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 2024 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.
spk03: Hello, everyone, and thank you for joining us on today's call. Locking Coffee announced its first quarter 2024 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. Forward-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 today. 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.
spk02: Hello, everyone. Welcome to today's press conference. Thank you for your continued attention and support for Ruixin Coffee. I am Ruixin Coffee's Chairman and CEO, Guo Jinyi. This quarter, in the face of a market environment based on challenges, Ruixin Coffee has still achieved high-speed growth with advanced business models, various product innovations and scale advantages. and the number of stores is rising again. However, with the fierce competition in the industry and the fluctuation of the public relations environment, the profits have fallen. Faced with a diversified market environment, the company has made actual adjustments and established a stable and sustainable expansion strategy, making the company's basic market more stable and balanced. At the same time, RuiHsing continues to return to consumers, With the rapid expansion of our store, our total number of users has again reached a new high. In the future, we will continue to steadily advance according to certain strategies. Hello everyone, welcome to today's earnings conference call, and thank you for continuing to support Lacking Coffee. I am Lacking Coffee's Chairman and CEO, Guo Jingyi.
spk03: This quarter, despite a market landscape filled with both opportunities and challenges, Locking Coffee continued to achieve rapid revenue growth and reach a new record high in our total number of stores. This was made possible by leveraging our unique business model, continuous product innovation, and skill advantages. However, as industry competition intensifies and macroeconomic conditions fluctuate, we have experienced a slight dip in profits. Adjusting to the current market environment, Locking Coffee has quickly recalibrated its approach and solidified a resilient, sustainable expansion strategy so as to lay a solid foundation for the company's sustainable growth. Meanwhile, Locking Coffee continues to reward its customers by offering promotions like the 10,000-store celebration event, ensuring more people can enjoy high-quality coffee at affordable prices. With the rapid expansion of our stores, we've achieved a new historic high in cumulative transacting customers. We will continue to maintain a steady progress moving forward based on our established strategy. While continuing to reward our customers, we will also focus on expanding our market share and consistently providing consumers with high-quality, affordable, and convenient coffee offerings. Through these efforts, we aim to drive continuous development of the Chinese coffee market.
spk02: The total income is 62.8 billion yuan, which is a 41.5% increase. The operating profit is 6,511,000 yuan, which is a 1% decrease in operating profit. The operating profit is 3.2 billion yuan, which is a 7% decrease in operating profit. In the first quarter, the total increase in the number of stores was 2,342. We experienced robust year-over-year growth in revenue for the first quarter. However, profits saw a slight decline due to factors such as seasonality and rising competition within the industry.
spk03: Our total net revenue reached RMB 6.28 billion, representing a year-over-year growth of 41.5%. Operating profits stood at negative RMB 65.1 million, with an operating profit margin of negative 1.0%. Self-operated store operating profits was RMB 320.8 million, with a self-operated store operating profit margin of 7.0%. In the first quarter, the total number of net new stores opened was 2,342, and the number of monthly averaging transacting customers was 59.91 million. Our CFO An Jing will share further financial details later on this call.
spk02: We continue to lead the market, expanding the relative advantage of competing brands. As the Chinese coffee market increases, we will continue to pay attention to the needs of customers and carry out a stable and sustainable opening strategy. At the same time as the number of stores in high-end cities is increased, we will accelerate the expansion of the market through the link mode. According to observation, during the Spring Festival, the purchase power of the summer market was prominent, and the appearance of the summer consumption form proved the wide space for the development of the coffee market, and further proved the potential of the RuiXing development strategy. At the end of March, RuiXing Coffee and Guizhou Maotai cooperated with 48 theme stores to officially open in Shenzhen. Yu Jing Coffee and Guizhou Maotai cooperated to launch Jiangxiang Latte, which is deeply loved by young consumers. Currently, the number of users has exceeded 25 million. As the leading brand in the Chinese coffee and white wine field, Yu Jing Coffee and Guizhou Maotai continue to use high quality as a belt to promote the further deepening development of long-term strategic cooperation.
