Luckin Coffee announces restatement of unaudited financials and provides update for quarter ending December 2019
Category: Luckin Coffee (LCKN)
Date: 30 June 2021 Stock price of Luckin Coffee (LCKN): $11.61 Market Capital Of Luckin Coffee: $2.93 billion We take a look at the press announcement from Luckin Coffee announcing the restatement of their unaudited financial results. The group also provided a business update up to the end of December 2019. The stock of Luckin Coffee is surging on the news, currently trading up by 27% for the day
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Today’s disclosure represents an important milestone for Luckin Coffee as we execute on our plan to return to normalized financial reporting. We have worked diligently to remediate the accounting issues that have delayed our financial filings and led to the review and correction of our historical financial information - Dr. Jinyi Guo, Chairman and Chief Executive Officer of Luckin Coffee. "
More About Luckin Coffee
Luckin Coffee Inc. (OTC: LKNCY) has pioneered a technology-driven retail network to provide coffee and other products of high quality, high convenience, and high affordability to customers. Empowered by big data analytics, AI, and proprietary technologies, Luckin Coffee pursues its mission to be part of everyone’s everyday life, starting with coffee. Luckin Coffee was founded in 2017 and is based in China. For more information, please visit investor.luckincoffee.com.
Press release announcing restatement of financial results
BEIJING, June 30, 2021 (GLOBE NEWSWIRE) -- Luckin Coffee Inc. (“Luckin Coffee” or the “Company”) (OTC: LKNCY) today announced its restated unaudited financial results for the second and third quarters ended June 30, 2019 and September 30, 2019, as well as the unaudited results for the fourth quarter ended December 31, 2019
Background of Restatement
On March 19, 2020, in light of certain issues raised to the Company’s Board of Directors (the “Board”) during the audit of the consolidated financial statements for the fiscal year ended December 31, 2019, the Board formed a special committee (the “Special Committee”) to oversee an internal investigation (the “Internal Investigation”). The Special Committee retained Kirkland & Ellis as its independent advisor, which was assisted by FTI Consulting as an independent forensic accounting expert, in connection with the Internal Investigation.
On July 1, 2020, the Company announced that the Special Committee has substantially completed the Internal Investigation. Based on its work, the Special Committee found that the fabrication of transactions (the “Fabricated Transactions”) began in April 2019 and that, as a result, the Company’s net revenue in 2019 was inflated by approximately RMB2.12 billion and its costs and expenses were inflated by RMB1.34 billion in 2019. See below “Restatement of Previously Issued Condensed Consolidated Financial Statements”.
Background of Restatement
On March 19, 2020, in light of certain issues raised to the Company’s Board of Directors (the “Board”) during the audit of the consolidated financial statements for the fiscal year ended December 31, 2019, the Board formed a special committee (the “Special Committee”) to oversee an internal investigation (the “Internal Investigation”). The Special Committee retained Kirkland & Ellis as its independent advisor, which was assisted by FTI Consulting as an independent forensic accounting expert, in connection with the Internal Investigation.
On July 1, 2020, the Company announced that the Special Committee has substantially completed the Internal Investigation. Based on its work, the Special Committee found that the fabrication of transactions (the “Fabricated Transactions”) began in April 2019 and that, as a result, the Company’s net revenue in 2019 was inflated by approximately RMB2.12 billion and its costs and expenses were inflated by RMB1.34 billion in 2019. See below “Restatement of Previously Issued Condensed Consolidated Financial Statements”.
COMPANY STATEMENT
“Today’s disclosure represents an important milestone for Luckin Coffee as we execute on our plan to return to normalized financial reporting. We have worked diligently to remediate the accounting issues that have delayed our financial filings and led to the review and correction of our historical financial information,” said Dr. Jinyi Guo, Chairman and Chief Executive Officer of Luckin Coffee. “Today, we have a new leadership team and a viable plan that is driving growth for Luckin Coffee and long-term value creation for our shareholders. Across the Company, our team remains focused on delivering improved financial and operational performance while delivering outstanding products and services for our customers.”
FOURTH QUARTER 2019 UNAUDITED FINANCIAL RESULTS (numbers discussed below relating to fourth quarter of 2018 were unaudited and unreviewed)
Total net revenues were RMB1,049.9 million (US$150.8 million) in the fourth quarter, representing an increase of 125.6% from RMB465.4 million in the fourth quarter of 2018. Net revenues growth was primarily driven by a significant increase in the number of transacting customers, an increase in effective selling prices and the number of products sold.
