The picture below, taken from Luckin Coffee’s app this morning provides a quick tutorial on what Luckin is “up to”.
We initiated coverage on Luckin Coffee two weeks ago. Just below the Iphone shot is our article within our monthly column in Restaurant Finance Monitor, followed by our “standard” coverage piece and , lastly, Seeking Alpha’s update this morning.
We get it – two stores in the US (so far) do not threaten Starbucks or anybody else any time soon on this side of the ocean. However……as we describe below, LKNCY looks like it is here to stay for quite a while. This picture could be one reason that Starbucks is “evaluating strategic alternatives” in China, where Luckin is opening 5,000 locations per year on a base of 24,000.
Looking forward to their quarterly update Wednesday morning.
Roger’s July 15th article in Restaurant Finance Monitor
China based Luckin Coffee (LKNCY) is arriving in the USA. Founded in 2017, Luckin came public in the US during 2019, ran to almost $40 per share, then collapsed to low single digits in 2020 when the reported results were falsified. We, sadly in retrospect, stopped following what we thought was a lost cause, but under new management Luckin has grown at a truly amazing rate. This technology driven chain of almost entirely self service, aggressively promoted low priced coffee shops has been expanded by thousands of units/year, numbering a cool 24,097 outlets @3/31/25. Of these, 15,598 were self-operated, 8,499 by Partners. Space here does not allow for a full discussion of the fundamentals but the very rapid growth continues. 1,700 locations were opened in Q1’25, bringing the TTM expansion to 5,500 units. The first two USA based locations opened days ago, both in New York City. Our recent visits to both revealed a fairly active pace of business, with “any drink for $1.99” (ordered off the app). Aggressive pricing is clearly Luckin’s answer to providing every day value, and perhaps they can in fact turn into the “low cost provider” while generating an impressive return on corporate capital. As reported: Luckin’s company operated same store sales turned up 8.1% in Q1’25, against (20.3%) in Q1’24, (20.9%) in Q2’24, recovering to (13.1%) and (3.4%) in Q4’24. Average monthly transactions in Q1’25 for company operated stores also improved, +23.9% in Q1’25. It should be noted that these small stores, though store level EBITDA rose 10.1 points (1010 bp) to 17.1% in Q1’25, only annualize at about $250k/yr./store. At the same time, the average capex per store only seems to be $40-50k. Even at that modest level of sales, with 24,000 locations system-wide, $72M of after-tax earnings was generated in Q1’25, along with $24M of positive cash flow (after capex). Impressive also is the debt free balance sheet, accompanied by a cash hoard approaching one billion dollars of cash and other short-term investments. LKNCY has already demonstrated company store EBITDA in the low 20s during calendar ’21 through ’23, and bounced back dramatically in Q1’25 from ‘calendar ’24 when cannibalization and the predictable inefficiencies of opening 8,000 stores system-wide on a base of 10,000 likely took their toll. Most important, free cash flow after capex of $200M was generated in ’24 in spite of the lower operating margins. Still growing very fast but on a bigger base, margins could continue to improve and the cash generation accelerate as well. We make no judgement here (yet) relative to long term prospects, especially in the U.S.A. where the first two stores are small but full service, in contrast to the self service approach in almost all the Chinese locations. However, Luckin did not come to the USA to build two stores, and they have more than sufficient resources to attract attention. Whatever their success here, however, they have proven themselves in China where they will likely grow much larger. From a stock valuation standpoint, LKNCY sells at about 15x trailing twelve month EBITDA. Their US high growth counterparts such as Dutch Bros, CAVA, Wingstop, etc. sell at much, much higher valuations, and the Chinese “discount” could prove to be unwarranted. We know of no other US based analyst that follows LKNCY but we will be watching closely, along (no doubt) with management at operators including Starbucks, Dutch Bros, Dunkin Donuts, Tim Horton’s and others.
Roger’s “standard” Coverage
Seeking Alpha – Monday, July 28, 2025
Luckin Coffee’s early test of U.S. expansion goes smoothly _ Seeking Alpha