Luckin Coffee Q3 Net Revenues Increased 66%; Further Acceleration of Net New Store Openings

Third Quarter Net Revenues Increased 66%; Further Acceleration of Net New Store Openings

Operating Efficiency and Economies of Scale Further Improved Profitability Profile

Following Full Redemption of Offshore Notes, Company Moves Forward with No Debt Obligations and Strong Liquidity Position

Luckin Coffee Inc. (OTC: LKNCY) today announced its unaudited financial results for the three months endedSeptember 30, 2022.

THIRD QUARTER 2022 HIGHLIGHTS1

• Total net revenues in the third quarter were RMB3,894.6 million (US$547.5 million), representing an increase of 65.7% from RMB2,350.2 millionin the same quarter of 2021.
• Net new store openings in the third quarter was 651, resulting in a quarter-over-quarter store unit growth of 9.0% from the number of stores at the end of the second quarter of 2022, ending the third quarter with 7,846 stores which include 5,373 self-operated stores and 2,473 partnership stores.
• Average monthly transacting customers in the third quarter were 25.1 million, representing an increase of 70.5% from 14.7 million in the same quarter of 2021.
• Revenues from self-operated stores in the third quarter wereRMB2,761.4 million(US$388.2 million), representing an increase of 53.9% fromRMB1,794.7 millionin the same quarter of 2021.
• Same-store sales growth for self-operated stores in the third quarter was 19.4%, compared to 75.8% in the same quarter of 2021.
• Store level operating profit – self-operated stores in the third quarter wasRMB806.7 million(US$113.4 million) with store level operating profit margin of 29.2%, compared to RMB452.1 millionwith store level operating profit margin of 25.2% in the same quarter of 2021.
• Revenues from partnership stores in the third quarter wereRMB899.1 million(US$126.4 million), representing an increase of 116.1% fromRMB416.1 millionin the same quarter of 2021.
• GAAP operating income in the third quarter wasRMB585.3 million(US$82.3 million), representing a GAAP operating income margin of 15.0%, compared to a GAAP operating loss ofRMB6.7 millionin the same quarter of 2021. Non-GAAP operating income in the third quarter, which adjusts for share-based compensation expenses, wasRMB693.8 million(US$97.5 million), representing a non-GAAP operating income margin of 17.8%, compared toRMB71.4 million, or a non-GAAP operating income margin of 3.0%, in the same quarter of 2021, which represents a significant improvement of operating results.

COMPANY STATEMENT

“We are pleased to deliver another quarter of improved results, with continued improvements across our key operating and financial metrics,” said Dr.Jinyi Guo, Chairman and Chief Executive Officer ofLuckin Coffee. “Despite a normalization of same-store sales growth in line with our expectations, comparable store growth remained strong in the third quarter. We continued to leverage our operating efficiency and increasing scale to further improve our profitability profile, reporting a 15% operating profit margin in the third quarter.”

Dr. Guocontinued, “During the last two years, we have rebuilt our teams across the organization, bringing in some of the industry’s top talent. From research and development to legal, our teams are positively impacting our performance and being recognized for outstanding work with numerous industry awards such as the “Top 50 Emerging Chinese Consumption Brands with Strong Growth of the Year (2022)” by CBNData, and the “Top Chinese Brand 2022” from YiMagazine. I am exceptionally proud of the dedication from everyone atLuckin Coffee, as we continue to solidify our position as a world-class coffee brand. Furthermore, the release of our 2020-2022 corporate governance report showcased our determination to create both customer value and social value and laid a solid foundation for the long-term sustainable development of Luckin Coffee.”

Dr. Guoconcluded, “With our research and development capabilities and our operational efficiency, we are confident in our ability to continue capturing growth opportunities in the fast-growing China coffee market while driving long-term value and sustainable growth for our shareholders.”

IMPACT OF COVID-19

The global economy, the Chinese markets and the Company’s business have been and continue to be adversely affected by the COVID-19 pandemic.

With the gradual lifting of COVID-19 pandemic related restrictions since the second quarter of 2022, the Company experienced a downward trend in its temporary store closures for most of the third quarter of 2022. The Company had around 108 daily store closures on average in July andAugust 2022. However, as the winter season approached with bouts of COVID-19 cases in recent months, the Company experienced around 330 daily store closures on average in September andOctober 2022. As of the date of this earnings release, the number of daily store closures on average inNovember 2022was around 500, and we believe this number may further increase for the months ahead.

