Luckin Coffee Inc

Ladies and gentlemen, welcome to Luckin Coffee's third quarter 2025 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. Please be advised that today's call is being recorded. Now I'd like to turn the call over to Ms. Nancy Song, Head of Investor Relations for Luckin Coffee. Nancy, please go ahead.

Thank you, and hello, everyone. Welcome to Locking Coffee's third quarter 2025 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 via Newswire services. Today, you will hear from Dr. Guo Jingyi, co-founder and CEO of Locking Coffee, who will share a strategic overview of our business. Following that, Ms. Anjing, our CFO, will discuss our financial results in greater detail. Afterward, 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 are forward-looking statements. These statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in our findings with ICC. In addition, for non-GAAP measures discussed today, the reconciliation information related to those measures can be found in our earnings crash reviews. During today's call, Dr. Gu will speak in Chinese and his comments will be translated into English. Now, I'd like to turn the call over to Dr. Guo Jingyi, co-founder and CEO of Locking Coffee. Dr. Guo, please go ahead.

Hello, everyone.

Welcome to today's earnings conference call. Thank you for your continued interest in and support of Locking Coffee.

In the third quarter, under the market opportunity of fast expansion of the film industry, we focus on the core strategy of scale growth, and continue to produce positive results. The revenue growth continues to grow strongly, with a 50% increase of the same ratio, reaching about 15.3 billion yuan. The sales growth rate of four-sale copper chains has further increased, reaching 14.4%. During this period, with the deepening of the sales platform,

In the third quarter, our skill-driven strategy continued to yield strong results as we capitalized on the rapid expansion of China's freshly brewed beverage market. our revenue continued a solid momentum, increasing by 50% year-over-year to around RMB $15.3 billion, while same-store sales growth in our self-operated stores further improved to 14.4%. During the quarter, as food delivery platforms intensified their subsidy campaigns, we saw the shift in volume share to both delivery continued at the current stage Despite this temporary challenge, we maintain healthy profitability, achieving an operating profit of around R&D 1.8 billion.

更重要的是,面对中国咖啡行业持续增长的消费需求, 我们加速门店交付覆盖,主动抢占市场空间, 面向未来布局长期发展。 截至三季度末,门店总数已超2.9万家, effectively accommodating the market demand for strong growth. This not only brought over 42 million new trading customers, but also created a new height in history, and further supported the development of the platform's overall scale of monthly trading customers. We are also proud of the large-scale growth on both sides of the supply chain, and the continued expansion of RuiXing's competitive advantage, and the further improvement in market share, which laid a more solid foundation for our long-term sustainable development.

More importantly, in response to the rising demand in China's coffee market, we accelerated our network expansion to strengthen store coverage and proactively secure wide space locations for future growth. As of the third quarter end, our total store count surpassed 29,000, enabling us to effectively meet robust consumer demand. Our scale advantage drove record-high new customer acquisition of 42 million, supporting a milestone achievement of over 100 million average monthly transaction customers. This scaled growth across both the storefront and the customer base has expanded Lockheed's competitive edge and market share, placing us on a stronger footing for long-term sustainable growth.

Next slide. I will now share an update on our operations and our CFO Anjing will present the financials later.

This quarter, powered by Lockheed's strong digital capabilities, we continue to enhance our core strengths across people, products, and places, scaling our business at a faster pace and strengthening our market leadership.

In terms of door-to-door, we maintain the leading opening speed in the industry, continue to accelerate the layout of high-end cities with high-quality points and expand the rhythm of the downstream market, and continue to expand the door-to-door network scale.

On the storefront, we maintain industry-leading store growth, continuing to strengthen our presence across high-quality locations in high-tier cities while penetrating lower-tier markets. As a result, Our store network continued to expand rapidly. By the end of the third quarter, Lockheed's total store count reached 29,214, maintaining leadership in China's coffee market with growing customer reach and enhanced fulfillment capabilities.

