Luckin Coffee Inc

Ladies and gentlemen, welcome to Luckin Coffee's fourth quarter and full year 2024 earnings conference call. All participants will be in listen-only mode during the management's prepared remarks, and there will be a question and answer session to follow. Please be advised that today's call is being recorded. Now, I would like to turn the call over to Ms. Nancy Song, head of investor relations of Luckin Coffee. Nancy, please go ahead.

Thanks, operator. Hello, everyone. We have come to Locking Coffee's fourth quarter and the full year 2024 earnings conference call. We announced our financial results earlier today before the U.S. market opened. The earnings release is now available on our IR website and by Newsware Services. Today, we will hear from Dr. Guo Jingyi, our chairman and CEO, who will share a strategic overview of our business. Following that, Ms. Anjing, our CFO, will discuss our financial results in greater detail. Afterwards, we will open up the call for questions. During today's call, we will be making some forward-looking statements regarding future events and expectations. Any statements that are not historical facts, including but not limited to statements about our beliefs and expectations of overlooking statements. These statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in our findings with the SEC. In addition, for non-GAAP measures discussed today, the reconciliation information related to those measures can be found in our earnings pressure 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.

大家好,欢迎参加今天的业绩沟通会。 感谢各位对粤性咖啡的持续关注与支持。 2024年是粤性咖啡业务发展的关键一年。 In a complex and diverse industry environment, our strategy is focused, our goals are clear, and our execution is in place. We have continuously expanded our market share and competitive advantage. The company's annual total income has increased by 38% compared to the previous year, reaching 3.45 billion yuan. Our operating profit has increased by 17% compared to the previous year, reaching 35 billion yuan. Especially since the second quarter, we have continued to improve our self-sufficiency index, and our operating efficiency has been significantly improved. Hello, everyone.

Welcome to today's earnings conference call. Thank you for your continued interest in and support of Locking Coffee. 2020 will mark a pivotal year for Locking Coffee's robust growth. In this dynamic market, we effectively expanded our market share and the competitive edge through strategic focus, clear objectives, and strong execution. For the full year, our total net revenues increased by 38% year-over-year to RMB 34.5 billion, with operating profit increasing 17% to RMB 3.5 billion. Notably, entering the second quarter, our theme store metrics for self-operated stores started to improve rapidly, reflecting significant efficiency gains. These achievements have further strengthened our market leadership as we drive industry-wide innovation and continue to shape the development of China's coffee market.

As the largest chain coffee brand in China, Ruixin Coffee is the largest chain coffee brand still maintains the leading opening speed in the industry. Over 6,000 stores have been upgraded throughout the year. By the end of the fourth quarter, the total number of stores has reached 22,340. This has further consolidated the size advantage. With a strong product innovation and development capability, we not only launched many coffee new products that are popular with many users, but also successfully broadened the product category, which is even better to meet the needs of consumers in all times and all scenarios. In 2024, the total number of trading users increased by 48% to 7,180,000. The limited sales of drinks in the whole year was nearly 3 billion, which increased by 55% until the end of the fourth quarter. The total number of trading customers exceeded 3.3 billion. We continue to refresh the new record of Ruixin in the Chinese coffee consumption market. As China's largest coffee chain brand by store count, Locking Coffee maintained an industry-leading pace of store expansion during 2024.

With over 6,000 net new stores opened for the year, we further reinforced our scale advantage, reaching a total of 22,340 stores by year end. Leveraging our strong product innovation and R&D capabilities, we launched a range of popular new coffee products and successfully expanded our beverage portfolio, better meeting customers' diverse needs across all types of day and consumption scenarios. As a result, we saw our number of average monthly transacting customers increase by 48% year-over-year to 71.8 million, combined with capsules of freshly brewed beverages ranking 55% to nearly 3 billion. By the end of the fourth quarter, we had over 330 million cumulative transacting customers, setting a new record for lock-in in China's coffee consumption market. Next. I will provide some highlights of our first quarter results and operational progress. Our staff and Gene will share additional financial details later on this call.

