Luckin Coffee, Inc. Sponsored ADR Class A (LKNCY.US) Q2 conference call: Same-store sales turn negative, management is "cautiously optimistic" about performance in the second half of the year.

Luckin Coffee, Inc. Sponsored ADR Class A (LKNCY.US) held a conference call to discuss its Q2 FY26 earnings report. This season, total net revenue reached 15.9 billion yuan, up 29% year-over-year; GMV was 18.4 billion yuan, a 30% increase year-over-year. In terms of profits (Non-GAAP), operating profit was 2.4 billion yuan, a 26% year-over-year increase, with an operating profit margin of 15.1% (down from 15.3% in the same period last year); net profit was 1.8 billion yuan, up 23% year-over-year, with a net profit margin of 11% (down from 11.6% in the same period last year). In the second quarter, the number of new transacting customers exceeded 25 million, with the monthly average of transacting customers reaching a historical high of over 110 million, an increase of 23% year-over-year; by the end of the quarter, the total number of transacting customers approached 500 million. Executives stated that over 5,000 new stores were opened in the first half of the year, leading the industry in expansion pace; by the end of Q2, there were 36,310 stores worldwide, a 39% year-over-year increase, making both scale and expansion speed the highest in the industry. In the Chinese market, 2,668 new stores were added in Q2, bringing the total number of stores to 36,087, of which 23,625 are self-operated and 12,462 are franchised. The Chinese coffee market remains in a high-growth phase driven by increased penetration rates and higher consumption frequency; the company accurately identifies demand through its digital capabilities, uses data to drive store construction and intelligent store operations, thereby enhancing expansion efficiency and operational consistency while maintaining store quality. In the international market, 46 new stores were added in Q2, bringing the total number of international stores to 223, including 89 self-operated stores in Singapore, 20 self-operated stores in the United States, and 114 franchised stores in Malaysia. The overseas strategy focuses on "prudent expansion," emphasizing product adjustments based on local consumption preferences, optimizing single-store economic models, and solidifying standardized, replicable operational methods to lay the foundation for future expansion. The management has a "cautiously optimistic" outlook for operational performance in the second half of the year, but did not provide specific guidance on revenue or store openings. In Q3, due to last years fierce delivery subsidies in July and August, the high baseline effect is expected to continue, exerting pressure on same-store sales; however, margins are supported by a continuing decline in the proportion of delivery services from its peak last year and improvements in fulfillment efficiency, indicating a positive trend. Q&A Q: Same-store sales and profit margins significantly outperformed the industry in Q2. Considering the high baseline in July and August, what is your view on the same-store sales trend for the second half? As the proportion of delivery services continues to normalize, how will margins and profit prospects be affected? A: Since the beginning of the year, competition on delivery platforms has gradually returned to a more reasonable level, and the ready-to-drink beverage industry is progressing towards a healthier and more sustainable development stage. Market competition has shifted back to areas where the company has long-term invested resources and established advantages, such as product innovation, operational efficiency, and consumer value creation. Externally, the withdrawal of delivery subsidies is happening faster than expected at the start of the year, thus increasing the pressure of the high baseline formed by last years high subsidies, which is already reflected in the same-store sales performance in Q2. Regarding Q3, due to the particularly aggressive platform subsidies in July and August of last year, the high baseline effect is expected to persist. Meanwhile, profitability and profit margin trends are improving, supported by the continuous decline in the proportion of delivery services since last years peak and the companys enhanced fulfillment efficiency. Internally, there have been ongoing optimizations in various products and operational initiatives, yielding good results, such as small ingredient upgrades and the previously mentioned innovation in the small butter Americano product. These not only enhance customer experience but also support the overall average selling price and cup volume. Overall, we maintain a cautiously optimistic stance for operational performance in the second half, and will continue to adjust strategies based on changes in market conditions and consumer demands, balancing long-term growth opportunities with improvements in profit margins while pursuing higher quality and more sustainable growth. Q: Against the backdrop of widespread pressure on same-store performance in the industry and several peers slowing down store openings this year, what is the priority for Luckin in expanding store numbers? What are the plans and prospects for store openings in the second half, and how will you balance new openings with same-store performance? How much potential for store openings remains in China in the long term? A: First, I want to reiterate our strong confidence in the long-term growth potential of the Chinese coffee market. Compared to more mature coffee markets worldwide, coffee consumption in China is still in the early stages of habit formation, with significant room for improvement in both penetration rates and consumption frequency. This long-term market opportunity forms the basis of our high-quality scale growth strategy and is a key driver for continuous expansion, meaning there is still ample room to continue opening stores while maintaining store quality. As coffee consumption increasingly becomes part of daily life for Chinese consumers, the company has established a nationwide store network covering all city tiers and diverse consumption scenariosfrom first-tier cities to county markets and rural townscovering office buildings, business districts, roadside stores, residential communities, campuses, and transport hubs, continuously enhancing consumer accessibility and reinforcing its brand image as a national professional coffee brand. For Luckin, expanding store numbers is not just about increasing the number of stores; it is more about leveraging the nationwide store network, brand assets, and product capabilities to better identify and serve the growing customer demand. This is supported by a highly scalable and replicable operational model that covers the entire value chain of "people, goods, and venues": from demand insights and location selection to store construction, operations, and continuous optimization, all enhanced by digital capabilities and AI technology to improve decision-making efficiency. Mature organizational capabilities and execution ensure quick store openings while maintaining store quality and continuously improving single-store performance. At the same time, the expansion of the store network will further strengthen brand influence and enhance the scalability of product innovation, creating a positive cycle among stores, products, and customers. Therefore, expanding stores is not an end in itself but a key foundation for sustainably gaining market share. The conclusion is that the growth potential for stores in the Chinese coffee market remains considerable, and as coffee penetration and consumption frequency continue to rise, the overall market capacity will continue to expand. The company is confident in maintaining a competitive store opening pace to seize long-term growth opportunities in the Chinese coffee market and continue to increase market share.