Specifically, the Chinese market has increased by 2,979 stores. The total number of stores has reached 29,096. There are 18,809 of them. The number of Lianying stores has also officially reached 10,287. In the current market environment, as the coffee business habit continues to be cultivated, customer demand is constantly stimulated and growing. The Chinese market still has a wide space for growth. Yihe Ruixin's strong brand power and digital selection ability Domestically, we achieved 2,979 net openings

bringing our total store count in China to 29,096, including 18,809 self-operated stores and 10,287 partnership stores, which have now surpassed the 10,000 store milestone as well. As coffee drinking habits continue to take hold and the consumer demand grows strongly, China's coffee market still offers much room for growth. Leveraging Lock-in's strong brand influence and data-driven site selection capabilities, we can systematically and swiftly identify customer demand, enabling us to open high-quality stores efficiently and in convenient locations that closely align with customer demand. In the foreseeable future, we will maintain a competitive pace of expansion to fully capture the structural opportunities in China's coffee market.

In terms of the international market, we continue to maintain a steady pace of development. In this quarter, there are 29 stores in competition, with a total of 118 stores. These include 68 Singapore self-serve stores, 5 US self-serve stores, and 45 Malaysian joint stores. As a starting point for our overseas expansion, Singapore's business performance continues to improve. is a more mature and high-tech localization cloud system that has been developed for the first time. It has initially witnessed the adaptability and reproducibility of the virtual digital business model in a diverse market environment. It has also been set up as a benchmark demonstration for us to further support the Asia-Pacific region. On the other hand, the U.S. market is still in the early stage of exploration. The performance of business in all aspects meets our expected judgment. The feedback from U.S. consumers is overall positive.

我们将继续稳扎稳打,积累对当地用户的理解,持续打磨提升本地化运用能力,布局长期的规模化发展。 Internationally, we have 29 net openings this quarter, bringing our total overseas store count to 118, including 68 self-operated stores in Singapore, 5 self-operated stores in the U.S., and 45 franchise stores in Malaysia. As our first overseas market, Singapore has been steadily improving its performance and initially built a mature and efficient localized operating infrastructure. This has demonstrated the early signs that our digital business model is adaptable and replicable across diverse markets and a set and impactful benchmark for our future expansion across the Asia-Pacific region. Meanwhile, our U.S. business remains in the early stages of exploration, with performance across various areas broadly in line with our expectations and overall consumer feedback being positive. We will continue to take a disciplined and a steady approach, accumulating local market insights and enhancing our localized operational capabilities to lay the foundation for long-term scalable growth.

In terms of products, in the third quarter, we have launched nearly 30 limited-edition drinks and many light foods. We continue to lead the innovation and trend of coffee products, and in the next quarter, we will launch many non-coffee choices to further enrich the customer's consumer experience. In September, we joined hands with our old friend Tangwei to launch a series of activities to save coffee from the original production site. Not only do we use high-quality, localized raw materials to deliver a healthy lifestyle, It also further strengthens the brand spirit of Ruixin's original brand. For example, we selected Fujian Guanxi honey, Shangxin Guanxi honey latte, and selected Xinjiang Aksu Apple to upgrade back to the popular product, Apple C Americano, and newly launched Aksu Apple Latte. These products have expanded the product combination of our flavor coffee and received positive customer feedback. In addition, Our small butter series, in the first year of its launch, has sold more than 200 million cups. This fully reflects our strength in product innovation and leading the development of product trends, and continues to consolidate the market leadership position of Ruixin brands. In terms of non-coffee, thanks to Ruixin's advantage in raw tobacco origin, we have added the mainstream series of products such as Yang Zhi Gan Lu, which has sold more than 12 million cups in the 11-day period.

On the product front, we launched nearly 13 new freshly brewed beverages and several snack items in the third quarter, continuously driving coffee innovation and shaping market trends. We also diversified our summer lineups with a wider selection of non-coffee options to enrich customer experience. In September, we partnered with our long-time brand ambassador, Tongwei, to launch Latin's Drink from Origin campaign, promoting a healthy lifestyle through high-quality, locally-sourced ingredients and reinforcing our brand concept from the origin tree. For example, we launched Squancy Honey Pomelo Latte, featuring famous Squancy Honey Pomelo from Fujian province, We also selected Axel Apples from Xinjiang to upgrade our popular Apple C Americano and to launch our new Axel Apple Latte. These products expanded our flavored coffee portfolio and received encouraging customer feedback. In addition, our Little Butter series surpassed 200 million cumulative cups sold in its first year on the market. and is scoring our strong product innovation capabilities and ability to set category trends, which continues to strengthen Lockheed's brand leadership. On the non-coffee side, leveraging our fresh coconut sourcing advantage, we introduced the popular Mongo Pamelo Seiko, which sold over 12 million cups during the National Day holiday, once again demonstrating our broad customer base and a strong market appeal.

