Luckin Coffee

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Luckin Coffee Inc.
Native name
瑞幸咖啡
TypePublic company
OTC Pink Limited: LKNCY (formerly Nasdaq: LK, but delisted 29 Jun 2020)
IndustryCoffee shop
FoundedOctober 2017; 4 years ago (2017-10)
Beijing, China
Founders
Headquarters
Xiamen, Fujian
,
China
Number of locations
  • 5,671 total
  • 4,206 Luckin Coffee
  • 1,465 partnerships
[1]
Area served
China
Key people
  • Reinout Schakel (CFO)
Jinyi Guo (Chairman) and (CEO)[2][3]
Products
  • Coffee beverages
  • tea
RevenueFY 2020 $618M USD [4]

H1 2021 $492M USD [5]

Q3 2021 $367M USD [6]
Websiteluckincoffee.co
Footnotes / references
[7][8][9]

Luckin Coffee Inc. (Chinese: 瑞幸咖啡; pinyin: Ruìxìng Kāfēi; Pe̍h-ōe-jī: Suī-hēng Ko-pi) is a Chinese coffee company and coffeehouse chain. It was founded in Beijing in 2017. As of September 2021, it managed 5,671 kiosks.[6] The company operates shops, stores, and kiosks that offer coffee, tea, and food.[10] Customers need to download an App to order and pay for drinks online.[11][12]

In April 2020, the company revealed that it had inflated its 2019 sales revenue by up to US$310 million. It resulted in the stock price crashing and several executives being fired.[13] Trading was suspended and the company was delisted from NASDAQ on 29 June 2020.[14] The company filed for Chapter 15 bankruptcy in the US in February 2021.[15] In December 2021, Luckin Coffee received court approval from a federal judge in Manhattan to restructure $460M worth of debt and to settle a number of class-action lawsuits over the fabricated sales figures.[16][17]

History[edit]

A Luckin Coffee retail store, 2017

2017–2019: Founding of Luckin Coffee and rapid expansion in China[edit]

Luckin Coffee was incorporated in October 2017, and by January 2018 had opened its first shops in Beijing and Shanghai .[10][18] The company announced the completion of Series A financing to a total of US$200 million in July 2018 backed by Centurium Capital, Joy Capital and GIC.[19]

By October 2018, Luckin Coffee had opened 1300 stores, surpassing the number of Costa Coffee stores to become the second-biggest coffee brand in China.[20] Luckin Coffee also signed a strategic cooperation agreement with Tencent.[21][22] Much of Luckin's expansion was fueled by an aggressive marketing strategy which saw the company spend three times as much as it earned to feed its growth.[11] In May 2018, Luckin Coffee accused Starbucks of forming a monopoly by signing exclusive contracts with suppliers and property owners. Starbucks dismissed these allegations as a marketing stunt. On 16 May 2018, the case was officially put on file by the Shenzhen Intermediate People's Court. In October 2019, Luckin Coffee unilaterally withdrew the case.[23]

In January 2019, Luckin Coffee announced that they planned to open 2500 new stores and surpass Starbucks to become the biggest coffee brand in China.[24][25] Luckin also gained exposure in the US stock market, applying to the National Association of Securities Dealers Automated Quotations[26] and starting to trade on Nasdaq at $17 a share.[27] After reaching $25.96 on the first day, the stock dropped to $16 on its second day of trading.[28][29] By the end of September 2019, Luckin Coffee had opened 3,680 stores,[30] and had recorded a net loss of $75 million in the third quarter of 2019.[31]

In January 2019, Luckin Coffee appointed Reinout Schakel as CFO.[32]

Luckin Coffee EXPRESS venues adopt the Swiss made Schaerer coffee maker and are placed in offices, campuses, airports, train stations and communities as self-service coffee makers in the future. Luckin popMINI is the vending machine with E-commerce price.[33]

2020–2021: Accounting scandal and subsequent restructuring plans[edit]

In early of January 2020, Luckin Coffee was raising more capital through a share placement and a convertible bond sale, with worth totalling $821 million as it seeked to expand into deploying vending machines that would serve fresh hot beverages and snacks. It was also offering a $400 million five-year convertible bond separately.[34]

