LUCKN COFFEE DRC (OTC:LKNCY) recently announced his unaudited financial results for the three months ending September 30th, 2022.

LUCKN COFFEE DRC's total net income in the third quarter was 3.8946 billion yuan, up 65.7 percent from a year earlier, according to financial data. The operating income of GAAP in the second quarter was 585.3 million yuan, and the profit margin of GAAP operating income was 15.0%, while the operating loss of GAAP in the same quarter of 2021 reached 6.7 million yuan.

In terms of stores, LUCKN COFFEE DRC had 651 net new stores in the third quarter, with the total number of stores growing by 9.0% month-on-month. By the end of the third quarter, LUCKN COFFEE DRC had 7846 stores, of which 5373 were self-owned stores and 2473 were joint venture stores. In addition, the average number of monthly trading customers was 25.1 million in the third quarter, up 70.5 per cent from a year earlier.

Guo Jinyi, Chairman and CEO of LUCKN COFFEE DRC, said: "Core financial and operational indicators continued to grow in the quarter, although same-store sales growth leveled off as we expected, while same-store growth remained strong in the third quarter. With our R & D capabilities and operational efficiency, we believe we can seize the growth opportunities brought about by the fast-growing Chinese coffee market, bring long-term value to shareholders and promote sustainable growth. "

Compared with the same period last year, the operating profit margin exceeded double-digit growth for the first time.

According to financial data, LUCKN COFFEE DRC's net income reached 3.8946 billion yuan in the third quarter, compared with 2.3502 billion yuan in the same period in 2021, an increase of 65.7 percent over the same period last year. The increase in net income is mainly due to the increase in the number of products sold, the number of stores and the number of monthly trading users, according to the financial report. Overall, LUCKN COFFEE DRC's total income in the first nine months of this year was 9.598 billion yuan, an increase of 73.48 percent over the same period last year.

LUCKN COFFEE DRC's income from product sales in the third quarter of 2022 was 2.9955 billion yuan, an increase of 54.9 percent compared with 1.9341 billion yuan in the same period in 2021. Among them, the net income from current beverages reached 2.6664 billion yuan, accounting for 68.4% of the total net income; in the same period in 2021, it was 1.7164 billion yuan, accounting for 73.0% of the net income. The net income of other products was 198.3 million yuan, accounting for 5.1% of the total net income; the net income of this part was 107.5 million yuan in the same period in 2021, accounting for 4.6% of the total net income. Other net income was 130.9 million yuan, accounting for 3.4% of the total income.

During the reporting period, LUCKN COFFEE DRC's GAAP (general accounting standards) operating income was 585.3 million yuan, and the GAAP operating profit margin was 15.0%. This is also the first time that LUCKN COFFEE DRC's operating profit margin has broken through double-digit growth. In the same period in 2021, GAAP suffered an operating loss of 6.7 million yuan. After adjusting for share compensation and fees, non-GAAP operating income in the third quarter was 693.8 million yuan, non-GAAP operating profit margin was 17.8%, compared with 71.4 million yuan in the same period in 2021, and non-GAAP operating profit margin was 3.0%.

In addition, LUCKN COFFEE DRC made a net profit of 528.6 million yuan in the third quarter of 2022, compared with a net loss of 23.5 million yuan in the same period in 2021. In the third quarter of 2022, non-GAAP net profit was 514.9 million yuan, non-GAAP net profit margin was 13.2%, compared with 54.6 million yuan in the same period in 2021, non-GAAP net profit margin was 2.3%.

According to the financial report, LUCKN COFFEE DRC's total operating expenses in the third quarter of 2022 was 3.3094 billion yuan, an increase of 40.4 percent over the same period last year. It is reported that the increase in total operating expenses is mainly the result of the company's business expansion. In terms of proportion, due to the increase in economies of scale and technology-driven operations, operating expenses as a percentage of net income fell from 100.3% in the same period last year to 85.0% in the quarter.

Among them, sales and marketing expenses reached 159.3 million yuan, an increase of 64.3% over the same period last year. It accounts for 4.1% of net income, the same as in the third quarter of 2021. According to the financial report, the increase in this cost is mainly attributed to three points: first, LUCKN COFFEE DRC continued to make strategic investment in brands in various channels during the reporting period, resulting in an increase in advertising costs; second, an increase in subcontracting service fees due to e-commerce business; and third, an increase in commission fees paid to third-party delivery platforms due to the increase in the number of delivery orders.