spk03: In the first quarter, Locking Coffee added 2,342 new stores, bringing our total number of stores to 18,590. Among these stores, there are 12,199 self-operated stores and 6,391 partnership stores. We continue to lead the market, expanding our comparative advantage over competing brands. As competition intensifies in the Chinese coffee market, we will remain vigilant in addressing customer needs and adhering to a prudent and sustainable store expansion strategy. While we plan to increase our number of stores in higher-tier cities, we will also accelerate expansion into lower-tier cities through our partnership model. Based on our analysis, we observed surging consumer purchasing power in lower-tier cities during Chinese New Year, and the emergence of these holiday consumption patterns highlights the immense growth potential of the coffee market in these cities. This further corroborates the direction of Locking Coffee's development strategy. At the end of March, Locking Coffee officially opened its Four Seasons and Eight Solar Terms theme store in Shenzhen in partnership with Guizhou Maotai. The Jiangxiang-flavored latte, a collaboration between Locking Coffee and Guizhou Maotai, has become a favorite among the younger generation, and the customer base of this product has surpassed 25 million. As leading brands in the Chinese coffee and Baijiu sectors, respectively. Marking Coffee and Guizhou Maotai are united by their commitment to high quality, further strengthening their long-term strategic partnership.
spk02: RuiXing's classic products are also widely appreciated by consumers. In April of this year, the sales volume of the single product was more than 700 million cups. The annual sales volume of ChengCi American is also more than 100 million cups. In the future, we will insist on product innovation and continue to provide customers with high-quality, more rewarding consumer experience. This year, the professional sports team of Ruixin Coffee once again gathers to start the 2024 Global Sports Project in Yunnan and dig into high-quality coffee beans. In April, Ruixin Coffee became the official coffee exclusive partner of the Asian Yumao Tennis Championships.
spk03: In terms of our product offerings, Locking Coffee launched 22 new products in the first quarter, including the Truce Orange Latte, pear-flavored velvet latte, and the new Geisha series. Among them, the pear-flavored velvet latte sold more than 7.24 million cups in its first week alone. Consumers have also widely praised Locking Coffee's classic products, In April, marking the third anniversary since the launch of our Coconut Milk Latte, total sales of this product surpassed 700 million cups. The Orange Americano also reached annual sales exceeding 100 million cups. Going forward, we will continue to uphold product innovation, consistently providing customers with high-quality products and a more satisfying consumption experience. Behind the rapid growth of our products lies the love and support of our customers. In the first quarter, we had about 22.92 million new transacting customers. While continuously acquiring new customers, we also maintain our ongoing brand promotion efforts, continually deepening the popularization of coffee culture. This year, Locking Coffee's team of professional bean hunters once again gathered to kick off the 2024 Global Beanster Journey Odyssey to the Gut Shot in Yunnan, embarking on a journey to uncover high-quality coffee beans. In April, we were pleased to announce that Locking Coffee became the exclusive official coffee partner of the 2024 Badminton Asia Championships.
spk02: In terms of sustainable development, in order to actively respond to the national carbon footprint and carbon neutralization goals, we will integrate the low-carbon, sustainable concept into the various segments of raw material procurement, production, operation, and communication with consumers. In March this year, Lixing Coffee officially entered the market for the first fruit processing factory in Baoshan. The processing plant's annual fruit processing capacity can reach 5,000 tons. Processing processing technology is at a leading level around the world. ZhuLi RuiXing Coffee further optimizes the high-quality industrial chain and promotes the scale, standardization and sustainable health development of the Yunnan coffee industry. The processing plant uses a micro-water fruit processing production line and promotes the realization of industrial water zero emissions. The factory will also build training centers, face-to-face with corporate employees, and carry out coffee planting, processing, and other relevant knowledge training, and pass on the idea of regenerating agriculture and sustainable production. On April 20, Ruixin Coffee Jiangsu Brewing Base officially started production in Kunshan, Suzhou, with a total investment of $1.2 billion, annual brewing production capacity of 30,000 tons. It is the largest single-component coffee brewing base in the domestic coffee industry, which has been the largest single-component coffee brewing base in the domestic coffee industry, which has been the largest single-component coffee brewing base in the domestic coffee industry, The above is the main situation of the first quarter performance. Next, please let CFO An Jing introduce financial data to you.