This quarter, we continue to maintain a good growth trend. The total net income increased by 36%, reaching 96 billion yuan. The operating profit increased by 368%, reaching nearly 1 billion yuan. with a 10.4% profit rate and a 7.4% increase. In the fourth quarter of the industry's relatively short term, we achieved a double profit rate for the first time. This is also a good proof of the company's overall operating efficiency improvement. It is especially worth pointing out that, as we communicated at the previous conference, our copper chain indicators continued to improve. During the reported quarters, we maintained a strong growth momentum as total net revenues increased by 36% year-over-year to RMB 9.6 billion.

operating profit surged 368% for around RMB 1 million, while operating margin expanded by 7.4 percentage points year-over-year to 10.4%. For the first time, we achieved double-digit operating margin in the fourth quarter, a period that has traditionally been a low season for the industry. This stands as a strong testament for enhanced operational efficiency. Notably, as discussed on our previous earnings report, our same-store sales growth for self-operated stores continued to improve, significantly narrowing from negative 13% in the third quarter to negative 3% in the reported quarter. More encouragingly, this metric turned positive last December. In addition, store-level operating margins for our self-operated stores reached 19.6% in the first quarter.

From the point of view of operation, we continue to strengthen the core competitiveness of the three major business pillars around the manpower factory, expand the scale advantage of the store and customer supply, and further improve the market share of RuiXing. In terms of door stores, in the face of the current market circumstances and competitive environment, on the basis of ensuring the quality and operation efficiency of door stores, we continue to maintain the opening speed leading the industry and continue to advance the development strategy to optimize the layout of door stores. In the fourth quarter, the Chinese market has increased by 991 door stores, including the first five in China and Hong Kong. The total number of stores in China has reached 22,289. Of these, 14,540 are self-sufficient, and 7749 are joint-subsidized. The overall scale continues to lead the market. We believe that as more consumers gradually develop coffee habits, whether in terms of number of users or in terms of the number of people, the demand for domestic coffee market users will continue to steadily increase. For the company's high-end city, to expand the downstream market and create huge opportunities. In terms of the international market, Singapore's market this quarter has added six stores, with a total of 51 stores. In January this year, we officially entered Malaysia through a special business model, opening two stores, and the overseas market has doubled. Moving on to operations, we strengthened our competitive edge through focus on three core pillars, people, products, and places.

By expanding our scale advantages across store network and customer base, We further increase Lockheed's market share. In terms of stores, we prioritize network expansion to capture market opportunities and stay ahead of the competition, sustaining industry-leading store growth while ensuring high quality and operational efficiency. In the fourth quarter, we added 991 net new stores in China, including the launch of our first five stores in Hong Kong. Our unparalleled scale continue to lead the market with our total store count in China reaching 22,289, including 14,540 self-operated stores and 7,749 partnership stores. We believe that as more consumers develop coffee drinking habits in China, coffee consumption demand will grow steadily, both in terms of customer base and per capita consumption. This will create significant opportunities for us to increase store density in high-tier cities and further penetrate into lower-tier markets. Relating to our international markets, we added six new stores in Singapore, bringing our total to 51 stores there. This January, we officially entered the Malaysian market via a franchise model, opening the first two locking stores there. another key milestone in our overseas expansion. In a relatively mature international coffee market, we will adopt flexible and tailored operational models to build up our overseas experience while continuously exploring new market entry opportunities.

