Luckin delivers short-term jolt to investors

2 minute read

A barista packs a coffee at a Luckin Coffee store in Beijing, China July 17, 2018. Picture taken July 17, 2018. REUTERS/Jason Lee/File Photo

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HONG KONG, May 25 (Reuters Breakingviews) - Fast-growing coffee chain takes on Starbucks (SBUX.O) in China. No, it's not a mirage of 2019 when China’s Luckin Coffee was a New York investor darling, but it is the story from the fraud-hit java provider’s Tuesday update. Its 6,580 stores have overtaken its U.S. rival’s 5,654 while first-quarter same-store sales growth of 42% was helped by a raft of new products, joined in April by a new coconut brew which sold a whopping 5 million cups in a week. Meanwhile, Starbucks’ like-for-like China revenue dropped 23% in the same period. The company blamed pandemic curbs and a weak currency.

Notably, Luckin reported its first ever quarterly operating profit of $2.5 million and gave its first investor presentation in two years. Currently listed on the pink sheets, the company may be gunning for a return to the Big Board.

Stronger financials and transparency about its fraud remediation measures are welcome. But with Covid-19 lockdowns paralysing economic activity in major cities, the momentum may not last in the second quarter. It will take more time, and more cups of joe, to get investors hooked again. (By Jennifer Hughes)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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Editing by Robyn Mak and Katrina Hamlin

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