LKNCY (Trans): SSS Turned Negative, Expansion Unabated

Dolphin Research's transcript of Luckin Coffee's FY26 Q2 earnings call highlights is compiled below.

I. Key Takeaways

1. Shareholder returns: Repurchased 49 mn Class A ordinary shares (equivalent to 6 mn ADS) in Q2 for a total consideration of US$195 mn, as part of the US$300 mn buyback program. Short-term borrowings were used as a capital allocation tool during the quarter to support the ongoing return of capital.

2. 2H outlook (no quantitative guidance): Management is cautiously optimistic on 2H, without providing revenue or store-opening targets. Q3 will face a tough comp as platform delivery subsidies were particularly aggressive in Jul–Aug last year, pressuring SSSG. However, margins should trend better, helped by a continued decline in delivery mix from the Q3 last-year peak and improving fulfillment efficiency.

3. Key financial metrics this quarter

a. Scale: Total net revenue RMB 15.9bn (+29% YoY). GMV RMB 18.4bn (+30% YoY).

b. Profit (GAAP): OP RMB 2.1bn (+22% YoY) with OPM of 13.4% (vs. 14.1% a year ago). Net profit RMB 1.5bn (+16% YoY) with NPM of 9.4% (vs. 10.4% a year ago).

c. Profit (Non-GAAP): OP RMB 2.4bn (+26% YoY) with OPM of 15.1% (vs. 15.3% a year ago). Net profit RMB 1.8bn (+23% YoY) with NPM of 11.0% (vs. 11.6% a year ago).

d. Segments: Self-operated store revenue RMB 11.6bn (+27% YoY), with SSSG at -5.3%. Store-level OP RMB 2.5bn (+26% YoY), implying store-level OPM of 21.3%. Partnership store revenue RMB 3.7bn (+28% YoY), accounting for 26% of total net revenue (approx. 23% on a RMB 15.9bn base; kept per transcript).

e. Revenue mix: Product sales RMB 12.2bn (+29% YoY), including freshly prepared beverages RMB 11.2bn (approx. 70% of total net revenue), other products RMB 892 mn (approx. 6%), and other revenue RMB 171 mn (approx. 1%). In partnership store revenue, raw material sales contribute the most, followed by delivery service fees, profit sharing, and loyalty fees.

4. Opex mix changes

a. COGS was 39% of total net revenue (37% in the same period of 2025), driven by ASP fluctuations and certain input cost changes. In absolute terms, COGS rose 34% YoY to RMB 6.1bn.

b. Store rental and other operating costs were 27% of total net revenue (22% in the same period of 2025), up 36% YoY to RMB 3.6bn. This was mainly due to higher labor costs from cup-volume growth and rising rent from continued store expansion.

c. Delivery expenses fell to 10% of total net revenue (14% in the same period of 2025), as delivery order mix declined and unit delivery cost improved. In absolute terms, delivery expenses decreased 3% YoY to RMB 1.6bn.

d. Sales and marketing were 6% of total net revenue (5% in the same period of 2025), up 56% YoY to RMB 925 mn on increased advertising and higher commissions to delivery and live-streaming platforms. G&A was 6% of total net revenue, up 34% YoY to RMB 985 mn, driven by higher SBC and personnel costs, as well as increased R&D.

5. Cash and balance sheet: Operating cash flow was RMB 2.6bn in Q2. As of Jun 30, 2026, total cash (cash and equivalents, restricted cash, time deposits, and ST investments) was RMB 10.9bn, vs. RMB 9.0bn as of Dec 31, 2025. Net cash held steady at RMB 9.0bn, with healthy leverage.

II. Call Details

2.1 Management commentary

1. Store network

a. Over 5,000 new stores opened in 1H, leading the industry in pace of expansion. The global store count reached 36,310 by quarter-end, up 39% YoY, ranking first in both scale and growth speed.

b. In China, net adds were 2,668 in Q2, bringing total stores to 36,087. Of these, 23,625 are self-operated and 12,462 are partnership stores.

c. China’s coffee market remains in a high-growth phase, driven by rising penetration and increasing purchase frequency. Leveraging digital capabilities to pinpoint demand, the company uses data to drive store rollout and smart operations, enhancing expansion efficiency and operating consistency while maintaining store quality.

d. Intl markets saw net adds of 46 in Q2, taking the total to 223. This includes 89 self-operated stores in Singapore, 20 self-operated in the U.S., and 114 franchise stores in Malaysia.

e. Overseas strategy prioritizes prudent expansion, focusing on localizing products to consumer preferences and optimizing unit economics. It aims to codify standardized, replicable operating playbooks to underpin future expansion.

