Luckin Coffee considers itself to be the pioneer of a technology-driven new retail model to provide coffee, juices, lunch boxes, and light meals. Through their mobile app and presence on other third-party platforms, they offer customers a 100% cashier-less environment. Their store network includes pick-up stores, relax stores, and delivery kitchens. They use AI (artificial intelligence) to analyze the huge volume of data they generate from our operations. Luckin Coffee was founded in 2017 and is based in Xiamen, China.
In January of this year, Lukin Coffee was one of the hottest names out there. It reached a high of $51.38. At that time it was considered China’s answer to Starbucks. China, with a current population of 1.39 billion people, is a huge market for growth and expansion. On April 7 the Nasdaq halted trading of LK. Trading did not resume until May 21. On May 26 LK dropped to a low $1.33. Since hitting bottom, shares rallied to $6.79. They have since meandered down to the $4 range as of today (6/16/20). The reason for the fall from grace was that in 2019 the chief operating officer fabricated sales by an amount of about $310 million (about 40% of LK’s annual sales).
LK received a notice from NASDAQ on May 15 said the company will be delisted due to “public interest concerns as raised by the fabricated transactions disclosed by the Company” and “past failure to publicly disclose material information, citing a business model through which the previously disclosed fabricated transactions were executed”. LK has filed an appeal to a NASDAQ hearings panel in order to remain on the stock exchange until the outcome of the appeal.
On June 24, 2020, the LK notified the Listing Qualifications Staff at NASDAQ that the Company decided to withdraw its request for a hearing and not seek to stay on the NASDAQ. As a result, NASDAQ notified LK that the Company’s shares will be suspended at the open of business on June 29, 2020.
LK has been delisted from the NASDAQ. It is now listed on the over-the-counter markets. The next question is will LK survive or will it file for bankruptcy.
• LK did not lose much in stock price when it opened on the OTC markets.
• There are now and most likely will be more, lawsuits against the company.
• At 5 cups of coffee per year versus almost 600 cups a year in the U.S. China plenty of room to grow.
• Although China is a nation of tea drinkers, 5 cups of coffee per year versus almost 600 cups a year in the U.S, the pace at which coffee is becoming a popular drink increased 16% per year between 2004 and 2013.
• China’s middle class is growing rapidly.
• LK claims it has over 4,500 locations in China. In 2019 Starbucks had 4123 stores open in China. They are keeping up with the competition in the number of outlets.
• There is the possibility they will be purchased by a larger company.
• LK started the cleanup of its company by terminating its chief executive and chief operating officer.
• LK has hired the investment banking company, Houlihan Lokey, which specializes in working with distressed companies.
• LK undercutting Starbucks by around 20% on a large latte and offering Starbucks staff triple their current salaries in order to draw experienced people into their business.
• With a fraudulent past, investors will be skeptical about financial statements and guidance. Even though the perpetrators and enablers of the scam were fired or resigned, LK will have a challenge regaining investor’s and analyst’s trust.
• Things could get worse before they get better. Bankruptcy is not out of the picture.
Click here to visit the Luckin Coffee company website.