicon Valley office. After Davis Polk, I have worked in the legal department at Amazon and at Airbnb. Before joining Lucky Coffee in September 2020, I was the Associate General Counsel of Airbnb. When I joined Lucky, one of my primary missions was to rebuild the company's legal and compliance function and enhance its internal controls. Lucky's rebuilding efforts started with a thorough and independent investigation of the fabricated transactions. From day one, the objectives were very clear. to identify the wrongdoings and to remove those responsible. In March 2020, our board formed a special committee of independent directors, which was assisted by independent legal and forensic advisors to conduct a thorough investigation. The company acted swiftly based on the findings of the special committee. As of July 31st, 2020, the company has terminated all the wrongdoers identified by the special committee and on the do not rehire list. In total, 14 employees were terminated, including the company's former CEO and COO. The board also required the former chairman of the board to resign, who was later removed from the board pursuant to the results of a shareholder meeting. In addition, The company subjected 15 personnel to disciplinary action for missing red flags or failing to identify misconduct. The fact that the fabricated transactions occurred and continued for months before being detected made it clear to management and the board that we needed to enhance our corporate governance and the internal controls. Therefore, we have made significant investments and important changes in these areas. We engaged external firms on internal controls, and we have implemented enhancement measures recommended by those firms to address the root cause of the historical problems. First of all, in terms of governance structure, we restructured the company's management team and changed reporting structure to provide our CFO, Reynolds, full control over the finance department. which was previously managed in part by the former CEO. In order to ensure the highest attention is devoted to maintaining accurate financials, Reynolds has a dotted reporting line to the Audit Committee. Under Reynolds' leadership, we restructured and reorganized our finance function and recruited new talent familiar with US GAAP for key finance positions. We also now have an internal audit function with auditing and IT experts reporting directly to the audit committee. We have rebuilt our legal and compliance function by recruiting new talent to manage our legal, internal control, and internal investigation teams within the function. Moreover, we have taken steps to significantly enhance internal control measures, covering important areas such as payment, accounting, IT, financial disclosure, and others. Just to give some examples, we strengthened controls on payment by requiring all payments to go through centralized office automation systems and the proper internal approvals. We tightened up controls on contract cycle and the investment activities by implementing a contract approval matrix on the OA system and setting up a procurement review board of senior management. We improved IT-related controls by recording all changes in the system conducting peer audit and audit reviews, tightening IT system access control, and requiring independent IT review by the internal audit team. We developed and strengthened a number of compliance policies and programs, such as a waste of lower program, anti-fraud program, conflict of interest and related party transaction policies, gift and entertainment policy, and insider trading policy. As a result of these efforts, and as stated in our 2021-2021 filing, we did not identify any material weaknesses as of December 31st, 2021. And our auditor concluded that the company's internal control over financial reporting was effective as of the end of 2021. For details on our internal control enhancements, please refer to our 2021 disclosure under item 15 for the financial year 2019, 2020, and 2021. We believe our significant investment in corporate governance and internal control has played a critical role in our turnaround story. Lock-In Coffee's leadership team are committed to continuously investing in these important areas to support our future goals. Now back to Reynolds to discuss our Q1 financial results. Thank you. Thank you, Sam.