In terms of customers, we continue to surround diversify the consumer trend of young people, popularize the market hot spot for users, and carry out highly interesting and emotional marketing activities. This quarter, there are outstanding performances in terms of customers, activity, and promotion. For example, we have a variety of cross-border high-temperature IPs, such as hot movie, game, classic animation, and so on. has effectively reached a wider audience, while improving brand influence, it has also further stimulated consumer demand. Based on this, in the third quarter, our new trading customer base is over 42 million, and our monthly trading customer base is over 1.1 billion. These two indicators are historically high. By the end of the quarter, Ruixin's total number of trading customers has exceeded 4.2 billion.

On the customer side, we remained aligned with diversified and use-driven consumption trends, capturing market buzz and evolving customer preferences through engaging an emotionally relevant market campaign. With these initiatives, We achieved impressive results in customer acquisition, engagement, and the purchase frequency during the quarter. For example, we partnered with a wide range of popular IPs, such as kid movies, blockbuster games, and classic animated series, effectively reaching a broader audience, strengthening brand influence, and stimulating customer demand. Building on these efforts, we added over 42 million new transacting customers in the third quarter and achieved an average of over 110 million monthly transacting customers, both record high. By quarter end, our cumulative transacting customer base surpassed 420 million, further strengthening our ability to cultivate a high-frequency, loyal customer cohort a key driver of our long-term high-quality growth.

In addition, we uphold the sustainable development strategy for a bright future, continue to carry out corporate and social responsibility, and fight against the industrial chain with public action. Since the establishment of Yuxing Coffee in the 8th anniversary, we have joined hands with the Chinese Red Cross Foundation, the Hao Foundation, to launch the Bo'ai School Health Action Plan, to donate to many schools in Yunnan, Xinjiang and other areas, to help improve the school's health insurance level of coffee and other main raw materials, and to protect youth's health and growth. At the same time, around the theme of child health in the original place, we have carried out public cooperation. We have sponsored the Angel's Journey project for two consecutive years, and we have supported the local pre-existing diseases to be investigated and cured.

In addition, we remain committed to our sustainability strategy, being a force for a brighter future, and continue to fulfill our corporate social responsibilities through charitable initiatives that support communities across our upstream supply chain. To mark Blocking Coffee's eighth anniversary, We partnered with the China Red Cross Foundation's Hall Fund to launch the Philanthropies Campus Health Initiative, building multiple philanthropy health centers in schools across Yunnan and Xinjiang. This program enhances campus healthcare infrastructure in coffee regions and other key sourcing regions, helping safeguard the healthy development of local youth. Moreover, as part of our ongoing focus on children's health in origin regions, we have sponsored the Andrew Journey Project for two consecutive years, funding screening and treatment for local children with congenital heart disease. Moving forward, we will continue to deepen our engagement in origin communities. giving back to society through charitable efforts to build a brighter future together.

今年以来,在外卖平台补贴活动的推动下, 中国咖啡行业加速发展, 消费需求呈现出巨大弹性, 这都再次印证了中国咖啡市场的巨大潜力。 面对复杂的市场环境, 我们始终围绕既定增长战略, dynamic adjustment of operating rhythm and strategy, and actively grasping the opportunity of industry development. The three-season business continues to accelerate, and achieves the core goal of the continuous improvement of market share. At the same time, we also see that as the weather cools down, the restrictions on the drink industry have entered a dead end, and the strength of platform subsidies has also begun to shrink rapidly. It is expected that the future form of subsidies will also be more refined, Since the beginning of this year, the price of international coffee beans has been operating at a high level and there is no sign of a slowdown. These factors will bring new changes and pressure to the coffee industry, and will also bring challenges to our 4G and even next year's business development. In the form of multiple markets, we will pay more attention to long-term development. I believe that only strategic focus and continuously improve their own management level in order to counter short-term fluctuations and go through various external environments. On the one hand, we will continue to strengthen product innovation and brand innovation to better meet the needs of customers with high quality, high cost-effectiveness, and high convenience products to support the performance of our stores. On the other hand, we will also continue to play an active role in the digital operation capability of RuiHsing, combining in-depth insight into the needs of users,

