Two years after being forced to pull out of Nasdaq over accounting fraud, China’s Luckin Coffee believes it has come out of its “darkest moment” and says it remains committed to US financial markets as it expanded its stores and sales.
Luckin admitted in 2020 that around $310 million of its sales had been made in the previous three quarters, bringing the coffeemaker to the brink of collapse after it paved the way as a local challenger to US coffee giant Starbucks. .
“It was Luckin’s darkest moment. The company was facing a huge crisis at the time,” David Li, chairman and chief executive of Chinese private equity firm Centurium Capital, told Reuters, referring to accounting fraud.
Luckin delisted from Nasdaq following the financial scandal, shocking Wall Street investors. After changes in ownership and management, as well as the payment of hundreds of millions of dollars in fines, the company is once again flexing its muscles.
A turnaround for Luckin would help vindicate the company’s senior management and new owners, who have continued to push the chain to grow in China’s fiercely competitive coffee market.
Luckin reported its first-ever quarterly operating profit in May. On Monday, it reported a 72% increase in net revenue for the June quarter. By comparison, Starbucks said last week that its third-quarter comparable sales in China fell 44%.
Centurium, one of the coffee chain’s early key investors, became the company’s majority shareholder in January after leading a consortium to acquire shares previously owned by two of Luckin’s founders for more than 400 million of dollars.
Centurium dispatched seven of its professionals to work with Luckin’s management team for months following the fraud and the following year poured $240 million into the company to fund its restructuring.
It also prompted Luckin to rebuild a more transparent and connected database to ensure there were no “data silos”, which Li blamed for the accounting scandal.
Luckin plans to continue opening new stores, Luckin chief executive Guo Jinyi said, even as strict COVID-19 restrictions in China have forced many restaurant chains to be more cautious about expanding. short term.
He said Luckin would add more outlets across the country, including in top-tier cities such as Beijing and Shanghai.
The New York return
Luckin, which was founded five years ago, currently has nearly 7,200 stores in China, compared to 5,761 for Starbucks in early July.
“We believe the potential of the Chinese market remains huge,” Guo said, adding that although Luckin has reached 230 Chinese cities, more than 5,000 stores are located in the 50 to 60 major cities.
Since delisting from the Nasdaq, Luckin remains tradable through a pink sheet, an over-the-counter trading platform primarily involving penny companies that do not meet the listing standards of major exchanges.
On Monday, Reinout Hendrik Schakel, who stepped down as chief financial officer but remains chief strategy officer, told analysts the company remained committed to U.S. markets.
“We don’t have a specific timeline yet,” Guo said of a potential Nasdaq return. “But we will continue to pay attention and focus on the US capital market…So far, we have not considered (re-listing) in other markets.”
Although Luckin is ahead of Starbucks in number of stores in China, the American coffee chain remains the dominant player with 28.9% of the market in 2021, down slightly from 31.2% the previous year, according to Euromonitor .
Luckin’s market share increased to 7.8% last year from 6.3% in 2020.
Asked how Luckin plans to restore investors’ confidence, Guo said, “We can only rely on Luckin’s business performance, publishing (strong) quarterly and annual reports to restore their confidence. It takes time.”
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