spk03: Locking Coffee remains proactively committed to China's carbon peak and neutrality targets. As part of this effort, we are dedicated to incorporating the principles of low carbon and sustainability across all aspects of our raw material procurement, manufacturing processes, operational activities, and consumer interactions. In March 2024, Luckin Coffee was proud to commence the trial operation of its first green coffee bean processing plant in Baoshan City, Yunnan Province. The plant utilizes world-class technology in coffee cherry processing with an annual processing capacity of up to 5,000 tons. This plant enables Lacking Coffee to further optimize its high-quality supply chain, enhance the overall quality of Yunnan coffee beans, and drive the scale, standardization, and sustainable growth of Yunnan's coffee industry. This new plant employs water-efficient coffee cherry processing production lines and achieves zero industrial wastewater discharge. resulting in a significant reduction of exhaust emissions during the drying process of coffee beans. Additionally, Locking Coffee plans to establish a training center in our new location, providing training lessons related to coffee planting and processing-related knowledge for Locking Coffee's employees and local farmers, teaching concepts relating to regenerative agriculture and sustainable production. On April 20, we officially commenced the operations of the Lacking Coffee Jiangsu Roasting Plant in Kunshan, Jiangsu Province. The plant has received a total plant investment of US$120 million and has an annual roasting capacity of 30,000 tons. This plant stands as the largest coffee roasting plant in China's domestic coffee industry to date. Leveraging our industry knowledge and operational skill, our new site is deeply integrated with the coffee industry vertical supply chain, empowering industry-wide quality upgrades with new technology-driven productivity. These developments demonstrate Locking Coffee's industry leadership in promoting high-quality, sustainable development. The new roasting plant integrates green operational concepts throughout its production processes. For example, it employs sponge city designed for rainwater recycling, utilizes solar photovoltaic power system for electricity, makes use of eco-friendly low-energy air conditioning systems, and performs intelligent energy consumption monitoring to reduce factor energy consumption and enhance energy management. It also promotes dust-free exhaust emissions from production and reduces waste gas emissions. These are the key highlights of our performance in the first quarter. Next, I would like to invite our CFO An Jing to present the financial data and commentary.
spk01: Thank you, Jingyi. Good morning, afternoon, and evening, everyone. Thank you for today's call. We appreciate your continued interest and support. I'm Jing An, the CFO at Locking Coffee. and I will share our first quarter of 2024 financial performance. Before we dive into our financial results, I would like to extend a heartfelt thank you to all our dedicated employees, loyal customers, and valued investors. Your ongoing support is instrumental to our success, and we will remain committed to delivering value and innovation in the coffee industry. Now, I will take some time to highlight our 2024 first quarter results in detail. Let's start with our financial highlights. In the first quarter of 2024, the total net revenues for the quarter reached RMB 6.3 billion, marking an increase of 41.5% compared to the same period last year. The growth was primarily driven by a surge in product sales, the expansion of our store network, and a substantial increase in monthly transacting customers. Revenues from self-operated stores totaled RMB 4.6 billion, reflecting a 45.8% increase from the first quarter of 2023. However, the same-store sales growth for self-operated stores stood at negative 20.3%, compared to 29.6% of the same quarter last year. Additionally, our store-level operating profit for self-operated stores stood at RMB 320.8 million, with a store-level operating profit margin of 7%. Furthermore, revenues from partnership stores contributed significantly, totaling RMB 1.5 billion, representing a substantial 32.8% increase from the same quarter last year. Operating loss for the quarter was RMB 65.1 million, primarily due to the increased operating expenses associated with our business expansion efforts. Turning to our operational results, we are pleased to report a substantial increase in our store footprint. During the first quarter, we opened a total of 2,342 net new stores, including two new stores opening in Singapore. bringing our global stock hunt to 18,590. This included 12,199 self-operated stores and 6,391 partnership stores. By the end of the first quarter, our stores were operational in more than 315 cities throughout China, along with one overseas market. We view our expansion into additional cities as a clear demonstration of our dedication to diversifying our geographical footprint and seizing freight market opportunities. In the first quarter, our average monthly transecting customers reached 59.9 million. representing a staggering 103.2% increase from the same quarter last year. This underscores the continued strength of our brand and the growing demand for our products and services across diverse markets. Despite facing certain challenges due to cold weather in the first quarter, We are optimistic in our steadfast business growth and the ongoing expansion of our operations. Nonetheless, our commitment to operational excellence and customer satisfaction remains unwavering as we navigate through these challenges and pursue strategic growth opportunities. Next, I would like to