What happened
Shares of Luckin Coffee (LKNC.Y -3.07%) were heating up last month after the Chinese coffee chain posted a strong third-quarter earnings report in its second update as a publicly traded company, and its lockup period expired without significant selling. According to data from S&P Global Intelligence, the stock finished November up 54%.
As you can see from the chart, the stock's surge came in the middle of the month following its earnings report.
So what
Luckin, which has blanketed China with pickup locations since it began operating at the end of 2017, showed off incredible revenue growth in its third quarter. Sales jumped 542% to $215.7 million, well ahead of analyst estimates at $205.8 million. During the last year, the company's store count jumped from 1,189 to 3,680.
Image source: Getty Images.
Total revenue from products per store rose 79.5%, and the company also took steps toward profitability as store-level operating profit increased 47.9% to $26.1 million. The results show that Luckin poses a credible threat to Starbucks in China, as the American company has proved that the Chinese are willing to embrace the cafe concept. The company reiterated its goal of becoming the largest coffee company in China by store count by the end of the year.
CEO Jenny Zhiya Qian was optimistic, saying: "With our distinguished value proposition of high quality, high affordability, and high convenience, we believe that Luckin Coffee has become part of more and more Chinese consumers' daily lives. China's coffee market remains highly underpenetrated, so we are very excited about the growth potential ahead of us."
Luckin's post-IPO lockup period also expired on Nov. 13, allowing insiders to sell their shares for the first time. But the stock's gains showed that they were content to hold the stock.
Now what
The company expects its rocket-like growth to continue in the fourth quarter, calling for revenue of $298 million to $313 million, up 519% from the year before.
Investors have been jittery about Chinese stocks over the last year or two amid the trade war with the U.S., but Luckin's strong growth is a bullish sign for the Chinese economy and Chinese stocks more broadly.
