Luckin Coffee(LKNCY) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Product revenue for Q3 2019 was CNY 1.493 billion, representing a year-over-year increase of 558% [14] - Store level profit margin reached 12.5%, showing significant improvement in profitability [27] - Non-GAAP net loss margin was reduced, indicating a trend towards breakeven by Q3 2020 [34] Business Line Data and Key Metrics Changes - Sales from coffee maintained strong growth, with the average product revenue per store per quarter increasing by nearly 80% year-over-year [80] - Luckin Tea products saw sales increase 8x in the past five months, contributing to higher customer retention rates [17] - Revenue from non-coffee products increased from 31% in 2018 to 45% in Q3 2019 [25] Market Data and Key Metrics Changes - The number of monthly transacting customers rose to 9.3 million, a 51% quarter-over-quarter increase [28] - The average monthly items per transacting customer increased to 4.7, a 6% quarter-over-quarter rise [29] - The net selling price per item was CNY 11.2, reflecting a 7% increase quarter-over-quarter [30] Company Strategy and Development Direction - The company aims to become the largest coffee player in China by the end of 2019, leveraging a technology-driven retail model [8][12] - A new retail partnership model was launched, allowing for asset-light expansion and reduced investment risks [22] - The company plans to continue investing in branding and marketing, with expectations of normalizing costs by Q3 2020 [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in reaching breakeven by Q3 2020, supported by strong growth metrics and improved store efficiency [31][60] - The company remains optimistic about the growth of the tea market, despite potential seasonal impacts on demand [72] - Management highlighted a strong balance sheet with over CNY 5.5 billion in available cash, indicating readiness to execute business plans [34] Other Important Information - The company has entered a joint venture with Louis Dreyfus to produce Luckin Juice, expanding its product offerings [24] - The operational partnership model allows for reduced upfront costs for partners, enhancing the company's market reach [22] Q&A Session Summary Question: About the gross margin and raw material costs - Management noted that per cup costs have been trending favorably, with raw material costs for tea and coffee being similar, despite tea potentially being slightly higher [41][42] Question: Trends in key operating metrics and growth outlook for Luckin Tea - Management expects continued growth in average selling price and customer acquisition, with a long-term target price of CNY 16 to CNY 17 [43][44] Question: Progress on the new retail partner model - The company has received nearly 2,000 deposits for the new retail model, with some partners already launching stores [45][46] Question: Marketing expenses for Luckin Tea and customer repurchase rates - Marketing expenses for Luckin Tea are included in the overall guidance, with no significant difference in retention rates between lower and higher-tier cities [51][52] Question: Profitability and growth of the core coffee business - Management confirmed strong performance in the coffee segment, with significant growth in items sold per store per day [61] Question: Balancing store productivity with openings and product mix - The company maintains a balance between demand and store openings, with non-coffee products expected to continue growing [66][67]