delve into the details of our margin performance. From a group-level perspective, our reported overall operating loss for the first quarter of 2024 was RMB 65.1 million, equating to an operating margin of negative 1%, a stock contrast to the positive 15.3% in the same period last year. Meanwhile, we observed a net profit margin of negative 1.3% this quarter, as opposed to the positive 12.7% in the same quarter of the previous year. This significant shift in our profitability was largely attributed to the reduced average selling price of our products aimed at our ongoing RMB 9.9 high-quality coffee campaign, coupled with heightened store rental, labor, and material costs stemming from our rapid store expansion strategies. However, these impacts were partially mitigated by the advantages presented by economies of scale. From a store-level view, our store-level profit margin of self-operated stores was 7% this quarter, compared to 25.2% in the same period last year. The primary cause for this downturn was a aforementioned reduction in the average selling price of our products. the company's overall operating expenses surged by about 69% year-over-year, mainly due to our business expansion endeavors. Our general and administrative expenses as a percentage of revenue stabilized at 8.9% in the first quarter of 2024, marginally increasing from 8.1% in the same quarter of 2023. In absolute terms, our G&E expenses experienced a 54.2% increase year-over-year, driven by augmented payroll costs, R&D expenditures, office supplies, and the rise in share-based compensation from restricted share units and options granted to management and employees. Store rental and other operating costs roughly doubled this quarter compared to the same period last year. This uptick correlates with expansion in the numbers of operational stores and volume of items sold this year, which result in the increase of payroll expenses, store rentals, utilities and other operational costs. Compared to the previous year, our sales and marketing expenses as a percentage of revenue increased from 4.5% to 5.2%, and the absolute value of such expenses rose by roughly 63.4% year over year. This increase is reflective of our strategic investment in enhancing brand recognition, expanding product education outreach, and reinforce our market position through diverse channels, thereby attracting new customers and retaining current customers. Concurrently, commission fees paid to third-party delivery platforms sow a sustained increase to accommodate the increased number of delivery orders. Loss and expenses related to the previously reported fabricated transactions and related restructuring were negative RMB 52.5 million, as the company was entitled to receive approximately US$7.3 million. which is RMB 52.7 million from its primary D&O insurance carriers pursuant to an arbitration award in the first quarter of 2024. Then, let's move on to balance sheet and cash flow statements. Following our restructuring in 2022 and the settlement of the Federal Class Action Suite, we have fully redeemed the offshore notes. This has enabled us to sustain a robust balance sheet while unlocking flexibility to allocate its excess financial capacity towards shareholder value. As of March 31, 2024, our financial reserves, inclusive of cash, cash equivalents, restricted cash, and short-term investments, stood at approximately RMB 2.4 billion. This represents a reduction from the RMB $3.8 billion recorded at the close of 2023. This decrease was mainly attributable to the purchase of property and equipment and raw materials to meet the company's rapid footprint expansion. During the first quarter, we had a net operating cash outflow of RMB 264.4 million compared to a net operating cash inflow of RMB 1.1 billion in the same quarter of 2023. Our substantial cash reserves, coupled with a sound balance sheet, provide a solid foundation that enables us to navigate risks effectively and secure a competitive edge in this unpredictable market environment. The modest start to our first quarter aligns with our internal projects, given our ongoing rapid expansion of store locations. overall coffee market in China continues to exhibit robust growth, with industry tending towards more sustainable levels. Despite anticipating continued volatility in market dynamics and competition, we remain confident in our brand, our products, and our dedicated employees. We are optimistic about our future growth as we are leading the industry with innovative and popular products and strategic promotion initiatives, all of which hold the promise of further propelling our business forward. I will now turn it over to Jingyi for concluding remarks followed by Q&A.
spk02: At present, the Chinese coffee market has entered an important strategic period of rapid development In the face of fierce industry competition, Ruixin, as the largest chain brand in the Chinese coffee market, will continue to accelerate the layout of the store network, increase the layout of the supply chain, continue to strengthen the digital advantage, optimize costs, improve efficiency, further expand and consolidate the leading advantage, stabilize the market leading position, achieve high-speed, healthy, sustainable performance growth. In the future, we will continue to pay attention to business growth and market share, and provide long-term value to customers, shareholders, and other interest-related parties. We will also pay more attention to social responsibility, and carry out sustainable development practices. 我们希望用更优质的产品优惠的价格为大家提供好喝不贵的咖啡。 我们的愿景是创造世界级咖啡品牌,也一直在向着成为一家基业长青的世界级百年品牌而努力。 China's coffee industry is currently at a pivotal phase, characterized by significant growth and strategic opportunities.
