Luckin's sales tops forecast as it chases Starbucks in China

[MUMBAI] Luckin Coffee Inc, the chain that's trying to overtake Starbucks Corp in China, gave investors a jolt of optimism as it reported better-than-expected revenue and said it aims to break even next year.

The Xiamen, China-based company, in its second set of quarterly results since going public in May, reported revenue of 1.54 billion yuan (S$299 million) for the September quarter. That's more than six times the year-earlier level, and tops the 1.47 billion yuan average of analysts' estimates. Luckin's net loss widened to 531.9 million yuan from 484.9 million yuan a year earlier.

Luckin's latest results provided some comfort to investors who have been looking for progress in the company's financial position. The shares climbed 13 per cent in New York to US$21.46 each.

The stock had dropped almost 30 per cent from a July peak as the Chinese startup faced questions over its strategy of burning millions of dollars to woo customers with discounts. Other startups including Uber Technologies Inc and WeWork Cos have also come under scrutiny for spending heavily to chase blazing growth at the cost of profits.

Luckin's restaurants are now profitable, and the company is on track to break even at the corporate level in the third quarter of next year, chief financial officer Reinout Schakel said in an interview.

"We expect to take over Starbucks as the No 1 coffee player in China by the end of this year in number of stores," Mr Schakel said. "We have a very strong brand."

China is becoming an important market for coffee retailers as the traditionally tea-drinking nation develops a taste for java. While weaker consumer spending amid a trade war and slowing economy may present a challenge, the company could benefit from its lower prices. The chain is very focused on its per-cup cost and affordability, Mr Schakel said.

"We give a very clear message to our consumer around our value," Mr Schakel said. Luckin targets white-collar, middle-class office workers, who are a "resilient consumer", he said.

Luckin claimed only 2.1 per cent of the coffee market in China last year but wants to bolster that by opening more stores in two years than the industry giant has done in 20 years. Starbucks, meanwhile, with more than a 50 per cent market share in the Asian nation, is also planning to continue its rapid expansion by opening one store every 15 hours.

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