Luckin Coffee Inc. (NASDAQ: LK) is set to release its maiden earnings results for the second quarter of 2019 on Wednesday before the market opens. This Chinese company, which reached to the public during mid-May, is aiming to become a major competitor to Starbucks (NASDAQ: SBUX) while it still needs to improve its size for keeping the competition stiff.
The Xiamen, China-based coffee chain is expected to incur an increase in the costs and expenses. This is due to the 60% discounts given to average customers on coffee, raw materials, store rental, and operating costs.
The expenses will lower the company’s profitability, while the analysts expect Luckin Coffee to report a loss of $0.43 per share on revenue of $130.52 million for the second quarter.
The stores’ count has been reaching a saturation point as the number reached 2,400 in Q1 2019. Luckin currently has about 3,000 stores in China and is planning to have 4,500 stores by the end of 2019. In contrast, Starbucks has about 3,900 stores in China and coffee shops remained dense everywhere in the country. Luckin’s major coffee sales take place in the Tier 1 cities while the customers in Tier 2 and 3 markets prefer drinking tea as they are price sensitive.
For improving its sales growth, Luckin is intending to go international and is setting its foot outside China as part of its first expansion. The company signed a joint venture memorandum of understanding with Americana Group as part of its global strategy.
However, the major drawback faced by customers includes coffee on the go and much smaller outlets instead of Starbucks’ venue of meeting others, network and making friends in a plush environment for coffee. Luckin strategically focuses on pick-up stores, which accounted for 91.3% of total stores as of March 31, 2019.
Also read: Starbucks Q3 earnings review
Investors still remained puzzled why Luckin hasn’t set its footprint in the US. The company intends to further grow its business by pursuing strategies such as serve more people frequently, expand store network, introduce new product offerings, and continue to invest in technology.
For the first quarter, Luckin reported a wider loss due to an increase in operating costs and expenses. Revenue soared 36 times year-over-year driven by a jump in freshly brewed drinks.
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