This year, built by food delivery platform subsidy campaigns, China's coffee industry has seen accelerated growth, with consumer demand demonstrating strong elasticity. These trends further validate the enormous potential of China's coffee market. Amid this complex environment, we have remained focused on our established growth strategy, adjusting our operations dynamically to seize emerging opportunities. As a result, we achieved faster business growth and market share gains in the third quarter, effectively meeting our strategic goals. At the same time, as temperatures have dropped and the freshly brewed beverage industry has entered its seasonal slowdown, We have observed food delivery platforms rapidly scaling back their subsidies, which I expected to become more targeted and refined going forward. In addition, international green coffee bean prices have remained elevated this year, with no signs of moderation at the moment. These factors will introduce new dynamics and create headwinds for the industry and pose challenges to our first-order or even next year's business development. In this evolving landscape, we will focus more on our long-term growth trajectory. We believe our continued strategic focus and enhanced operational excellence will enable us to weather short-term fluctuations and navigate various action environments. We will continue to strengthen our product and brand innovation, offering high-quality, affordable, and convenient products that better meet diverse customer needs and support store performance. We will also leverage Lock-In's robust digital capabilities and deep customer insights to enhance retention and repeat purchases, fully unlocking long-term consumption potential.

Thank you. Once again, I would like to thank all the consumers, partners, and investors who have trusted and supported Ruixin. I would also like to thank our 170,000 Ruixin partners who have worked together. We will continue to work together to create world-class coffee brands and make Ruixin a part of people's daily lives. At the same time, we will continue to work hard to create long-term value for customers, partners, and shareholders.

Finally, we would like to extend our sincere gratitude to our customers, partners, and investors for their continued trusting and support of Lock-In, as well as to our 170,000 Lock-In team members who stand with us through their dedication and hard work. Together, we will continue building a world-class coffee brand and making Lock-In a part of everyone's daily life. As we move forward, we remain committed to long-term value creation for our customers, partners, and shareholders. 接下来,有请安静向大家介绍详细的财务数据。 With that, I will now turn the call over to Anjing to go through our financial results in detail.