In terms of product, based on a profound user understanding and data support, we continue to strengthen product development and innovation capabilities to better grasp the changing needs of users. By continuing to innovate, we can satisfy users' pursuit of new tastes and new experiences, and stimulate the potential of consumption. This quarter, we have updated 18 new products and many new products. We have launched 119 new products throughout the year. While updating the products, we are also trying to create hot sales long-term products to attract high-year-old customers. In terms of products, our deep user insights and data support field continues product development and innovation,

allowing us to better meet customers' evolving needs. With innovative product launches, we continue creating new tastes and experiences for our customers, unlocking greater consumption potential. In this reported quarter, we introduced 18 new beverages and several light drinks, bringing the full-year new SKUs to 119. Along with these new offerings, we also focused on creating evergreen bestsellers to cultivate a loyal and stable customer base. For example, the Little Butter Latte, launched in late September 2024, quickly became the number two bestseller in the fourth quarter, only behind our signature product, Coconut Milk Latte. Another tipping point is our Apple Americano, launched in the fourth quarter. This co-branded offering with Pingu also performed well, delivering promising repurchases and starting to build a dedicated group of loyal customers for this product category.

Through strong product power and rich and interesting joint activities, we continue to attract new users with professional and good product guidance, and continue to increase the number of active users, In this quarter, our number of new trading users exceeded 25 million, and our number of monthly trading customers exceeded 77 million. With a convenient door-to-door delivery network, we use high-quality high-quality products to meet the daily growth needs of users. In 2024, the number of new trading customers exceeded 100 million, creating a new height in history, and also laid a solid foundation for our future development.

Through our strong product appeal and engaging co-branded campaigns, our expertly profited and great-tasting beverage portfolio has consistently attracted new customers and boosted engagement, steadily increasing the number of active transacting customers. In the first quarter, we added over 25 million new customers, with average monthly transacting customers exceeding 77 million. Supported by our accessible store network, we are well-positioned to meet growing customer demands for our products of high quality and high affordability. Throughout 2024, we added more than 100 million new transacting customers, setting a new record and laying a more solid customer foundation for our future growth.

In the face of stable user demand and huge market potential, We continue to strengthen the construction and deepening of the supply chain, and set up a long-term high-quality, sustainable development of the company. In the fourth quarter, we have further deepened our strategic cooperation with the Brazil Export Investment Promotion Bureau. The newly signed cooperation roadmap will consist of a two-year, 120,000-ton coffee bean purchase cooperation, and an expansion to a future of 240,000 tons in five years, allowing Rui Xing to further lock up stable high-quality goods in the upstream production area. and build up a solid core of the global supply chain. In addition, based on the strong industrial chain layout, we actively promote industry supply and development, optimize the supply and demand policy, reduce the additional cost of raw materials, and fully support systemization, so that RuiHsing's joint partners can also share the results of industry development, improve the potential of investment returns, and improve their continued expansion capabilities.

Driven by growing customer demand and a strong market potential, we are enhancing our supply chain capabilities and integration, paving the way for high-quality, sustainable long-term development. During the first quarter, we deepened our strategic cooperation with the Brazilian Trade and Investment Promotion Agency, Apex Brazil, sending a new memorandum of understanding to extend our coffee bean procurement scale from the original 120,000 metric tons over two years to 214,000 metric tons over the next five years. This initiative allows Lock-in to secure a stable supply of high-quality coffee beans from upstream production areas, building a stronghold for our global supply chain. In addition, leveraging the strength of our industry value chain, we actively drive win-win development across the industry through optimized partnership subsidies, reduced raw material markups, as well as systematic and holistic support we empower Latin partners to share in the industry's success, increasing their investment return potential and expansion capabilities. Our shared interests with partners highlight our corporate responsibility as a market leader while strengthening our industry influence and leadership.

In addition, in terms of ESG, as China's leading chain coffee brand, while RuiXing is rapidly developing, will continue to actively implement a sustainable development strategy for a better tomorrow, to lead the industrial chain to be smart and greener, to deepen cooperation with global coffee producers, to strengthen the quality control and management of the entire industrial chain, and to continue to innovate and make healthy choices. At the same time, we will actively create a work environment that is full of vitality, respect for value, and ability to grow, to contribute to the sustainable development of high-quality companies. Turning to ESG.

