This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Ladies and gentlemen, welcome to Luckin' Coffee's first quarter 2023 earnings conference call. All participants will be in listen-only mode during management's prepared remarks, and there will be a question and answer session to follow. Today's conference is being recorded. At this time, I would like to turn the call over to Ms. Alicia Guo, the head of investor relations of Luckin' Coffee, for prepared remarks and introductions. Please go ahead, Alicia.
spk02: Hello, everyone. And thank you for joining us on today's call. Locking Coffee announced its first quarter 2023 financial results earlier today. Today, you will hear from Dr. Guo Jingyi, Chairman and CEO of Locking Coffee, and Ms. An Jing, CFO of Locking Coffee. After the company's prepared remarks, the management team will conduct a question and answer session based on questions submitted via the company's webcast. 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. The IR website link is investor.lkcoffee.com. During today's 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. Forelooking statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in the company's filing 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 price release issued earlier. 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 Jingyi, Chairman and CEO of Locking Coffee. Dr. Guo, please go ahead.
spk04: Hello, everyone. Welcome to today's business communication. Thank you for your continued attention and support for Ruixin Coffee. I am the CEO and CEO of Ruixin Coffee, Guo Jinyi. In the first quarter of this year, with the adjustment of epidemic prevention and control measures, the catering industry has recovered rapidly, and the market competition has gradually increased. Faced with a fierce competitive environment, we have still achieved high-speed growth in income and profits, and the size of our stores and the number of users has risen again. At the beginning of April this year, Sennin Latte was listed for two years, with a sales of more than 300 million cups, becoming a worthy annual innovative consumer product. Last year's and this year's first quarter's outstanding performance proved that RuiXing's business model is effective and resilient, with a large-scale efficiency advantage and growth performance, as well as a stable product quality and high brand recognition. In the future, we will firmly expand the market share and prove to the market that RuiXing is powerful and efficient in operation. We will speed up the opening of stores and launch more good and inexpensive products. With higher quality products, more convenient service delivery, more friendly prices, and comprehensive feedback from consumers, we will achieve strategic goals to speed up the increase in market share. Hello everyone. Welcome to today's earnings conference call. And thank you for your continued support of Lacking Coffee. I am Lacking's chairman and CEO Guo Jingyi. In the first quarter of this year,
spk02: With the adjustments of pandemic prevention and control measures, the restaurant industry recovered rapidly and market competition gradually intensified. Despite the very competitive environment, we still achieved a rapid growth in both revenue and profit. with the numbers of stores and consumer reaching record highs. By the beginning of April this year, the second anniversary of our launch of Coconut Latte, sales of our Coconut Latte have surpassed 300 million cups, making it a well-deserved innovative consumer product of the year. Our strong performance in 2022 And the first quarter of this year is a testament to the effectiveness and resilience of our business model, the efficiency and growth potential that comes with scale, as well as our consistent product quality and high brand recognition. In the future, we're determined to expand our market share and prove the market that we have strong and efficient operational capabilities. To achieve our strategic goals of increasing market share, we will accelerate the pace of store openings, launch more delicious and affordable products, and give back to consumers with higher quality products, more convenient services, and friendlier prices. We will adhere to the principle of healthy and sustainable development of our business, maintain a long-term perspective, stay grounded and build a world-class coffee brand.
spk04: Specifically, the first quarter not only continued the good growth performance in the past, but also reflected the scale advantage of the business. Among them, the total income of 4.4 billion yuan increased by 84.5%, the operating profit rate increased by 15.3%, and the operating profit rate increased by 25.2%, and the sales growth rate increased by 29.6%. CFO Anjing will share more detailed financial data with you later.
spk02: Looking at the numbers, the first quarter not only sustained the good growth momentum from the previous quarters, but the outstanding performance also demonstrated the scale advantage of our business. In particular, total net revenue increased by 84.5% year-on-year to RMB 4.4 billion, with a GAAP operating profit margin of 15.3%. The self-operated store profit margin was 25.2%. And the same store sales growth rate was 29.6%. Additionally, there were 1,137 net new store openings, bringing the total number of stores to 9,351, and the cumulative number of customers reached 150 million. The number of average monthly transacting customers was 29.49 million. CFO An Jing will provide further details on the financials later.