Thank you, Xinyi. Good day, everyone. Thank you for joining today's call. We delivered another strong quarter. underscoring our sustained momentum and competitive strengths. With a continued focus on scale and operational excellence, we achieved record highs in both customer acquisition and in monthly transecting customers. This achievement further strengthened the foundation for our future stock performance and long-term growth. Let's now look at our financial performance in detail. In the third quarter, total net revenues increased by 50% year-over-year to RMB 15.3 billion, primarily driven by a 48% year-over-year increase in GMB to RMB 17.3 billion. This accelerated growth reflected in strong performance across both self-operated and partnership stores. supported by our record monthly transacting customer count and expanded store network to better market, to better meet rising demand. Increased by 47% year-over-year to R&D 11.5 billion, managed by stronger sales performance in our self-operated stores. Breaking down our product itself into three streams, Net revenues from freshly brewed drinks were RMB 10.6 billion, representing about 70% of the total net revenues. Net revenues from other products were RMB 622 million, or roughly 4% of the total net revenues. Net revenues from others were RMB 233 million, or about 1% of the total net revenues. Looking at the productive sales from the perspective of company-owned stores, revenue from self-operated stores increased by 48% year-over-year to RMB 11.1 billion. Since-store sales growth reached 14.4% for this quarter, driven by increased cut sales and ASP reflecting the shift in volume mix toward delivery. Store-level operating profit grew 10% year-over-year to RMB 1.9 billion, with self-operated store-level operating margin of 17.5%. Revenues from partnership stores increased by 62% year-over-year to RMB 3.8 billion, accounting for 25% of total net revenues. There is impressive growth was primarily driven by higher material sales, profit-sharing from strong partnership store performance, and increased delivery service fees resulting from greater deliver volumes. Cost of materials as a percentage of the total net revenues decreased to 36% from 39% in the same period of 2024. mainly due to our enhanced supply challenge and advantages. In absolute terms, cost of materials increased by 41% year-over-year to RMB 5.5 billion, in line with our business expansion. Stock rental and other operating costs as a percentage of the total net revenues decreased to 20% from 22% in the same period of 2024. Many driven by improved operational efficiency and scale benefits from increased cap sales. In absolute terms, this cost increased by 36% year-over-year to RMB 3.1 billion, reflecting higher payroll costs tied to cap sales growth and increased rental costs from ongoing stock expansion. Delivery expenses increased by 211% year-over-year to RMB 2.9 billion due to a significant increase in delivery orders from food delivery platforms. As a result, delivery expenses as a percentage to total net revenues sharply rose to 19% from 9% in the same period of 2024. However, on an ordered basis, delivery expenses decreased year over year, reflecting improved efficiency at scale. Sales and marketing expenses as a percentage of the total net revenue decreased to 5% from 6% in the same period of 2024, managed by enhanced operating efficiency and the leverage from accelerated revenue growth in absolute terms. Sales and marketing expenses increased by 28% year-over-year to RMB 751 million, mainly due to higher commission fees paid to food delivery platforms as a result of the rising delivery volumes. General and administrative expenses as a percentage of the total net revenue increased to 5% from 6% in the same period of 2024. many driven by enhanced operating efficiency and a leverage from accelerated revenue growth. In absolute terms, T&A expenses increased by 25% year over year to RMB $793 million, primarily due to increased payroll expenses and share basis composition, as well as greater investment in research and development. As a result, our gap operating profit increased by 13% year-over-year to RMB 1.8 billion. Operating margin was 11.6% compared to 15.5% in the prior year period, really impacted by a significant increase in delivery expenses. On a gap basis, operating profit increased by 15% year-over-year to RMB $1.9 billion, with operating margin at 12.6%. Net profit was at RMB $1.28 billion, with a net margin of 8.4%, compared to RMB $1.31 billion and 12.9% in the five-year pyramid. related to a higher executive tax rate. On an on-gap basis, net profit was RMB 1.4 billion, with the net margin at 9.3%. Finally, turning to our balance sheet and the cash flow items, our net operating cash inflow was around RMB 2.1 billion in the third quarter of 2025. As of September 30, 2025, we had RMB 9.3 billion in cash, including cash and cash equivalents, restricted cash, term deposits, and short-term investments, compared to RMB 5.9 billion as of December 31, 2024. Our robust cash generation ability and strong cash reserves enable us to flexibly adapt our business expansion pace to different market conditions, letting us fully capitalize on emerging opportunities. In quotes, our solid third quarter results reaffirm our market leadership and business resilience. We are particularly encouraged by the potential of our growing customer base, especially as we continue to expand loyal cohorts. This gives us greater confidence in capturing the vast opportunities in China's coffee market, despite involving external dynamics, while maintaining disciplined cost management and operational efficiency. With that, we will open the call for questions. Operator, please go ahead.

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, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Once again, it is star then 1 to ask a question. At this time, we will pause momentarily to assemble our roster. The first question comes from Ethan Wang. with CLSA please go ahead

Good evening, Mr. Wang. I would like to ask a question about take-out. As we can see, because of take-out subsidies, our income is indeed growing very fast. However, the profitability is a bit affected. Just now, Mr. Guo mentioned in Pre-Paramarket that the level of take-out subsidies in the fourth quarter has decreased. I am just curious if this is because of the decline in the season good evening management. So in terms of the delivery subsidy, we understand that it definitely helps our revenue to grow very strongly in this quarter and the last quarter as well, but it also has a negative impact on our margin I think CEO mentions that going to fourth quarter, the subsidy, the extent of subsidy has faded a bit, but I'm just wondering is it because of season effect or there's some structural changes behind and going to next year, shall we worry about the high base effect? Thank you.