As China's leading coffee chain brand, walking actively and consistently executes a sustainability strategy called being a force for a brighter future alongside our rapid business expansion. We are leading the industry's intelligence and green transformation while deepening multi-dimensional cooperation with global coffee producing regions, addressing quality control across the supply chain, and continuously innovating healthy choices. In addition, we are actively creating a vibrant, value-respecting, and growth-empowering work environment to energize Lockheed's sustainable, high-quality development. In 2024, our sustainable practices garnered several ESG honors and awards, including the 2024 China Best ESG Plower by ION, building upon our sustainability roadmap, we remain dedicated to long-term healthy and sustainable development, working together with our partners to drive more impactful social value for a brighter future.

Looking forward to the future, we are full of confidence in the huge development potential of the Chinese coffee industry. We believe that in the complex market competition, Ruixin has made full-scale strategic preparations, has the ability to seize this historic opportunity, to achieve long-term, healthy and sustainable high-quality development. In 2025, we will continue to focus on expanding the scale of advantages and market share, further strengthen competitive advantages, and maintain a stable operation strategy to maintain flexible momentum and timely response to market changes. Under the premise of ensuring quality and efficiency, we will maintain the opening speed leading the industry, and fully exploit the cost advantages brought about by the scale, Looking ahead, we remain confident in the vast growth potential of China's coffee market.

In this dynamic and competitive market environment, we believe Lockheed is strategically positioned to capture these opportunities. driving long-term sustainable and high-quality growth. In 2025, we will remain later focused on expanding our scale and market share to further enhance our competitive edge. As we adopt a balanced and well-paced growth strategy, we will also remain agile and adaptive to market dynamics. In terms of store growth, we aim to maintain our industry-leading store opening pace with a focus on quality and efficiency. Building on our core competitive advantage of economies of scale, we continuously enhance operational efficiency through our powerful digitalization capabilities. In terms of customer growth, we remain committed to meeting customers' evolving needs with high-quality coffee that offer great value and a distinct appeal, sustaining healthy business development.

Once again, I would like to thank consumers for their love, support and trust in our partners. I would also like to thank our 130,000 partners for their hard work. We will continue to work together to build world-class coffee brands and create long-term value for customers, partners and shareholders. Next, I would like to invite CFO An Jing to introduce the financial data.

Finally, we would like to once again express our heartfelt gratitude to our customers for their support, our partners for their help, and our investors for their trust. We would also like to extend our sincere thanks to the over 130,000 individuals who contribute to Lockheed's growth for their dedication and hard work. Working together, We remain committed to building a world-class brand and creating long-term value for our customers, partners, and shareholders. With that, I will turn the call over to Anjing to go through our financial results in detail.