spk04: In 2023, we will seek sustainable development work on the basis of zero-to-one, deepening and interesting landing for the entire business line. In order to promote Rui Xingzai's pursuit of long-term value, actively and actively take on social responsibility, and help the industry to develop in a positive way, we will make breakthroughs. While continuing to promote sustainable development management structure and mechanism, we will fully develop the construction work of sustainable development strategic goals. In the first quarter, we officially launched the carbon survey work to face the entire business line to ensure the high efficiency and high quality of the relevant work. Yueqing Coffee and the Development Committee established the Climate Change and Carbon Conversion Committee, which is responsible for the recognition and control of climate change risks and opportunities in the greenhouse gas emissions and climate change risks. In 2023, we will seek to strengthen and systematically implement sustainable development across our entire business, building on the foundation of our sustainable development breakthrough from zero to one. We aim to pursue long-term value
spk02: actively take on social responsibilities and promote the healthy development of the industry. While we continue to promote the establishment of a sound sustainable development management framework and mechanism, we will comprehensively carry out the formulation of sustainable development strategies and objectives. In the first quarter, we officially started to take carbon inventory of our entire business. In order to ensure the efficient and effective implementation of the related work, our Sustainable Development Committee has established a subcommittee on climate change and carbon neutrality, which is responsible for the overall planning of our company's carbon peaking and carbon neutrality. as well as the identification and control of climate change risks and opportunities. Under the leadership of the subcommittee, we have established working groups that focus on the key areas of our business, which will help us develop a comprehensive plan for achieving carbon neutrality that is both scientifically sound and can be effectively implemented.
spk04: Creating world-class coffee brands and making Ruixin a part of people's daily lives is our business vision. At the end of March this year, Ruixin Coffee opened two stores in Singapore and entered the market business stage. The two stores are located in the fashion trend gathering place in Singapore. After opening, it received widespread praise from young consumers. The landing of Ruixin Coffee in Singapore is the first important step in the layout of the overseas market. We hope to use the Singapore market as an international starting point to run through the overseas business model of Ruixin Coffee and further polish our entire IT system and operating system. With the brand positioning of Ruixin, professional, young, fashionable and healthy, and the advanced new retail coffee business model, let more consumers around the world taste Ruixin's high-quality coffee.
spk02: Our corporate vision is to create a world-class coffee brand and making Locking Coffee a part of people's daily lives. At the end of March this year, Locking Coffee opened two new stores in Singapore, which are in the trial stage. The two stores are located in a fashionable and trendy area of Singapore and have already been widely praised by young consumers since their opening. The launch of Lucky Coffee's Singapore store is an important first step in our expansion into international markets and is the starting point of our internationalization strategy. By establishing a presence in Singapore, we aim to fine-tune our entire IT and operations system and test our business model in the overseas markets. Our goal is to make Luckin Coffee's high-quality coffee accessible to consumers worldwide by leveraging our brand's professional, youthful, fashion, and healthy image and our new retail coffee business model.
spk04: In terms of brand, Ruixin continues to strengthen its professional, young, fashionable, and healthy brand tone and successfully attracts more new users. By the end of the first quarter, the total number of consumer customers reached 150 million, and the total number of monthly transaction customers reached 29.49 million, which is a double increase. In March, the number of monthly coffee consumer users broke 30 million, creating a new record in history. In terms of products, while we are constantly making money, we are deepening our professional ability, and we are accumulating market power at the development, supply chain, and scale levels. In the first quarter, the first week sales of Biluozhichun Latte reached 4.47 million cups. In April, the first week sales of Binxi Business Latte broke 6.66 million. The sales amount broke 2.4 billion yuan, becoming the most valuable bomb king. In terms of coffee professional quality, we continue to invest more and more. In March of this year, Ruixin launched the Global Fight Project, led by Antonio Douglas, the world coffee competition champion in 2022, and 10 Ruixin Coffee researchers with Cougar Raider certification. They went deep into the world's six best coffee industries to find high-quality coffee beans for Ruixin coffee consumers.