Thank you. Let me answer your question. For what we are seeing now, the whole situation of take-out and supplementation, as well as the impact on RuiHsing's future business, I think this question has to go back to the business essence of the coffee business. I will answer your question.

So regarding the potential impact of the subsidy situation, we think it's important to see this issue through the nature of a coffee business. And also, we need to evaluate within the context of the broader industry trend as well as our own operational capabilities.

First of all, coffee is based on location, that is, it is based on a limited point of consumption. This determines the long-term development of the coffee industry. It will still use itself as the core, take-out is more of a seasonal supplement. This is mainly due to two reasons. On the one hand, the cost of take-out and the mainstream price range of coffee in China do not match. The cost of take-out is actually too sensitive to unit prices. So, based on the economic model of take-out, the unit economy model is not the best solution. On the other hand, The delivery time will affect the user's satisfaction with the instant consumption of coffee. It will also affect the taste and experience of the coffee product. From this perspective, it is not the most ideal experience model. RuiHsing is a stable model system that focuses on fast charging. It can be distributed in almost all scenarios and can be close to customers to the maximum extent. This is also the core advantage of long-term development of RuiXing business. Therefore, we judge that the long-term coffee business will gradually return to the norm of self-publishing.

So first, coffee is inherently a location-based and store-driven consumer product. So this means pickup will remain the primary consumer format over the long term, but delivery will serve more as a supplemental channel at certain stages as the market evolves. So there are two reasons for this. One is delivery fulfillment costs are disproportionately high compared to China's mainstream press range of freshly brewed coffee. So delivery is highly sensitive to per cup pricing and its unit economics are less favorable. So the second is longer delivery times can compromise the immediacy and the coffee's taste experience that consumers expect, so which makes it a less ideal consumption model. And our Latin pickup-oriented store format actually allows us to densely open stores across nearly all of the consumption scenarios. it makes us can keep us as close to customers as possible. So this is actually the core advantage of locking and underpins our long-term growth. So we believe the coffee business will naturally return to a pickup-oriented model over time, although this transition period will take a longer time to happen.

另外经过今年二季度开始外卖平台的大规模补贴, and the sales of the entire sales platform. From the current trend, next year's sales platform subsidies will surely turn into a more detailed operation strategy. It is expected that the subsidy will also gradually tighten. Under the subsidy strategy of the whole ROI, the platform is expected to be more inclined to and the order density is high, and the delivery efficiency is strong. It is also the best brand cooperation for the transfer of subsidy effect. With the huge store network, high-performance door-to-door operations, and stable delivery systems, I believe it will be the best choice for outsourcing platform subsidies.

Yes, so this year's large-scale subsidies have driven a significant surge in the overall order volumes on food delivery platforms. So next year, these platforms are expected to adopt a more refined and ROI-driven operational strategies. and the promotion intensity likely to taper gradually as well. So under such an ROI-driven approach, platforms will likely prioritize partnerships with brands who demonstrate high order density, strong fulfillment efficiency, and effective subsidy conversion. So with our extensive store network, efficient operations at the storefront, and our reliable fulfillment infrastructure, Locking, I believe, Locking remains a preferred partner for food delivery platforms.

Of course, at the same time, we also see that the supply of food channels this year is indeed relatively strong at the initial stage. Objectively, it has also promoted the increase in our orders and the number of customers. It has also formed a relatively high business technology. As the platform begins to recover, next year's supply will be adjusted towards an economic direction. the overall growth rate of the industry may show different stage characteristics from this year. Our growth in the same year will also encounter challenges and pressure. But as I mentioned before, in a constantly changing industry environment, we believe that paying attention to long-term development, continuing to focus on our own product power and brand power, and continuing to release the potential of customers' consumption is the core of going through external environmental changes.