Thank you, Junyi. Good day, everyone. Thank you for joining today's call. We finished the year with solid results. Not only did we expand our leadership position with expanded scale across our store network and customer base, we also achieved notable efficiency gains towards the second half of 2024, a strong statement to our robust business model and a solid foundation for future growth. Now I will share more details on our financial results. In the first quarter, Our total net revenue increased by 36% year-over-year to RMB 9.6 billion. This growth was mainly driven by increased product sales supported by our expanding store network and growth in monthly transacting customers. In terms of the revenue components, revenues from product sales increased by 43% year-over-year to RMB 7.6 billion. as a result of our enhanced ability to fulfill customers' diverse and growing needs through the strong appeal of our products and a convenient delivery supported by our broad store network, breaking down our product sales into three streams. Net revenues from freely brewed drinks were RMB 6.9 billion, about 72% of total net revenues. Net revenues from other products were RMB 496 million, about 5% of the total net revenues. Net revenues from others were RMB 147 million, about 2% of the total net revenues. Revenues from our partnership store increased by 16% year over year to RMB 2 billion, reflecting our expanding partner network. This partnership stores accounted for 21% of total net revenues. Now to provide a further color on our self-operated stores. Revenues from our self-operated stores increased by 42% year over year to RMB 7.2 billion. We were particularly encouraged by the improved same store sales growth. which increased notably to negative 3.4% from negative 13.1% in the prior quarter. Our store-level operating profit margin expanded by 6.1 percentage points year-over-year to 19.6%. These improvements reflect our enhanced operational efficiency as well as a more balanced operational pace between store growth and customer growth. Moving on to store expansion, we opened 997 new stores on a net basis during this quarter. Our total store count was 22,340 at a quarter end, compressing 14,591 self-operated stores and 7,749 partnership stores. With more stores falling into our same store sales category, our industry-leading network has paved the way for our sustainable development in the coming years. Looking at our customer growth in the first quarter, we added 25 million new transacting customers. Our average monthly transacting customers increased by 25% year-over-year to around 78 million. with a new record of over 100 million new customers acquired in 2024, we expanded our total customer base to over 330 million by year end, positioning us for sustainable future growth as coffee drinking habits mature and overall coffee consumption frequency rises in China. Turning to profitability, I will first highlight a few key expensive items. Cost of materials increased by 10% year over year to RMB 3.8 billion. Cost of materials as a percentage of the total net revenues decreased to 40% from about 50% in the same period of 2023. Without the in-growth margin expansion, This improvement resulted from our stronger supply chain advantages, as well as changes in product mix. On the other hand, we did see an upward trend in the price of coffee beans, which could negatively affect this cost item in 2025 to some extent. But we are expecting our enhanced operational efficiency and the economies of scale to partially mitigate such impact. Delivery expenses increased by 79% year-over-year to RMB 839 million, mainly due to an increase in delivery orders. As a result, delivery expenses as a percentage of total net revenue increased to 8.7% from 6.6% in the same period of 2023. However, delivery expenses per order decreased as a result of a greater economy of scale. Sales and marketing expenses increased by 44% year-over-year to RMB $573 million, mainly due to continued strategic investment in strengthening our brand power among customers, as well as increased the commission fee paid to the third-party food delivery platform. Sales and marketing expenses as a percentage of a total net revenue increased to 6% from 5.6% in the same period of 2023. General and administrative expenses increased by 13% year over year to RMB 638 million as a result of the increased investments in research and development. Increased share-based compensation and an increase in professional fees, partially offset by reduced payroll costs. Gaining expenses as a percentage of the total net revenues decreased to 6.6% from 8% in the same period of 2023, demonstrating enhanced efficiency resulting from our larger operational scale. Turning to profit and the margin performance, our gap operating profit increased significantly by 368% year-over-year to RMB 995 million. Operating margin expanded by 7.4 percentage point year-over-year to 10.4%, marking significant efficiency gains. On a land gap basis, operating profit increased year-over-year to RMB 1.1 billion, with operating margin at 11.4%. Net profit increased significantly by 184% year over year to RMB 841 million, with net margin expanding by 4.5 percentage point to 8.7% for the quarter. On a net gap basis, net profit increased year over year to RMB 928 million, with net margin at 9.7%. Finally, looking at our balance sheet and cash flow items, in the fourth quarter, our net operating cash inflow was RMB 1.6 billion. As of December 31st, 2024, we had around RMB 5.9 billion in cash, including cash and cash equivalents restricted cash, term deposits, and short-term investments, compared to RMB 3.8 billion as of December 31st, 2023. Over-disciplined strategy and strong cash reserves preserve the strength and flexibility of our balance sheet. allowing us to effectively navigate dynamic macro and the market environments, as well as to swiftly capture the business opportunities. Before we begin the Q&A portion of the course, I will briefly touch on a few full-year 2024 financial highlights. Compared to 2023, total net revenues increased by 38% to RMB 34% Gap operating profit increased by 17% to RMB 3.5 billion, with operation margin at 10.3%. Net gap operating profit increased by 20% to RMB 3.9 billion, with net gap operating margin at 11.3%. Net profit increased by 3% to RMB 2.9 billion, with net margin at 8.5%. Nungap net profit increased by 4% to RMB 3.3 billion, with Nungap net margin at 9.5%. In closing, we are encouraged by our first quarter and full year results. Looking ahead, our laser flow test strategy and strong execution provide us with greater confidence in our sustained future growth in the years to come. With that, we will open the call for questions. Operator, please.

Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, you will need to pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Once again, that was star then 1 to ask a question. And at this time, we will pause momentarily to assemble the roster. And our first question will come from Ethan Wong of CLSA. Please go ahead.

Thank you, . Hello, Mr. Jin. Hello, Mr. Jin. I will ask the Chinese first, and then I will translate it in English. First of all, congratulations on your performance. Congratulations to the company for achieving a very good performance. My question is about copper power. Because I think this is our biggest highlight this time. Two consecutive seasons have changed, and the company also announced that December has been transferred. I want to know about copper power. I will translate my question. Good evening, management. So congratulations on the results. And my question is, based on the theme store sales growth. And I think the highlight of these results, improving for the second quarter and already achieved positive growth in December. So if management can help us to break it down into price and volume, that would be very helpful. And for 2025, if we look longer, what is management's current view on our theme store sales growth? Thank you.

Thank you. Thank you very much for your question. Regarding the question about the specific price, please be quiet for a while and I will elaborate on it in detail. I will start from the overall macro level to talk about the company's view on the entire power supply index, including some views on the fluctuation in the past period of time. Because the increase in power supply sales is a very critical business index for large chain restaurant enterprises. It is also a very important and closely watched index. In general, we believe that the trend change of the whole power supply index in the past few seasons is in line with our company's overall expectations. The continued improvement of the private sector is also completely consistent with our communication with the market in the previous period. Because if we look back at the year 2023, the Chinese coffee market is in a state of rapid growth and a stage where industry competition is increasing. Then we saw a huge market space, and abundant customer demand. Under this background, the company made a decisive strategic decision, which is to accelerate the opening up of the chain and quickly increase the market share. This is how we achieved today's industry leading advantage. Under this background, due to the training cycle of the chain, the influence of a series of objective factors such as customer consumption habits and so on, there was a gradual fluctuation and decline in the same chain indicators. Thank you for your question.

I will have Anjing to explain in further detail regarding the breakdown between price and the volume. I will first give you some high-level comments on the macro and how we think of the fluctuations of SSG metrics. So, SSG metrics is a very crucial operating metric for large chain catering enterprise. We pay very great attention to and very closely monitor these metrics. Overall speaking, its fluctuation over the past few quarters were well in line with our expectations. Our continued improvement in the first quarter is also consistent with what we have been communicating to the market all along. Since 2003, China's coffee market has been growing rapidly, while competition has also began to intensify. Looking at these trends, we saw great market potential and thriving customer demand. Therefore, we strategically and defensively accelerated our store expansion pace, effectively gaining market share for sure and standing out from the competition with our industry-leading scale advantages. So as our stores require time to mature and the customer consumption habits take some time to develop, our SSG experienced short-term volatility, which is well in line with our strategic judgment and expectation.

In 2025, with the continuous expansion and expansion of our entire industry's leading position, the company's scale, cost, and efficiency advantages are also beginning to emerge. So looking into 2025,

As we continue to strengthen and extend our industry leadership, our economy of scale, cost, and efficiency advantages have become more evident, will give us a new stage in our business development. As we maintain our rapid growth, we will remain deeply committed to healthy and sustainable operations. So we are confident in our ability to further enhance our SSG performance.