spk03: Despite intense competition, Locking Coffee as a leading brand in the coffee market in China is committed to expediting the expansion of our store network, enhancing our supply chain, fortifying our digital prowess, streamlining costs, and elevating efficiency. These concerted efforts are designed to extend and cement our competitive lead, consolidate our market-leading position, and realize sustained, robust, and rapid growth over the long term. We're steadfast in our commitment to drive business expansion and increase market share, ensuring enduring value for our customers, shareholders, and all other stakeholders. We also remain dedicated to social responsibility and the pursuit of sustainable practices. Our ongoing mission is to offer superior quality at more attractive prices, providing customers with coffee that is both delicious and affordable. With the vision of becoming a global recognized coffee brand, we're making daily strides towards achieving our goal of becoming a global renowned century-old brand with enduring prosperity.
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.
spk03: Thank you. Now, let's begin with the first question. How does the company view the significant drop in profit in the first quarter of 2024? Will there be any adjustments regarding the store expansion strategy?
spk02: Thank you for your question. The profit of the first quarter has fallen back, both due to the impact of objective factors and the result of active adjustment. Objectively, the first quarter was affected by the winter cold tide and the large temperature fluctuation that led to the travel of the customer group. At the same time, the Chinese coffee industry is in a strategic opportunity period of rapid growth, and industry competition is also very intense. In the face of opportunity and competition, the company has adjusted the market share rate as the core goal of the company's development to adjust the opening and closing rhythm. Through rapid decarbonization, we have further opened up the distance between us and our competitors. Due to the adjustment of the door structure, the seasonality of the mall and street stores is stronger. But with the appearance of the consumer model on the holiday, the company's basic plate is also more balanced. At present, as the temperature rises, the overall cup volume has improved, but secondary business is still facing many challenges. In the current competitive environment, green coffee, as a leader in the Chinese coffee market, will adhere to a stable and sustainable opening strategy, stick to opening standards, and ensure opening quality. 我们会通过持续的产品创新回馈客户的定价策略,持续巩固市场领先地位,努力创造长期价值。 Thank you for your question. The profit drop in the first quarter of 2024 was attributable to a combination of objective factors and deliberate strategic adjustments. Objectively,
spk03: the cold weather and considerable temperature variations in the previous quarter had a tangible impact on customer visits. Concurrently, the Chinese coffee industry is undergoing a period of rapid expansion, brimming with strategic opportunities, which has led to fierce competition. In light of these dynamics, our company has prioritized the market share as the core focus of our growth strategy and recalibrated the pace of our store expansion. This aggressive expansion strategy has allowed us to widen the gap with our competitors. The reorganization of our store portfolio has accentuated the seasonal nature of our stores, particularly those in malls and on street fronts. Nevertheless, the emergence of a holiday shopping trend has contributed to a more stable foundation for the company. With the onset of spring and warmer temperatures, we have seen an uptick in sales volumes. yet we continue to anticipate more challenges in the upcoming second quarter similar to our first quarter challenges. In a current increasingly competitive landscape, Locking Coffee as the leader in the Chinese coffee market is committed to a robust and sustainable store expansion strategy while maintaining our high standards for new stores, guaranteeing the excellence of each establishment. we will continue to solidify our leading position in the industry through innovative products and customer-focused pricing strategies as we persist in our pursuit of generating substantial long-term value. Thank you, Dr. Guo. Let's move on to the next question. Are there any updates to the company's capital strategy?
spk02: As we communicated before, we will continue to pay attention to the U.S. capital market. But at present, our main task is still to build a company's business strategy and focus on development. Currently, there is no clear timetable for returning to the main board. Thank you.
spk03: As we have mentioned before, we will continue to monitor the U.S. capital markets, but our current emphasis is on the execution of our business strategy, which centers on the enhancement of our operational and developmental pursuits. We have no specific timeline or schedule for uplisting on any main board market currently. Our current focus is on executing our strategic plan through the provision of superior products and services to our customers, with the objective of increasing our market penetration and ensuring consistent long-term returns for our investors. Thank you, Dr. Guo, 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