Yeah, so at the same time, we also see that for the alert platforms, they offered substantial subsidies in the early stages of their campaigns, which objectively filled a sharp increase in our order volumes and the customer base, creating a relatively high comparison base. As a platform, they have already scaled back their subsidies and will shift towards a more refined approach next year. The industry's overall growth trajectory will differ from this year, and our same-store sales growth next year will also face challenges and pressure. And as I mentioned earlier, in this evolving landscape, we believe that the only focusing on long-term development is the key to navigating external changes. This means we continuously strengthen our product and the brand competitiveness and customers' consumption potential, which we see this as a core key driver of our long-term sustainable growth. Thank you. This is my answer to the question.

Thank you.

Our next question comes from CG Lin of CICC. CG, please go ahead.

Thank you, Mr. Guo. My question is about long-term development strategy. We have constantly faced and may continue to face external environmental changes such as competitive landscape and delivery platform subsidies. So how will we balance different targets including skills and social growth and profit?

Thank you. This is a very good question. It is also a question that we have been thinking about for a long time. For this question, I think we need to take a longer-term development perspective, especially to combine the current development stage of the Chinese coffee industry with the actual situation of Ruixin Coffee itself, including the relationship between the three points, including scale, supply chain growth, and profit. On the one hand, in general, we think that the current Chinese coffee market is still at the beginning stage. is still in a period of rapid development. The market space is extremely wide. Therefore, for us, how to grasp this historical opportunity to achieve the greatest prosperity of industry development is the most important. Especially this year's foreign trade subsidies actually further accelerated the resource integration of the entire industry, and increased the concentration of the industry. In the future, with the decline of subsidies, we believe The trend of the concentration to be further increased may continue further. Under this background, we will focus on growth, continue to pay attention to the share, continue to steadily expand the size of the store, and work hard to catch up with more customer needs in the future through a high-quality store network. Of course, this can also lay a more solid foundation for long-term development. Let's turn it over first.

Thank you for your question. This is a very good question, and it's always on top of our mind. We need to take a much longer-term perspective when evaluating the relationship among scale, same-store growth, and our profitability. So considering the current stage of China's coffee industry and Lockheed's own development trajectory, so China's coffee market is still in its early stages of development, and it remains in a high growth phase with vast market opportunities and potential. So for us, it's very crucial to capture this historic opportunity and then maximize the long-term benefits from this structural trend. So in particular, this year the food delivery platform subsidies have further accelerated industry consolidation as well as increased market concentration. So as these subsidies gradually phase out, this trend is expected to continue as well. And against this backdrop, our strategic focus will remain on growth and market share. And we will continue to steadily expand our store footprint, building a high-quality and efficient store network to meet growing customer demand and pave the way for our long-term growth.

From the point of view of Tongdian, I first need to emphasize that after the financial incident in 2020, Our store expansion will always ensure quality as the first important premise. On the one hand, after the opening of new stores, we will rely on our huge and mature operating system to quickly climb the ladder to improve store performance. On the other hand, through continuous product and brand innovation, we will continue to improve the resale and consumption frequency of customers, and thus promote the continuous health development of store performance. As mentioned above, This year's quarter and next year's quarter will be affected by multiple factors. In the short term, there may be fluctuation and pressure on the index. But in the long term, it will be easier for stores to deliver and bring in more convenient customers. The gradual development of coffee consumption habits and the natural improvement of customer consumption frequency will have positive effects. This will also give us a permanent motivation for the long-term demand.

Regarding the same-store growth, we'd like to emphasize that since the financial issue in 2020, maintaining a high store quality has always been the top priority in our expansion. So on one hand, new stores can leverage our mature operational framework to quickly ramp up and improve their performance. And on the other hand, we continue to improve customer loyalty and repeat purchases through continuous product innovation and brand innovation, driving steady and sustainable store performance. And as I mentioned earlier, taking into account the factors above, our same store sales growth metric in the first quarter and even next year will face some short-term fluctuations and pressure. However, from a long-term perspective, more convenient store fulfillment and improved customer reach play a very positive and important role in fostering coffee drinking habits as well as naturally increasing consumption frequency among customers. So this, in turn, can provide lasting momentum for our continued improvement of our store performance over time.

