The coffee chain’s second-quarter revenue fell short of investor expectations.
Nicknamed the “Starbucks of China,” investors have high hopes for Luckin Coffee. Since its founding two years ago, the company has been all about fast growth.
Luckin opened 3,000 stores across 40 cities in China and is trying to surpass Starbucks as the largest coffee chain in China. The company went public in May with an IPO price of $17 and since then, its shares have climbed as high as $27.12.
But the company took a hit this week after releasing its second-quarter earnings report. The earnings report showed that the company is losing a lot of money and its revenue fell short of investor expectations.
An overview of the earnings report
During the second quarter, the company’s total net revenue reached 909.1 billion Chinese yuan ($132.4 billion). This is up more than 600% from a year earlier and is largely due to the company’s customer acquisition and effective selling strategies.
The company’s growth is impressive but still fell short of the 940 billion yuan expected by analysts. And it’s even less impressive when you consider the fact that the company is still losing tons of money.
Luckin’s second-quarter losses came to 681.3 billion yuan, which is more than twice as much as it lost a year earlier. To put this in perspective, that means the company reported losses of roughly 96 cents per share. This is much higher than the 43 cents investors were expecting.
But Luckin CEO Jenny Zhiya Qian is optimistic about the company’s prospects going forward. She said that when it came to the company’s stores, it managed to significantly reduce its operating losses and is on track to break even during the third quarter.
What’s next for Luckin Coffee?
Shares of Luckin Coffee fell more than 15% thanks to the earnings report, though they did rebound slightly. Going forward, investors will be looking to see if the company can stop losing so much money and maintain its high customer acquisition growth.
The company gained customers very quickly by offering deep discounts on its coffee drinks. Starbucks CEO Kevin Johnson previously called this strategy “unsustainable.”
The company is currently testing out new products, including coffee vending machines which will be placed in schools and office lobbies. Luckin is also working to expand its tea-based line of drinks to reach a larger market.