On 31 January 2020, short-selling firm Muddy Waters Research published an anonymous 89-page report on Twitter, claiming that Luckin Coffee had falsified financial and operational figures. The report claimed that the number of items sold per store was inflated by at least 69% in the third and by 88% the fourth quarter of 2019, supposedly backed by 11,200 hours of video footage. Before the U.S. stock market opening on 3 February 2020, Luckin Coffee responded by categorically denying all allegations made in the report. The company argued that the report raised malicious accusations and false allegations with unsubstantiated evidence and flawed methodology.[35]

On 2 April 2020, Luckin Coffee announced that an internal investigation found that its chief operating officer, Jian Liu, had fabricated the company's 2019 sales by "around RMB2.2 billion" (US$310 million).[36][37] The next day, the China Securities Regulatory Commission said that it would investigate the company for fraud.[38] On 8 April, the U.S. stock market halted trading on all Luckin shares over the fraud probe.[39] In the month of April, the company's stock fell by over 80%.[40] In mid-April 2020, American investment bank Goldman Sachs announced that it would seize and sell the Luckin stock holdings of the company's chairman, Lu Zhengyao, after he defaulted on a $518 million margin loan.[40] The $400 million bond offered just prior to Muddy's release of the anonymous report also had imploded by 24 April 2020, with the notes selling as low as for 10 cents on the dollar value of bond.[41]

On 12 May 2020, CEO Jenny Zhiya Qian and COO Jian Liu were relieved of their positions, while Reinout Schakel remained as CFO.[42] On 15 May the company received a delisting notice from NASDAQ.[43]

After over a month of being halted for trading, Luckin Coffee stock was able to be traded again on 20 May 2020.[44] On 28 May, shares of Luckin Coffee (NASDAQ:LK) plummeted more than 20% after The Wall Street Journal released a report claiming that firms linked to the company's chairman and controlling shareholder played a central role in its accounting scandal.[45]

On 29 June 2020, Luckin Coffee suspended trading on NASDAQ and filed for delisting, after the exchange ordered the company to delist.[46]

The scandal could potentially have a profound impact, as the US Government is poised to pass the Holding Foreign Companies Accountable Act, which would force Chinese companies to provide audited financial statements or else face delisting from U.S. stock markets.[47]

Banks including Credit Suisse had won court orders in Cayman Islands on 22 June 2020, and in British Virgin Islands on 9 July 2020, to wind up Lu's controlling entities of Luckin Coffee Inc for liquidation, after Lu's margin loan default.[48][49] Luckin Coffee thereby entered into a state of provisional liquadation.[50] On 13 July 2020, Luckin Coffee named Jinyi Guo as the new chairman and CEO after co-founder and former chairman Charles Zhengyao Lu was removed by shareholders.[51]

In September 2020, China's markets regulators fined a group of firms including Luckin Coffee for a combined $8.98 million in relation to Luckin's falsification of financial and operational figures.[52]

On 16 December 2020, the US SEC settled the accounting fraud case with Luckin Coffee for $180 million. Luckin agreed to the settlement without admitting or denying the SEC allegations which include defrauding investors by materially misstating revenue and expenses, inflating its growth rates and understating its losses.[53]

On 5 February 2021, Luckin Coffee Inc. filed for Chapter 15 bankruptcy in New York, less than a year after the company said that more than a quarter's worth of business may have been faked.[54] The move will protect the company from lawsuits by U.S. creditors while it reorganizes in China, where it runs several thousand outlets. All its coffee shops will remain open for business and the Chapter 15 petition will not materially impact the company's day-to-day operations, according to a statement issued on Friday.[55]

By 22 September 2021, Luckin Coffee revealed its plans to restructure the Jan 2020 $400 million convertible bonds (now priced at $460 million), and had begin the legal procedures to gain approval to carry out the plans.[50][56] 94% of the $400 million convertible bond was held by Hong Kong and US hedge funds, up from 59% in March 2021.[50] On 30 September 2021, Luckin Coffee settled a US class-action lawsuit to resolve investors' claims for $187.5 million.[57]