spk03: I will now turn to our Q1 2022 performance. Before I discuss our financial results, I would like to provide some context on the recent COVID-19 situation in China and the impact on our business. Since the end of 2021, cases of the Omicron variant have emerged in China, spreading to several major cities, including Beijing, Shanghai, Shenzhen, and Shenzhen. In terms of what it means for our business, temporary store closures as a result of COVID-19 gradually increased during the first quarter. March was the most impacted month during the first quarter. We had an average of around 700 daily temporary store closures. Starting early April 2022, as Shanghai entered into a citywide lockdown, this number further increased. And for the period between April 1st, 2022 and the day prior to this earnings announcement, the daily average number of temporary store closures was around 950. There has also been increasing pressure on our supply chain, in particular in areas surrounding the affected cities. Because we've been operating in an environment affected by COVID-19 since early 2020, we have been able to act swiftly and decisively to address the dynamic environment. For example, we strictly implemented a set of measures for our stores in the government-identified high-risk or medium-risk areas. These measures included monitoring and safeguarding our personnel's health conditions on an ongoing basis and implementing social distancing rules for our in-store and delivery services process. We simplified our menu to streamline our operations and added a new menu for bulk purchases. We set up temporary warehouses in several cities, including Beijing and Shanghai, and activated our specifically designed epidemic warehouse and logistics plan to ensure stabilization of our operations. Finally, we also deliver thousands of food packages to our staff in lockdown areas, including in Shanghai and Beijing. Despite these measures, the impact on our financial results in the first quarter was nonetheless substantial and continues to impact our business into the second quarter. We are encouraged by the recent government initiatives to introduce measures to support the local economy and have seen a partial reopening of Shanghai and will continue to keep a close eye as that progresses. That said, The lack of visibility from this uncertain and unclear operating environment means we will not be providing any forward-looking guidance on this call. Despite the challenges to our business from this recent outbreak, our sound strategy and solid execution have ensured we delivered strong results during the first quarter, as detailed on Flight 15. I'll now discuss some specific highlights from the quarter. We are pleased to deliver our first quarterly reported operating profit since our inception. This is a milestone we are very proud of and one that is an illustrative of the early success of our revised strategy under the current management team and our relentless focus on execution. And let's look at our revenue growth. We achieved total net revenues of 2.4 billion renminbi during the first quarter, an increase of almost 90% compared to the same period last year. This is due to very strong demand for our products. We sold on average 2 million products per day across all of our sales channels, which is an increase of 86% compared to last year. We also introduced over 34 newly freshly built products during the quarter, which contributed materially to incremental sales. And this success continued in April when our new Coconut Cloud Latte sold over 4.95 million cups in the first week after its launch. During the quarter, we also achieved an increase in net average selling prices compared to last year. In terms of new unit growth, we opened 556 net new stores, a significant acceleration from the most recent quarters, and I will elaborate on this a bit more during this presentation. For our self-operated stores, we delivered same-store sales growth of over 40% and a store-level operating profit margin of just over 20%. This compares to a 6.2% store margin for the same period last year and a loss-making position in the year prior to that. I should also note that historically, the first quarter is seasonally our weakest quarter for our self-operated stores as a result of fewer purchase orders during Chinese New Year holidays. For our partnership stores, revenue grew by approximately 240%, and now represents around 23% of our total revenues compared to just under 30% last year. I will elaborate on our partnership business model and strategy momentarily. Overall, we are very pleased with our results and believe these illustrate the strong momentum of our brand, the huge demand for our products throughout China, and clear benefits of our skill and our technology-enabled operating model. Let's look at our unit growth and break it down a bit further. As I mentioned, and as can be seen on slide 16, we opened 556 net new stores during the quarter, which is materially higher than the last few quarters and reflects the strong demand for our products nationwide. This unit growth in the first quarter is partly in anticipation of the Beijing Olympics in February 2022 and the promotional activities surrounding the Olympics to ensure we could capitalize on that momentum. In terms of store mix, we opened 278 net new stores for both self-operated and our partnership stores respectively. This mirrors our strategy to gain market share by increasing our store footprint nationwide through an optimized mix of self-operated and partnership stores. I should mention that as part of the strategic review in 2020, we implemented revised store opening criteria to focus on the quality of new store openings. This is a very important point because we care deeply about the quality of our growth. To illustrate this point, for all the new self-operated stores open during 2021 that are in operation as of the 30th of April 2022, almost 90% of these stores were profitable on a store level in the third full month after opening. Moving on to discuss our partnership model on site 17. As I mentioned earlier, revenue of our partnership stores, which is predominantly for profit sharing and from sale of materials and equipment to our partners, is now just under a quarter of our total revenues in the first quarter and has been rapidly expanding. This forum provides a good opportunity for me to update everyone on our partnership store logic and strategy. First, in terms of our business model and key responsibilities, Luckin Coffee is responsible for all technology, data gathering and analytics, product selection and innovation, supply chain and marketing. Our partner will be responsible for funding and securing the location, renovations, equipment purchases, staff