From the point of view of profitability, in the short term, a significant increase in the delivery ratio will indeed cause a certain negative impact on the profitability. The three-week operating profitability fell slightly from the previous quarter. It is also due to the delivery the delivery fee rate has been significantly improved. This fee completely eliminates the positive impact of our operation and promotion, but I think this is acceptable overall in terms of the stage of industry development and the strategic promotion process. At the same time, as mentioned earlier, due to the current high price of international coffee beans, there is no sign of a slowdown, It is expected that the cost of next year's capital may still be under pressure, which may also affect the profit rate. Under this background, we will continue to optimize the cost structure through economic operation, rely on the ability of digitalization to improve the overall operation efficiency and optimize supply chain management. We will strive to maintain a reasonable and healthy profit level while expanding the scale.

Regarding margins, in the short term, the notable higher mix of our delivery orders has put some pressure on our margins, fully reflected in the decline of our third quarter operating margins compared to the previous quarter. And the positive impact of our improved operational efficiency was actually completely offset by the significantly higher delivery expenses as a percentage of total revenues quarter over quarter. But we view this as a temporary and expected impact, reflecting both the current stage of industry development and our strategic execution process. And at the same time, as I mentioned earlier, international green coffee bean prices have remained elevated with no signs of moderation, which could also pose some challenges to our coffee bean costs next year, which can also affect margins. And in this environment, we will continue to optimize our structures through refined operations, leveraging our digital capabilities to further enhance operation efficiency and strengthen our supply chain management. And as we scale, we will strive to maintain a healthy and sustainable profit profile.

基于以上,我总结一下, 当前阶段业务增速和市场份额 is still the strategic development focus of Ruixin. We will continue to pay attention to the quality of our stores and insist on product and brand innovation. In the process of high-speed development, although the performance of the same store is fluctuating, the overall trend and direction of judgment can be accepted. At the same time, we will work hard to maintain a reasonable and healthy profit level, and we are also full of confidence in the long-term profit performance of the future. Thank you.

Yeah, so based on above, in conclusion, business growth and market share expansion remain our strategic priorities at this stage. We will continue to ensure our store quality while driving product and brand innovation amid our robust expansion. And during this period of rapid growth, even if same-store performance shows some fluctuations, the overall trajectory remains within our expectations. And at the same time, we will strive to maintain healthy and sustainable profit levels and remain confident in our long-term profitability potential. Thank you.

Our next question comes from Hua Yi Li with SinoLink Securities. Hua Li, please go ahead.

Let me translate my question. Good evening, management. I'd like to ask about the company's capital market strategy. At Xiamen Entrepreneur's Day conference a few days ago, Dr. Guo mentioned the company's intention to pursue a relisting on a major U.S. exchange. Could management please share an update on the current status of this initiative? Thank you.

Thank you for your question. Xiamen is the headquarter of RuiXing. Since the establishment of the company, Xiamen City has received full support from all aspects, especially after the financial incident in 2020. With the support and guidance of Xiamen City, Xiamen City's business has continued to develop well and achieved a rebound.

Right. Thank you for your question. Lockheed is a cash order in Xiamen where we received holistic and tremendous support since our inception, especially after the financial issue in 2020. With Xiamen's continued support and the guidance, Lockheed has consistently delivered a strong performance and achieved a successful turnaround.

For this question, it is the same as our previous communication with the market. We will continue to pay attention to the U.S. capital market, but the company does not have a clear timetable for the re-upload of the motherboard. The main task of the company at this stage is still to build the company's business strategy, focus on development, and fully grasp the long-term development opportunities of the Chinese coffee market by providing excellent product and service services to customers, and strive to acquire a higher market share.

So regarding this question, as we mentioned before, we remain committed to the U.S. capital market, though we currently have no specific timeline or schedule for uplifting on the main board. Our top priority at current stage remains focusing on our strategy execution and business development. Through offering our customers exceptional products and services, we aim to fully capture the long-term growth opportunities in China's coffee market and expand our market share, creating sustainable long-term value for our shareholders. Thank you.

Due to time constraints, no further questions will be taken at this time. This concludes the question and answer session. I'd like to turn the call back to the management team 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. Thank you.

Thank you.

Thank you.

The conference has ended. You may disconnect your line. Thank you.