spk01: In terms of brand, we continue to enhance our brand identity by positioning ourselves as professional, young, fashion, and healthy, which has been successful in attracting new customers. As of the first quarter, our cumulative transacting customers reached 150 million. and the number of average monthly transacting customers has reached 29.49 million, which is double the figure from the previous year. In March, the number of Locking Coffee's transacting customers exceeded 30 million, a record high.
spk02: In terms of products, we're not only focused on creating innovative and popular beverages, but also on strengthening our professional capabilities in research and development, supply chain management and expansion. In the first quarter, our Bi Luo Chun-flavored New York Latte sold 4.47 million cups in its first week, and our Minty Coconut Latte launched in April sold over 6.66 million cups in the first week, generating over $240 million in revenue. We are also committed to increasing our investment to produce high-quality coffee. In March, we launched the Global Coffee Bean Search Plan, led by Anthony Douglas, the 2022 World Barista Championship champion, and the 10 certified Q grader Lacking R&D personnel. Their mission is to explore high-quality coffee beans for lacking coffee consumers in the world's six major high-quality coffee producing regions.
spk04: By the end of the first quarter, Ruixin is still the largest chain coffee brand in China, and will continue to grow rapidly. We have a total of 9,349 stores in China, covering 240 cities. The number of stores in the first quarter has increased by 1,135. With the introduction of more brands, the competition in the Chinese coffee market will be more intense. Therefore, We will still actively encrypt the number of high-end city stores, and accelerate the expansion and down payment of the market through the chain mode. In terms of public chain, we will continue to increase investment and further expand the basis of the market. After Ruixin Jiangsu Hongbei base officially broke the ground in December last year, Ruixin Yunnan Baoshan Shandong processing plant will also break the ground at the end of this year. As of the end of the first quarter, we remain the largest coffee chain in China in terms of the number of stores.
spk02: and we aim to continue to grow at a rapid pace. We had 9,349 stores in 240 cities with 1,135 net new store openings in the first quarter. As competition in the coffee market in China intensifies, we will continue to expand our presence in higher tier cities and accelerate our penetration in new markets through our partnership model. We will also continue to invest in our supply chain to maintain our competitive edge. Following the official groundbreaking of Locking Jiangsu Roastery last December, the Yunnan Baoshan Green Bean Processing Plant will break ground at the end of this year. Our investment in the supply chain has created higher barriers to entry and deeper moats, and also allow us to optimize our costs. These are the key highlights of our performance in the first quarter. Next, we invite CFO An Jing to present the financial data and commentary. Thank you very much, Jingyi.
spk03: Good morning, afternoon, and evening, everyone. Thank you for joining us today. Our team has delivered a stellar quarter, and I'm excited to share over with us. But first, I want to recognize our hardworking employees, loyal customers, partners, and investors for their support. Without you, our rapid growth would not be possible. So thank you. Before I begin my financial remarks, I would also like to point out the changes to the definitions of certain metrics that will be mentioned today. First, delivery fees derived from self-operated stores paid by our customers has been added to revenue from self-operated stores on top of the previously included revenue items. Second, commissions to third-party platforms related to self-operated revenues has been deducted from store-level operating profit of self-operated stores, in addition to the previously reported deduction of cost items. Please note that the historical comparative metrics have been adjusted to reflect these definition changes. Now I will take some time to highlight our 2023 first quarter results in detail. Let me begin with a high level of review of the quarter. Our exceptional first quarter results were not only a product of our team's hard work, but also propelled by the net positive economic factors. During the first quarter of 2023, although there were some indications of uncertainty in the macroeconomy, we benefited from the positive trends in China. We have also seen a clear rebound in consumer spending with the lifting of COVID restrictions in China, which encouraged consumption as people across the country gradually returned to their pre-COVID routines. We believe that China's strong economic fundamentals and supportive policies provide a favorable backdrop for our business operations, and we look forward to continued success in the Chinese coffee market. As