hires, and managing daily operations. Our partnership model is different compared to a traditional franchise model. For example, we obtain customer payment and data and require our partners to use our supply chains. We therefore have significant control over our partners' operations. From a quality assurance perspective, we treat our partnership stores in essentially the same way as our self-operated stores and are determined to maintain the high-level and consistent service quality across all of our stores. The key advantages for our partners include the following. Very strong demand for products given Luckin's premier brand recognition, innovative product portfolio, and proven value propositions. favorable partnership terms. For example, no initial upfront partnership fee other than a refundable deposit. No profit sharing if the partner is loss-making at the gross profit level. However, the partner will generally have to fund operating losses. And we charge a profit-sharing fee based on a tiered profit-sharing mechanism only once the operations are profitable. And lastly, an attractive payback period for our partners. The key advantages to Locking Coffee include the rapid expansion of our footprint and nationwide presence, limited upfront capital requirements, complementary effects to our self-operated store model with partnership stores targeting predominantly lower tier cities, further diversification. Partnership stores typically perform better during the weekends and holidays, which is the opposite of our self-operated stores. And lastly, attractive economics with favorable returns on invested capital. We will strive to continue to extend our partnership stores, and as of the date of this earnings report, we have a strong pipeline of potential partners. There are a few important points to make on our improving profitability profile as illustrated on slide 18. First, I want to highlight our store-level profit margin for self-operated stores. This is one of our most important KPIs and a key area of focus. This metric includes all direct expenses that can be allocated for our sales operated stores, but excludes all overhead expenses. A clear definition is provided in the 6K we filed earlier today. We achieved a store margin of just over 20% as a result of a material increase in average revenue per store, our efficient store operations and benefits of scale. This is a significant improvement over last year and already exceeds the full-year store-level profit margin for 2021. Now, in terms of our overhead expenses, let's first look at sales and marketing and our general and administrative expenses. As mentioned by both Jingyi and Sam earlier, we have made significant investments in our organization, talent acquisition, and brand recognition. As a result, our overhead expenses have been increasing as our business expanded. However, as a result of our increasing scale and operating leverage, all key cost components have been decreasing as a percentage of revenue sequentially. Our current organization is built to support our future growth, and we currently expect these expenses to further decrease as a percentage of revenues over the coming years if we can continue to deliver growth. Furthermore, there's been a material reduction of losses and expenses related to the restructuring since the provisional liquidation of the company in the Cayman Islands was completed in March 2022. This further contributed to our improved profitability profile. Lastly, let me address our balance sheet and liquidity position on slide 19. Let me start with our cash flow. During the quarter, we achieved positive operating cash flow of around 108 million renminbi, which was more than sufficient to cover all of our capital expenditures during the quarter which were around 70 million renminbi. In terms of our balance sheet, let me highlight the following. We had over 5 billion of renminbi of cash and cash equivalents at the end of the quarter, which was predominantly held in local bank accounts to support our onshore operations. The decrease in cash and cash equivalents during the quarter was primarily due to the repayment of senior convertible notes as part of the restructuring of our indebtedness and purchase of property and equipment, offset by the proceeds from issuance of senior preferred shares and operational cash generation. In terms of our liability, our only outstanding interest-bearing debt is the $109.9 million five-year note that we issued to the holders of the convertible bonds on the 28th of January, 2022. For the US securities class action, we have a funding requirement of $175 million prior to June 30, 2022, and we have the required capital available to fulfill this obligation. Currently, we have a strong liquidity position and a healthy balance sheet. We believe we are relatively well positioned to deal with any uncertainty, including from further COVID-19 outbreaks, and we'll continue to invest in our core competencies. A good example is our content-related investment to construct a second grocery facility in China, which Jingyi mentioned earlier. This will support the rapidly increasing demand for our coffee-related products and ensure the highest quality at the best possible price. Finally, we will review our liquidity requirements on an ongoing basis to ensure that we can meet all of our business needs and continue to further optimize our capital structure. Thank you. I'll now turn it over to Jin Yi for concluding remarks.
spk02: Finally, I would like to thank the investors again In the past two years, RuiHsing Coffee has achieved a comeback. We are working hard to create a team that is the most competitive and full of passion in China's consumption channel. We are exploring how to form a more efficient and advanced business model in the field of consumption. We will do our best to make RuiHsing a century-old corporate brand, a world-class coffee brand, To conclude, I would like to once again thank our shareholders for their unwavering support over the last few years, which have enabled us to achieve this turnaround.
spk04: We believe the best is yet to come. We are striving to be the most effective and passionate team as we seek to create a more efficient and advanced business model in China's consumer market. We remain committed to building Luckin Coffee into a longstanding world-class coffee brand and achieve sustainable, healthy, and long-term growth. We remain dedicated to the capital market and strive to drive returns and deliver long-term value for our shareholders and to the society. Thank you for your time and interest in liking coffee. Thank you.
spk05: This concludes our conference call for today. You may now disconnect.
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