2. Product

a. Launched 28 freshly prepared beverages and over a dozen snack SKUs in Q2.

b. Little Butter Americano again drew significant attention in Q2, with consumers creating innovative DIY recipes. The SKU ranked top two by sales, and the Little Butter series surpassed 100 mn cups cumulatively by quarter-end.

c. Calamansi Americano, the new flagship, sold over 10 mn cups in its debut week, with solid repeat purchase and retention. It extends the brand’s equity in fruit-infused Americanos, addressing demand for high-quality, healthier drinks.

d. In non-coffee, new lines such as yogurt smoothies and iced milk beverages were added to complete the one-stop, full-category matrix. Of the 25 SKUs with over 100 mn cumulative cups by Q2-end, five are non-coffee.

e. R&D continues to tilt toward lighter and healthier profiles, using cleaner formulas and higher-quality ingredients to balance taste, quality, and wellness.

3. Customer

a. Q2 added over 25 mn new transacting customers, with MAU of transacting customers hitting a record of over 110 mn (+23% YoY). Cumulative transacting customers approached 500 mn by quarter-end.

b. Avg. monthly spend per customer also reached a record high.

c. The market response to Little Butter Americano underscored deeper consumer participation and co-creation of brand memory. It further amplified word-of-mouth and consumption growth.

d. Through IP collaborations and diversified brand campaigns, the company delivers emotional value beyond products, strengthening brand affinity.

4. Health orientation and research partnerships

a. In 2024, co-founded the Luckin Coffee Health Innovation Base with Peking University Health Science Center. Several research projects have been completed, with academic findings applied to product development.

b. In Jun 2026, jointly launched a coffee health education initiative with Xinhuanet and Peking University Health Science Center, among others. The partners also released the 2026 China Freshly Prepared Beverages Health Trends Report.

5. Strategic framing

a. High-quality scale growth is not merely adding stores, but continually identifying, responding to, and even creating demand. The goal is to convert market demand into sustainable share gains.

b. With digital, scalable, and replicable operations and accumulated brand equity, the company amplifies synergies across the store network, product innovation, and its customer base. The team now totals 220,000 members.

2.2 Q&A

Q: SSSG and margins materially outperformed the industry in Q2. Given the tough comps in Jul–Aug, how do you see SSSG trends in 2H? As delivery mix normalizes, what is the outlook for margins and profitability?

A: Since the start of the year, competition among delivery platforms has been normalizing toward more rational levels, and the freshly prepared beverage category is moving into a healthier, more sustainable phase. Competition is refocusing on product innovation, operating efficiency, and consumer value creation, where we have invested for years and built advantages.

Externally, delivery subsidies have faded faster than we expected early in the year, making the high base from last year's heavy subsidies more pronounced. This has already weighed on Q2 SSSG, and the base effect will likely persist into Q3 given the particularly aggressive subsidies in Jul–Aug last year. Meanwhile, profitability and margin trends are improving, supported by a continued decline in delivery mix from last year's Q3 peak and better fulfillment efficiency.

Internally, we have continued to optimize multiple product and operational initiatives this year with good results. Examples include toppings upgrades and the Little Butter Americano innovation, which have improved customer experience and supported ASP and cup volume.

Overall, we remain cautiously optimistic about 2H operations and will keep adjusting tactics to evolving market conditions and consumer demand. We aim to balance long-term growth opportunities with margin improvement to drive higher-quality, more sustainable growth.

Q: With industrywide SSSG pressure and peers slowing openings, what is Luckin’s prioritization for faster expansion? How are store-opening plans and outlook for 2H, and how do you balance openings vs. SSSG? Longer term, how much whitespace remains in China?

A: First, we reiterate our strong confidence in China’s long-term coffee growth potential. Compared with more mature global markets, coffee consumption in China is still in the habit-forming stage, with ample room for higher penetration and frequency. This long-term opportunity underpins our high-quality scale growth strategy and remains the key driver for continued expansion, allowing us to keep opening stores while maintaining quality.

As coffee becomes part of daily routines, we have built a nationwide network across all city tiers and consumption scenarios. From Tier-1 cities to counties and townships, and from office buildings and malls to street-side stores, residential communities, campuses, and transport hubs, we are improving accessibility and reinforcing our position as a national professional coffee brand.

For Luckin, expansion is not just about store count but about better identifying and serving growing customer demand by leveraging the national network, brand equity, and product capabilities. A highly scalable and replicable operating model spans people, product, and place, using digital and AI to enhance decisions from insight and site selection to buildout, operations, and continuous optimization. Our mature organizational capabilities ensure store quality while scaling quickly and consistently improving unit performance.

At the same time, network expansion further strengthens brand impact and scales product innovation, creating a virtuous cycle across stores, products, and customers. Therefore, expansion is not the end goal but the foundation for sustainable share gains.

In conclusion, China still offers considerable store growth potential, and as penetration and frequency rise, overall market capacity will expand. We are confident in maintaining a competitive opening pace to capture long-term growth and keep gaining share.

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