Store level operating loss in this quarter was RMB241.8 million (US$34.7 million), with store level operating loss margin of 24.9%. Operating loss was RMB1,137.3 million (US$163.4 million) compared to RMB643.8 million in the fourth quarter of 2018. Non-GAAP operating loss was RMB1,096.2 million (US$157.5 million) compared to RMB643.8 million in the fourth quarter of 2018. For more information on non-GAAP financial measures, please see the section of “Use of Non-GAAP Financial Measures” and the table captioned “Reconciliation of Non-GAAP Measures to the Most Directly Comparable GAAP Measures” set forth at the end of this press release.
Net loss was RMB1,128.5 million (US$162.1 million) compared to RMB669.0 million in the fourth quarter of 2018. Non-GAAP net loss was RMB1,087.4 million (US$156.2 million) compared to RMB650.7 million in the fourth quarter of 2018.
Basic and diluted net loss per ADS was RMB4.72 (US$0.64) compared to a loss of RMB10.64 in the fourth quarter of 2018. Non-GAAP basic and diluted net loss per ADS was RMB4.48 (US$0.64) compared to a loss of RMB4.80 in the fourth quarter of 2018. Net cash used in operating activities was RMB347.8 million (US$50.0 million) compared to RMB271.4 million in the fourth quarter of 2018. The increase was primarily driven by an increase in operating expenses as a result of expansion of the Company’s business operations.
Cash and cash equivalents and short-term investments were RMB5,365.8 million (US$770.8 million) as of December 31, 2019, compared to RMB1,761.0 million as of December 31, 2018. The increase was primarily driven by the net proceeds of US$158.8 million (RMB1,065.9 million) from the issuance of Series B-1 convertible redeemable preferred shares in April 2019 to certain investors, the net proceeds of US$657.2 million (RMB4,533.8 million) from the IPO and the concurrent private placement and net cash inflow of RMB1,316.4 million (US$189.1 million) in relation to Fabricated Transactions; offset by cash used in operating activities of RMB2,167.0 million (US$311.3 million), purchases of property and equipment on RMB1,571.0 million (US$225.7 million).
“Today’s disclosure represents an important milestone for Luckin Coffee as we execute on our plan to return to normalized financial reporting. We have worked diligently to remediate the accounting issues that have delayed our financial filings and led to the review and correction of our historical financial information,” said Dr. Jinyi Guo, Chairman and Chief Executive Officer of Luckin Coffee. “Today, we have a new leadership team and a viable plan that is driving growth for Luckin Coffee and long-term value creation for our shareholders. Across the Company, our team remains focused on delivering improved financial and operational performance while delivering outstanding products and services for our customers.”
FOURTH QUARTER 2019 UNAUDITED FINANCIAL RESULTS (numbers discussed below relating to fourth quarter of 2018 were unaudited and unreviewed)
Total net revenues were RMB1,049.9 million (US$150.8 million) in the fourth quarter, representing an increase of 125.6% from RMB465.4 million in the fourth quarter of 2018. Net revenues growth was primarily driven by a significant increase in the number of transacting customers, an increase in effective selling prices and the number of products sold.
- Revenues from product sales were RMB1,034.5 million (US$148.6 million) in the fourth quarter, representing an increase of 122.3% from RMB465.4 million in the fourth quarter of 2018.
- Net revenues from freshly brewed drinks were RMB875.2 million (US$125.7 million), representing 83.4% of total net revenues in the fourth quarter of 2019, compared to RMB346.9 million, or 74.5% of total net revenues, in the fourth quarter of 2018.
- Net revenues from other products were RMB104.2 million (US$15.0 million), representing 9.9% of total net revenues in the fourth quarter of 2019, compared to RMB91.4 million, or 19.6% of total net revenues, in the fourth quarter of 2018.
- Delivery revenue were RMB55.1 million (US$7.9 million), representing 5.2% of total net revenues in the fourth quarter of 2019, compared to RMB27.2 million, or 5.9% of total net revenues, in the fourth quarter of 2018.
- Net revenues from freshly brewed drinks were RMB875.2 million (US$125.7 million), representing 83.4% of total net revenues in the fourth quarter of 2019, compared to RMB346.9 million, or 74.5% of total net revenues, in the fourth quarter of 2018.
- Revenues from partnership stores were RMB15.3 million (US$2.2 million), representing 1.5% of total net revenues in the fourth quarter of 2019. Our retail partnership model initiative was launched in September 2019, and first partnership store was opened in October 2019.
- Cost of materials were RMB533.7 million (US$76.7 million), representing an increase of 80.7% from RMB295.4 million in the fourth quarter of 2018, in line with the increase in sales of products.
- Store rental and other operating costs were RMB503.5 million (US$72.3 million), representing an increase of 77.6% from RMB283.5 million in the fourth quarter of 2018, mainly due to increases in the number of stores and headcount.