for Lock-in in particular, business has improved both quarter over quarter and year over year. And we continue to see a positive trajectory. Since the start of 1st February, we were pleased to see the consumption trends bounce back to a more normalized level. And our store operating rate has recovered to pre-COVID level. In addition to the supportive macro factors, Luckin's store and manual expansion has driven strong readouts. and we are delighted to report that our business demonstrated robust growth and improved probabilities in Q1 2023. We reported a record high first quarter with RMB 4.4 billion of net revenues, an increase of 84.5% compared to the same period of last year. If we take a closer look, we see growth across all our revenue streams. Following the updated definition as mentioned above, net revenue of our self-operated stores reported 74.9% year-on-year growth, with SSSG for self-operated stores of 29.6%. Meanwhile, our partnership revenues grew by 106.7% in the first quarter and currently amounts to 25.6% of our total net revenues. We have also enhanced our profitability and recorded operating profit margin of 15.3%. compared to 0.7% in the first quarter of 2022, a result of the team's efforts to improve our profitability structure through quickly expanding scale to meet the growing market nets while efficiently controlling costs. Our team also made excellent progress in customer engagement during the quarter, with the lifting of COVID restrictions and consumer confidence increased, achieving year-on-year growth in average monthly transacting customers of 84.6%, an increase from 60 million in Q1 2022 to 29.5 million in Q1 2023. We are very confident in the excellence of our products as well as the strength of our business strategy, which has clearly produced results for our stakeholders. Across various market cycles, we have proven the robustness of our business model and our capacity to withstand difficult circumstances. At the same time, we are excited by the momentum of our growth and expansion, which continues to persist. To meet the continued demand for our products, in the first quarter, we had 1,135 net new store openings, covering 240 cities in China and 2 new stores opened in Singapore. Moreover, as discussed above, our stock operation REIT has normalized with covering consumer demand. We now have a footprint of more than 9,300 stores as of March 31, 2023, which provides us with significant benefits of scale. This has resulted in an enhanced profitability structure and increased revenue and operating margins. In terms of the store mix, we opened 658 net new self-operated stores this quarter, including two stores in Singapore. For our partnership stores, we opened 479 net new stores and entered into more areas in the lower-tier cities. As of March 31, 2023, we had more than 6,300 self-operated stores and over 3,000 partnership stores. Our expansion plans are strategic and aimed at increasing our presence, brand awareness, revenue, and efficiency of scale. Our strategy is to increase store density in tier 1 and 2 cities while rapidly penetrating lower tier cities to further improve store coverage and better meet customer needs. We are pleased to see the steady execution of our expansion strategy unfolding as it continues to contribute to the building of value for all our stakeholders. I would like to take some time now to discuss the details of our improved profit profile. Our reported overall operating margin in Q1 was 15.3%, a significant increase when compared to 0.7% in Q1 of a prior year. mainly driven by strong business growth and improved efficiency from cost controls, technology-driven operations, as well as enhanced benefits of scale. Also, I would like to point out that by leveraging our operation efficiency, Our operating expenses as a percentage of net revenues decreased to 84.7% in the first quarter of 2023 from 99.3% in the same quarter of 2022. In addition, our achievements in scale, cost, and efficiency trickled down to our bottom line, and we are pleased to report that our net margin achieved double digits in the first quarter at 12.7%. Following the updated definition as mentioned above, store-level operating profit margin of self-operated stores maintained its growth momentum and reached 25.2% in the quarter compared to 18.5% in the same period of last year. We believe the improvements were primarily driven by our active approach to new product launches, store expansion, and operation efficiency, which are really the three largest buckets that are moving the needle in how we expect to further improve the margin in the coming years. For partnership stores, as mentioned in previous quarters, we don't disclose any metrics on profitability. However, as illustrated in the ER issued earlier today, revenue contribution from partnership stores increased 106.7% year-over-year to RMB 1,135.4 million during the quarter. In addition, we are glad that our overhead expenses ratio continued to be more efficient and resilient during the quarter. Our general and