In December 2021, Luckin received court approval to restructure a large amount of debt and settle a number of lawsuits over fabricated sales figures.[16]

See also[edit]

References[edit]

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  2. ^ Business, Sherisse Pham, CNN. "Luckin Coffee ousts chairman, names new CEO". CNN.
  3. ^ "Jinyi Guo, chairman and chief executive officer, Luckin Coffee". www.topionetworks.com.
  4. ^ Luckin Coffee FY 2020 Financials (21 September 2021). "Luckin Coffee FY 2020 Financials". Luckin Coffee investor relations.
  5. ^ Luckin Coffee H1 2021 Financials (21 October 2021). "Luckin Coffee H1 2021 Financials". Luckin Coffee investor relations.
  6. ^ a b Luckin Coffee Q3 2021 Financials (9 December 2021). "Luckin Coffee Q3 2021 Financials". Luckin Coffee investor relations.
  7. ^ Luckin Coffee (22 April 2019). "Form F-1 - Luckin Coffee Inc". Retrieved 2 May 2020. (filing with the Securities Exchange Commission)
  8. ^ "Luckin Coffee Inc. Announces Unaudited ThirdQuarter 2019 Financial Results". Luckin Coffee. 13 November 2019. Retrieved 2 May 2020.
  9. ^ "Luckin Coffee, China's Newest Unicorn, is Challenging Starbucks' Market Stranglehold". Radiichina.com. 26 July 2018. Retrieved 30 December 2018.
  10. ^ a b "China's Luckin Coffee takes on Starbucks". CNBC. Retrieved 28 December 2018.
  11. ^ a b Mary Hui (14 May 2019). "What you can eat and drink at Starbucks's China rival". Quartz. Retrieved 3 July 2019.
  12. ^ "瑞幸打败不了星巴克,但未必是下一个ofo". 华尔街见闻. 15 January 2019. Archived from the original on 16 April 2019.
  13. ^ Yang, Jing (28 May 2020). "Behind the Fall of China's Luckin Coffee: a Network of Fake Buyers and a Fictitious Employee" – via www.wsj.com.
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  15. ^ Ghosh, Palash. "Luckin Coffee Files For Bankruptcy Seven Months After Nasdaq Delisting". Forbes. Retrieved 8 February 2021.
  16. ^ a b Church, Steven (16 December 2021). "Luckin Coffee Wins U.S. Approval for $460m Debt Restructuring". Bloomberg Law. Bloomberg L.P. Retrieved 18 December 2021.
  17. ^ "Luckin Coffee in $175 mln class action settlement over accounting fraud". Reuters.
  18. ^ "This coffee company thinks it can beat Starbucks in China". CNN. Retrieved 28 December 2018.
  19. ^ 完成2亿美元A轮融资 瑞幸咖啡做好了长期亏损准备? 手机金融界,11 July 2018
  20. ^ "咖啡巨头现诸神之战 中国市场成关键". 观察者. 7 September 2018.{{cite web}}: CS1 maint: url-status (link)
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  23. ^ "历经16个月 瑞幸起诉星巴克案已由瑞幸单方面撤诉". 14 November 2019.{{cite web}}: CS1 maint: url-status (link)
  24. ^ "瑞幸咖啡今年计划新开2,500家门店 取代星巴克在中国龙头地位". Reuters. 2 January 2019.{{cite web}}: CS1 maint: url-status (link)
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  26. ^ "中国星巴克劲敌-瑞幸咖啡申请美国上市". 23 April 2019.{{cite web}}: CS1 maint: url-status (link)[dead link]
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  52. ^ Reuters Staff (22 September 2020). "China fines Luckin Coffee and linked firms a total of $9 million". Reuters. Retrieved 22 September 2020.
  53. ^ FT Staff (17 December 2020). "Luckin Coffee to pay $180m in accounting fraud settlement". FT. Retrieved 4 February 2021.
  54. ^ Jordan Valinsky. "Luckin Coffee files for bankruptcy in the US". CNN. Retrieved 5 February 2021.
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External links[edit]