- Depreciation expenses were RMB130.9 million (US$18.8 million), representing an increase of 122.3% from RMB58.9 million in the fourth quarter of 2018, mainly due to increases in depreciation of leasehold improvements and purchases of operating equipment.
- Sales and marketing expenses were RMB368.5 million (US$52.9 million), representing an increase of 27.8% from RMB288.3 million in the fourth quarter of 2018, mainly due to increases in advertising expenses and delivery expenses as the Company launched new marketing initiatives and entered into new cities. Furthermore, free product promotion expenses increased in line with the growth of new transacting customers.
- General and administrative expenses were RMB431.1 million (US$61.9 million), representing an increase of 192.3% from RMB147.5 million in the fourth quarter of 2018. The increase in general and administrative expenses was mainly driven by business expansion, increased research and development expenses, allowance for uncollectible receivables and share-based compensation to senior management.
- Store preopening and other expenses were RMB10.3 million (US$1.5 million), representing a decrease of 71.1% from RMB35.6 million in the fourth quarter of 2018, mainly due to decreased rental costs before opening as a result of site selection and improved efficiency for new store openings.
- Impairment losses of long-lived assets were RMB209.2 million (US$30.1 million), mainly due to i) the impairment loss amounted to RMB52.1 million (US$7.5 million) for the asset group related to Luckin Coffee EXPRESS, which is an unmanned machine that prepares a selection of freshly brewed drinks, ii) the impairment loss amounted to RMB151.9 million (US$21.8 million) for the asset group related to underperforming or planned closed self-operated stores, and iii) the impairment loss amounted RMB5.3 million (US$0.8 million) related to the cancellation of the constructing coffee bean roasting factories and return of the land use right to local government in Tongan City, Fujian Province and Tianjin City.
Store level operating loss in this quarter was RMB241.8 million (US$34.7 million), with store level operating loss margin of 24.9%. Operating loss was RMB1,137.3 million (US$163.4 million) compared to RMB643.8 million in the fourth quarter of 2018. Non-GAAP operating loss was RMB1,096.2 million (US$157.5 million) compared to RMB643.8 million in the fourth quarter of 2018. For more information on non-GAAP financial measures, please see the section of “Use of Non-GAAP Financial Measures” and the table captioned “Reconciliation of Non-GAAP Measures to the Most Directly Comparable GAAP Measures” set forth at the end of this press release.
Net loss was RMB1,128.5 million (US$162.1 million) compared to RMB669.0 million in the fourth quarter of 2018. Non-GAAP net loss was RMB1,087.4 million (US$156.2 million) compared to RMB650.7 million in the fourth quarter of 2018.
Basic and diluted net loss per ADS was RMB4.72 (US$0.64) compared to a loss of RMB10.64 in the fourth quarter of 2018. Non-GAAP basic and diluted net loss per ADS was RMB4.48 (US$0.64) compared to a loss of RMB4.80 in the fourth quarter of 2018. Net cash used in operating activities was RMB347.8 million (US$50.0 million) compared to RMB271.4 million in the fourth quarter of 2018. The increase was primarily driven by an increase in operating expenses as a result of expansion of the Company’s business operations.
Cash and cash equivalents and short-term investments were RMB5,365.8 million (US$770.8 million) as of December 31, 2019, compared to RMB1,761.0 million as of December 31, 2018. The increase was primarily driven by the net proceeds of US$158.8 million (RMB1,065.9 million) from the issuance of Series B-1 convertible redeemable preferred shares in April 2019 to certain investors, the net proceeds of US$657.2 million (RMB4,533.8 million) from the IPO and the concurrent private placement and net cash inflow of RMB1,316.4 million (US$189.1 million) in relation to Fabricated Transactions; offset by cash used in operating activities of RMB2,167.0 million (US$311.3 million), purchases of property and equipment on RMB1,571.0 million (US$225.7 million).
Number of Luckin Coffee Stores as at end December 2019
- Total self-operated stores 4 507
- Pick-up stores: 4 239
- Relax stores:142
- Delivery kitchens : 126
- Total partnership stores : 282
Luckin Coffee (LCKN) stock price chart over the last 5 years
The image below shows the stock price history of Luckin Coffee (LCKN) over the last 5 years. And its not been good time for Luckin Coffee stockholders with the stock declining by -48% over the last 5 years. Largely due to the massive drop due to overstated financials coming to the fore.
The stock of Luckin is trading at closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Luckin Coffee stock is positive at this point in time.
The stock of Luckin is trading at closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Luckin Coffee stock is positive at this point in time.
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