Of course, we are also concerned about the growth of Tongdian's indicators in the short term and in the long term. I will also start from these two points. I think in the short term, our focus is on the coverage of the current wide-ranging store scenarios. Through continuous product innovation and product expansion, combined with the marketing activities of the field, we can provide customers with richer and more professional products, as well as more emotional value. to attract more users to help improve the performance of the whole store. In the medium to long term, the biggest feature of coffee consumption is that there is a space for continuous improvement in frequency. In general, our country's coffee consumption is still at a very rough stage. With the gradual growth of consumer coffee consumption habits, the frequency of consumption will naturally increase gradually. We believe that there is still a lot of room for growth in human resources. Of course, this will also give us a strong driving force for chain growth. For more details on the situation in the 4th century, let's have CFO An Jing add to it. Thank you.

Yeah, we know you guys are very wanting to know about the drivers behind the short-term SSG improvements and also the long-term drivers. So looking at the short-term, we will leverage our extensive store network that covers different consumption scenarios, product innovation and the category expansion, and implement a very insightful marketing campaign to offer our customers more choices of expertly crafted and great tasting drinks, as well as its emotional value. We believe this approach will help us to attract more customers and improve cup sales performance across our stores. So for the major long-term, one of the key characteristics of coffee consumption is the potential for its increasing frequency. In China, coffee consumption is still at its relatively early stage. So as coffee drinking habits continue to develop, coffee consumption frequency will naturally rise, leaving significant room for growth in per capita coffee consumption. So this will give us, I mean, the driver for our future SSG growth. So I will have Anjing give more details on the first quarter SSG performance.

Thanks, Dr. Guo. The continued improvement in our post-quarter SSFC resulted from the strong execution of our real-case expansion strategy. As customer demand is steadily growing, our stock performance continues to improve along with efficiency gains. Looking at our comparable stores in terms of pricing, our per cup price in the fourth quarter remained largely stable compared to the same quarter of 2023. In terms of cup sales, a rising customer demand drove consistent improvement in cup sales performance. With per store daily cups sold in the fourth quarter almost returning to the level seen in the same quarter of 2023. Notably, our postal daily cup sales in December 2024 exceed those of December 2023, driving positive as SSG for that month. Looking ahead to this year, we expect the per cup price to remain stable compared to last year. As more of our self-operated stores reach maturity, we are setting a gradual year over year interest in the number of a poor store daily cost sold. Supported by our wider selections of high quality coffees and engaging coffee experiences. This will turn further drive overall SSD improvement. Thanks.

Thank you. Thank you.

Yeah.

The next question comes from Saiji Lin of CICC. Please go ahead.

Thank you, Mr. Guo and Ms. An. I'm Sijie, the analyst in the center. Congratulations to us for achieving such a good performance. I have a question about the price increase of coffee beans. Because the introduction part was simply mentioned, I would like to ask further about how we evaluate the impact on the company and what measures we will take to deal with it, including whether we will consider a proper price increase and then counteract this impact. I will translate it into English. So thank you, management, and from CSCC. Congrats for the strong results. I have one question that recently we've seen a significant rise in coffee beans price. So how should we evaluate the impact on us and what measures will be taken to address this issue? For example, will we consider to raise price to mitigate the impact?

Thank you. Recently, the supply of raw coffee continues to rise. Basically, it has been operating at a historical high. It has indeed received a lot of attention within and outside the industry. So I can answer this question systematically. In general, the current price of raw coffee is rising. Because raw coffee is a very important raw material for us. It does bring us some cost pressure. But Ruixin has built a comprehensive supply chain through the investment of the entire industry chain in the previous period. Therefore, we can use the advantages of the whole scale and efficiency to maximize the impact of consumption on the cost of coffee beans. Therefore, in general, the price impact of coffee beans is currently controllable.

Thank you for your question. So the rising coffee bean prices indeed draw great attention across the industry and from the broader market. So I will give you more color behind our thinking. So overall, this will create some cost pressure, but we expect to partially mitigate such impact by leveraging our robust supply chain and the competitive mode we have built through our full value chain investments. So our scale advantage and enhanced efficiency can give us some buffer to absorb such pressure. So therefore, we think the impact of these rising coffee bean prices is largely manageable for us for the moment.