The COVID-19 situation remains highly unpredictable. The Company anticipates that its operations will continue to be negatively affected by pandemic-related market pressures for the foreseeable future. The extent of these impacts is difficult to predict given the uncertainties relating to the spread of the pandemic and its impacts on the local and national economies.

THIRD QUARTER 2022 FINANCIAL RESULTS

Total net revenues were RMB3,894.6 million (US$547.5 million) in the third quarter of 2022, representing an increase of 65.7% fromRMB2,350.2 millionin the same quarter of 2021. Net revenues growth was primarily driven by the increase in the number of products sold, the increase in stores in operation and the increase in the number of monthly transacting customers.

• Revenues from product sales were RMB2,995.5 million (US$421.1 million) in the third quarter of 2022, representing an increase of 54.9% fromRMB1,934.1 millionin the same quarter of 2021.
• Revenues from partnership stores were RMB899.1 million (US$126.4 million) in the third quarter of 2022, representing 23.1% of total net revenues, which is an increase of 116.1% compared to RMB416.1 million, or 17.7% of total net revenues, in the same quarter of 2021. For the third quarter of 2022, revenues from partnership stores included sales of materials ofRMB575.6 million(US$80.9 million), profit sharing of RMB144.8 million(US$20.4 million), sales of equipment of RMB66.3 million(US$9.3 million), delivery service of RMB106.4 million (US$15.0 million) and other services of RMB6.0 million (US$0.8 million).

Total operating expenses were RMB3,309.4 million(US$465.2 million) in the third quarter of 2022, representing an increase of 40.4% fromRMB2,356.9 millionin the same quarter of 2021. The increase in total operating expenses was predominantly the result of the Company’s business expansion. Meanwhile, operating expenses as a percentage of net revenues decreased to 85.0% in the third quarter of 2022 from 100.3% in the same quarter of 2021, due to increased economies of scale and the Company’s technology-driven operations.

• Cost of materials were RMB1,440.5 million(US$202.5 million) in the third quarter of 2022, representing an increase of 56.6% from RMB919.9 millionin the same quarter of 2021, generally in line with the increase in the number of products sold and the increase in sales of materials to partnership stores.
• Store rental and other operating costs were RMB770.4 million (US$108.3 million) in the third quarter of 2022, representing an increase of 49.4% fromRMB515.5 millionin the same quarter of 2021, mainly due to the increase in labor costs and store rental, as well as utilities and other store operating costs, as a result of the increased number of stores and items sold in the third quarter of 2022. Store rental and other operating costs increased proportionately less than revenues as a result of economies of scale.
• Depreciation and amortization expenses were RMB104.2 million (US$14.6 million) in the third quarter of 2022, representing a decrease of 23.4% fromRMB136.0 millionin the same quarter of 2021, mainly due to the decrease in amortization of leasehold improvements for the stores whose leasehold improvements had been fully amortized before the third quarter of 2022, which was offset by the increase of depreciation expenses of additional equipment put into use in new stores in the third quarter of 2022.
• Delivery expenses were RMB432.8 million (US$60.8 million) in the third quarter of 2022, representing an increase of 62.1% from RMB266.9 millionin the same quarter of 2021, mainly due to the increase in the number of delivery orders.
• Sales and marketing expenses were RMB159.3 million (US$22.4 million) in the third quarter of 2022, representing an increase of 64.3% fromRMB96.9 millionin the same quarter of 2021, mainly driven by (i) an increase in advertising expenses as the Company continued to make strategic investments in its branding through various channels, (ii) an increase in subcontract service fee, which was mainly for the Company’s e-commerce business and (iii) an increase in commission fees paid to third-party delivery platforms in line with the increase in the number of delivery orders. Sales and marketing expenses amounted to 4.1% of net revenues in the third quarter of 2022, which was the same as the third quarter of 2021.
• General and administrative expenses were RMB383.5 million (US$53.9 million) in the third quarter of 2022, representing an increase of 19.4% fromRMB321.2 millionin the same quarter of 2021. The increase in general and administrative expenses was mainly driven by (i) the increase in payroll costs for headquarter staff and (ii) the increase in share-based compensation from more Restricted Share Units issued to incentivize management and employees. General and administrative expenses amounted to 9.9% of net revenues in the third quarter of 2022, compared to 13.7% of net revenues in the same quarter of 2021. The decrease was mainly due to the economies of scale.
• Store preopening and other expenses were RMB9.5 million (US$1.3 million) in the third quarter of 2022, compared toRMB6.0 millionin the same quarter of 2021, mainly due to more stores being opened in the third quarter of 2022 compared to the same quarter of 2021. Store preopening and other expenses amounted to 0.2% of net revenues in the third quarter of 2022, compared to 0.3% of net revenues in the same quarter of 2021.
• Impairment loss of long-lived assets were nil in the third quarter of 2022, compared toRMB19.0 millionin the same quarter of 2021.
• Losses and expenses related to Fabricated Transactions and Restructuring were RMB9.2 million(US$1.3 million) in the third quarter of 2022, representing a decrease of 87.8% fromRMB75.5 millionin the same quarter of 2021, as the Company had successfully completed its provisional liquidation inMarch 2022and substantially resolved all outstanding litigations. The losses and expenses related to Fabricated Transactions and Restructuring consisted primarily of professional and legal fees forU.S.securities litigations and other advisory service fees. Losses and expenses related to Fabricated Transactions and Restructuring amounted to 0.2% of net revenues in the third quarter of 2022, compared to 3.2% of net revenues in the same quarter of 2021.
• Store level operating profit margin – self-operated stores was 29.2% in the third quarter of 2022, compared to 25.2% in the same quarter of 2021, primarily due to the benefits of economies of scale from the increased number of products sold.