Guo Jinyi said on the earnings call: "despite being affected by constraints such as epidemic prevention and control in various places in the third quarter, our performance growth is still very strong, which once again proves LUCKN COFFEE DRC's solid and resilient business model, as well as the broad space of China's coffee market. We firmly believe that the Chinese coffee market is an incremental market with high potential, and we will continue to focus on the coffee track and strengthen our grasp of consumer insight, which is also the company's long-term development strategy. At the same time, in the face of increasingly fierce market competition, we are very confident that through the first-mover advantages of strong brands, supply chains, digitization and store size, we will pay more attention to healthy and sustainable performance growth while maintaining reasonable profits. continue to expand market share and leading edge. "

The rising operating profit margins of stores will continue to sink deeply into the market.

In the third quarter of 2022, LUCKN COFFEE DRC opened 651 net new stores, an increase of 9.0% month-on-month. Among the new stores, there are 405 self-operated stores, mainly in first-and second-tier cities, and 246 joint-venture stores, mainly covering first-tier cities. By the end of the third quarter, LUCKN COFFEE DRC had 7846 stores, covering more than 230cities, of which 5373 were self-owned stores and 2473 were joint venture stores.

In terms of store revenue, during the reporting period, self-operated store revenue was 2.7614 billion yuan, an increase of 53.9% over the same period last year. In the third quarter, the operating profit of self-operated stores reached 806.7 million yuan, an increase of 78.4% over the same period last year; store-level operating profit margin was 29.2%, compared with 25.2% in the same period last year. It is reported that the increase in this data is mainly due to the economies of scale brought about by the increase in the number of products sold. At the same time, the growth rate of same-store sales in self-owned stores was 19.4%. The revenue of the joint venture stores reached 899.1 million yuan, an increase of 116.1% over the same period last year.

Guo Jinyi mentioned at the telephone conference: "in the past two years, LUCKN COFFEE DRC has built a set of industry-leading digital location and store expansion management system. After systematic analysis and research, we believe that whether it is a first-and second-tier city or a first-tier city, there are still many locations that can meet the requirements of Ruixin's location, and the market space is far from saturated, and with the acceleration of coffee consumption in China. The space for the number of stores continues to expand, and we are full of confidence in the future store expansion. He said that the store opening speed shown this year is only a basic capability for Ruixing. In the future, the company will pay close attention to the changes in the market, continue to maintain a strong competitive pace of store opening, and constantly increase LUCKN COFFEE DRC's store coverage density. to better meet consumer demand.

He also revealed that in terms of joint venture stores, LUCKN COFFEE DRC will open up the number of joint venture partners in the new round of sinking market in December this year.

In terms of users, LUCKN COFFEE DRC averaged 25.1 million monthly trading customers in the third quarter, an increase of 70.5 percent over the same period last year. The cumulative number of consumer customers has reached 123 million.

"Sustainable development" becomes an important basic point.

In the performance call, Guo Jinyi concluded that LUCKN COFFEE DRC this year around the "people, goods, market" three aspects to play the brand potential. On the human side, the average number of monthly trading customers increased by about 4 million in the third quarter compared with the second quarter. On the goods, LUCKN COFFEE DRC has launched more than 100 new products since the beginning of the year. In the future, LUCKN COFFEE DRC will continue to strengthen the "professional plus good drink" product strategy, continue to carry out product innovation, and continue to launch popular style products. From the perspective of presence, LUCKN COFFEE DRC already has 7846 stores, making it one of the chain coffee brands with the largest number of stores in China. "We are full of confidence in store expansion in cities at all levels in the future." He said.

In terms of coffee supply chain, LUCKN COFFEE DRC chose to purchase high-quality coffee beans in large quantities in Ethiopia, Colombia, Brazil and other well-known producing areas. LUCKN COFFEE DRC has become one of the largest importers of raw coffee beans in China.

In addition, LUCKN COFFEE DRC will also promote the work and progress of Environmental Society and Regulation (ESG) in the future. The second quarter financial report mentioned that the board of directors has set up a sustainable development committee and plans to release the first "corporate governance report" in the fourth quarter of 2022. It is reported that LUCKN COFFEE DRC has released the "Corporate Governance report 2020-2022" on November 18.

According to Guo Jinyi, this report systematically reviews and summarizes LUCKN COFFEE DRC's fundamental changes in governance system, governance mechanism and cultural values in the past two years. On this basis, it hopes to explore the establishment of a model sample of long-term corporate governance. In the near future, LUCKN COFFEE DRC will complete his first stakeholder research work to help LUCKN COFFEE DRC speed up the establishment of a scientific and comprehensive sustainable development strategy.

"We plan to formally release LUCKN COFFEE DRC's sustainable development strategy and goals in the first half of next year. The company will take sustainable development as an important starting point, continue to create customer value and social value, and lay a solid foundation for LUCKN COFFEE DRC's long-term development." Guo Jinyi revealed.