administrative expenses on an absolute value basis increased by 11.7% year-over-year. which was mainly a result of the increase in payroll costs for headquarter staff, tax surcharges, R&D investments in IT initiatives, and expenditures for office supplies, with partially being offset by the decrease of share-based compensation for restricted share units and options issued to management and employees. The G&E expenses as a percentage of revenue decreased from 13.3% in Q1 last year to 8.1% this quarter. The sales and marketing expenses ratio was stable at 4.5% this quarter, while the absolute value increased 84% year-on-year. We continue to spend more on strategic branding investments through various channels, more on subcontractor service fees to support our e-commerce business, as well as on commissions to third-party delivery platforms which are in line with the increase in the number of delivery orders. Expenses related to the previously reported fabricated transactions and related restructuring amounted to 0.1% of net revenue in the first quarter of 2023, compared to 1.6% of net revenue in Q1 of the prior year. This is largely due to the successful completion of our professional liquidation in March of 2022 and overseas investor litigation settlements that are near completion. We believe the expenses related to the previously reported fabricated transactions will continue to diminish. During the first quarter, we experienced a positive operating cash flow of RMB 1072.6 million compared to RMB 107.7 million in the same quarter of 2022. In terms of our balance sheet, we now have no interest-bearing debt and our cash position remains very strong, which are about RMB 4.4 billion of cash and cash equivalents, restricted cash and short-term investment, which is around $638.7 million as of March 31, 2023. we have a healthy balance sheet, and we will regularly evaluate our liquidity requirements to ensure that we can meet our business needs and further optimize our capital structure. I will now turn it over to Jingyi for concluding remarks, followed by Q&A.
spk04: Ruixin Coffee has achieved such outstanding results today. We can't live without the love and support of consumers, the support of partners and the trust of investors. Here, we express our sincere gratitude to all of you. We will use better products and better prices to provide you with good and inexpensive coffee.
spk02: The outstanding achievements of Locking Coffee today are only possible with the love of our customers, the support of our partners, and the trust of our investors. We express our heartfelt gratitude to all of you. We will continue to deliver better quality and better prices and provide you with coffee that is delicious and affordable. We will continue to focus on the long-term value of our brand and strive to make Lacking Coffee a world-class and centennial brand with enduring prosperity. And we work towards achieving long-term healthy, high-speed, and sustainable growth. Thank you. Now we would like to open the floor to questions.
spk00: Ladies and gentlemen, we will now begin the Q&A session. I will turn the call over to Alicia Guo at Luckin Coffee, who will moderate today's Q&A session.
spk02: Thank you. Now, let's begin with the first question. How does the company perceive the competition in the Chinese coffee market? And what actions does it plan to take in response?
spk04: Thank you for your question. In the past three years, the Chinese coffee market has developed rapidly. The market competition is very intense. More brands have brought more vitality to the market and provided more choices to consumers. We welcome such a positive competition and are willing to cultivate the Chinese coffee market with everyone to make the market bigger and stronger. Of course, we will also actively participate in the competition and continue to pay attention to customer value and return customers with better prices for a long time. RuiHsing has established significant scale advantages and cost advantages through years of hard work. This allows us to maintain a reasonable profit rate while achieving competitive prices and volume. It is difficult for other brands to compete with us in these two areas at the same time. We are full of confidence in the competition. Recently, we have also launched a part of the store to participate in the 9.9 e-commerce event. We hope to continue to launch innovative marketing activities to continue to improve the customer and operating capabilities of these stores. At the same time, it is also through the event to return to the vast majority of consumers who have supported and loved Ruixin for many years. From the perspective of the results of the stage, the participation in the store has significantly improved overall sales and revenue, making consumers more affordable. We plan to continue to do this activity for a long time. This is not only a great move to promote the maturity and development of the Chinese coffee market, but also an important indicator of putting consumers in the first place.