GAAP operating income was RMB585.3 million(US$82.3 million) in the third quarter of 2022, representing a GAAP operating income margin of 15.0%, compared to an operating loss ofRMB6.7 millionin the same quarter of 2021. Non-GAAP operating income was RMB693.8 million (US$97.5 million) in the third quarter of 2022, representing a non-GAAP operating income margin of 17.8%, compared toRMB71.4 million, or a non-GAAP operating income margin of 3.0%, in the same quarter of 2021. For more information on the Company’s non-GAAP financial measures, please see the section “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 earnings release.

Net income was RMB528.6 million (US$74.3 million) in the third quarter of 2022, which included the one-off non-cash gain of RMB124.1 million(US$17.5 million) from the extinguishment of Series B Senior Secured Notes, compared to a net loss ofRMB23.5 millionin the same quarter of 2021. Non-GAAP net income was RMB514.9 million(US$72.4 million) in the third quarter of 2022, representing a non-GAAP net income margin of 13.2%, compared toRMB54.6 million, or a non-GAAP net income margin of 2.3%, in the same quarter of 2021.

Basic and diluted net income per ADS was RMB1.68(US$0.24) and RMB1.68(US$0.24) in the third quarter of 2022, respectively, compared to basic and diluted net loss per ADS ofRMB0.08andRMB0.08in the same quarter of 2021, respectively.

Non-GAAP basic and diluted net income per ADS was RMB1.68(US$0.24) and RMB1.60(US$0.24) in the third quarter of 2022, respectively, compared toRMB0.24andRMB0.24in the same quarter of 2021, respectively.

Net cash generated from operating activities was RMB416.9 million(US$58.6 million) in the third quarter of 2022, which included the settlement of payable to equity litigants ofRMB385.2 million(US$55.6 million). Excluding the payment to equity litigants, net cash provided by operating activities wasRMB802.1 million(US$112.8 million) in the third quarter of 2022, compared to net cash provided by operating activities ofRMB8.3 millionin the same quarter of 2021.

Cash and cash equivalents and restricted cash were RMB3,993.2 million(US$561.4 million) as of September 30, 2022, compared to RMB6,555.3 millionas ofDecember 31, 2021. The decrease was primarily attributable to the full redemption of the Company’s offshore notes following the restructuring of those notes onJanuary 28, 2022, the settlement of payable to fulfill the Company’s obligations under the federal class action settlement and purchase of property and equipment, which was offset by operational cash generation and the proceeds from the issuance of senior preferred shares toJoy CapitalonJanuary 7, 2022.