As you can see, Ruixin has always been concerned about coffee's investment from the beginning to the end of the whole production chain. It has built from the planting and purchasing of the original land to import-export trade, to processing and baking, and then to the whole chain of coffee produced by the store. As I said before, in November last year, we further deepened our strategic cooperation with Apex, an export investment firm in Brazil. The new 5-year, 240,000 tons of coffee beans are being purchased. This helps ensure the stable supply of high-quality raw materials. On top of that, we have established a significant supply chain advantage. Of course, with Kunshan Brewing Factory's first production last year, Qingdao Factory is expected to start production within this year, along with Pingnan Factory, which will start production earlier. By the end of this year, Ruixin will have its own coffee brewing production capacity of up to 100,000 tons per year. This will ensure that high-quality and high-performance coffee beans will continue to be steadily supplied.

As you may see, we actually have been investing across the coffee industry value chain from upstream sources to end sales. We have built up our full value chain strength, which covers procurement from producing regions, import and export trade, processing and roasting, all the way down to retail operations. As I mentioned earlier, last November, we deepened our cooperation with Apex Brazil, sending a new MOU to purchase 240,000 metric tons of coffee beans over the next five years. So this will provide us with a stable supply of high-quality coffee beans. creating significant upstream supply chain advantages for us. So benefiting from our own roasting facilities, including our Qingshai Roasting Plant, which started operation last year, as well as our Qingdao Plant, which is set to launch this year, and our existing Pingnan facility. So we are expecting we will have an annual roasting capacity of 100,000 pounds by this year-end. This will give us a stable supply of high-quality and high-value-for-money roasted coffee beans.

Of course, we also noticed that recently, many tea and drink companies have been listed one after another. It is possible to predict that the market competition in the drink industry will further intensify. Our market penetration advantage may also be challenged. For this reason, we will continue to increase our brand and marketing investment, and try to maintain a leading position in the industry. In the face of the rising price of coffee beans and the ongoing market competition, we will always stick to our original intention, insist on the values of the customer first, and continue to return to consumers. So back to your question about price, we do not have a proposal or plan to raise prices. 9.9% of coffee will also continue to grow. We will work hard to cultivate the habit of coffee consumption. We will work hard to make more consumers enjoy a high-quality coffee experience at an affordable price. We will try to make high-quality coffee a part of people's daily lives.

So we also see a few IPOs of several tea beverage companies recently. So market competition in the freshly brewed beverage industry could further intensify. So potentially posing challenges to our market penetration advantages. So we will continue strengthening our marketing and branding efforts to maintain our market leadership. So in the face of this rising coffee bean prices and the market competition, we will remain dedicated to our mission and the customer-centric values. We will continue to reward our customers. And then currently, back to your question, currently we don't have plans to increase selling prices. Furthermore, our 9.9 RMB coffee promotion will consistently be available to our customers. While cultivating coffee consumption habits, we aim to allow more customers to conveniently enjoy high-quality coffee experience at very competitive prices, strive to make high-quality coffee become a part of everyone's daily life.

Finally, I would like to emphasize that Ruixin is a leading company with an important influence in the coffee industry. We will work hard to join hands with our partners in the upstream and downstream. We will work hard to transfer the positive impact of coffee rising and rising prices to the origin of planting. We hope to actually gather a large number of coffee farmers and promote sustainable coffee trade to promote long-term coexistence and healthy development of the entire industrial chain. Thank you.

So finally, I want to address as market leader in this industry, we will collaborate with our upstream and downstream partners to pass on this positive impact of rising coffee bean prices to planting regions as well, allowing coffee farmers to ultimately benefit from this trend. promoting a sustainable coffee trade while driving long-term success and healthy development across the entire industry. Thank you.

Thank you, management. That's very clear.

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you everyone for joining our call today. If you have any further questions, please feel free to contact our IR team. This concludes today's call. We look forward to speaking with you again next quarter.

Thanks.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.