spk02: Thank you for your question. Over the past three years, the Chinese coffee market has seen rapid growth, leading to intense competition among brands. We welcome this competition as it brings vitality to the market and offers consumers more choices, leading to a higher market growth potential. At the same time, we plan to vigorously compete by focusing on consumer value and providing competitive prices. We have established the significant scale and cost advantages through years of efforts. This has allowed us to maintain a reasonable profit margins while offering competitive prices in cup volumes that are difficult for other brands to match. We're confident about our ability to beat the competition. We recently launched a 9.9 RMB store celebration event for some stores to continue to improve consumer acquisition and operation capabilities through innovative marketing activities. The event also serves as a way to give back to a large number of consumers who have supported and loved Lock-in Coffee over the years. The participating stores have seen a significant increase in overall cup volume and revenue, benefiting more consumers. We plan to continue this event in the long term to further drive the growth of the coffee market in China, and it is an important embodiment of putting consumers first. Thank you, Dr. Guo. Let's move on to the next question. Congratulations on the solid first quarter results. We noticed that in this quarter, the company's operating profit margin achieved the double digit again. Could you please share more color on this? What are the key drivers behind this?
spk03: Thank you for the question. As I mentioned before, our OP margin achieved a record high of 15.3%, and our store-level operating profit margin of self-operated store maintains its gross momentum and reached 25.2%. I believe there are three key drivers. First, With the lifting of restrictions and the gradual recovery of the economy, we saw incremental sales from our expansion of stores and menu. In the first quarter, we opened over 1,000 new stores and launched 24 SKUs. Our average monthly transacting customers reach about 30 million. In this quarter, the newly launched Bi Luo Chun flavored newer latte has sold 4.4 million cups within the first week since launch. All the above achievements contribute to our total sales. Meanwhile, enhancing our burning power and facilitating our sustainable growth. Second, in addition to sales growth, our OP margin also benefited from the improved efficiency from cost controls and technology-driven operations. We were glad to see our technology-driven operations success reflected in our G&A operating leverage visualized this quarter. The G&D expenses as a percentage of revenue decreased to 8.1% this quarter from 13.3% in Q1 last year. Lastly, the decrease of expenses related to the previous fabricated transactions and the related restructuring. These expenses decreased to RMB 5.9 million or 0.1% of net new revenue in this quarter compared to RMB 37 million or 1.6% of net revenue in Q1 of the prior year. This is largely due to the successful completion of the debt restructuring and near completion of overseas investor litigation settlements. In the future, we will continue to expand our store and menu. Meanwhile, continue to invest in the technology-driven operations to enhance our operating efficiency. Has coffee become a daily ritual for more and more Chinese customers? We are confident that we will continue to experience the benefits of our expanding skills, the strength and awareness of our brand, and the advantage of our operating leverage.
spk02: Thank you, Misen. The next question is, could you please update the company's store opening targets for 2023 and comment on the pace of future store openings? 感谢您的提问。
spk04: At present, RuiXin Coffee's goal of 10,000 stores will be realized in advance in the first half of this year and become China's first chain coffee brand with tens of thousands of stores. Over the past three years, we have built a digital selection and store expansion management system that is leading the industry. After systematic analysis and analysis, we believe that there are still a lot of market space in the first and second-tier cities, as well as in the low-tier cities, that can meet the demand of Ruixin. The market space is far from being saturated, and as the acceleration of coffee consumption in China is promoted, the number of open stores is still expanding. We are full of confidence in the future expansion of open stores. We will pay close attention to market changes, maintain a strong competitive opening rhythm, and continue to improve the density of door-to-door coverage of liquid coffee to better meet the consumer's needs.
spk02: Thank you for your question. Currently, it appears that our goal of opening 10,000 stores will be achieved in the first half of this year. This will make Lacking Coffee the first coffee chain brand in China to exceed 10,000 stores. Over the past three years, we have built a leading digital site selection and store expansion management system. After systematic analysis and assessment, We believe that there are still many potential locations that meet our selection criteria in both first- and second-tier cities, as well as lower-tier cities. The market space is far from saturated, and with the acceleration of coffee consumption in China, the space for opening stores is still expanding. We're confident in the future expansion of our store network. We will closely monitor market changes, maintain a strong competitive pace of store openings, and continuously improve Locking Coffee's store coverage density to better meet consumer demand. Thank you, Dr. Guo and Ms. An. That is all the time we have for today's earnings conference call. We thank you for your participation on today's call. We look forward to providing you with regular business updates and look forward to speaking with you again next quarter.
spk00: This concludes our call today. You may now disconnect.
Disclaimer