Luckin Coffee stock still at risk as revenue growth accelerates

By:
on Apr 30, 2024
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  • Luckin Coffee’s shares have been in a strong bearish trend in the past few weeks.
  • The company published strong financial results as its growth accelerated.
  • It also narrowed its losses even as its margins thinned.

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Luckin Coffee stock price was little changed in the pre-market session after the company published its first-quarter results. It was trading at $21.13 in New York, where it ended the day on Monday. It has crashed by over 23% this year amid rising concerns about the rising coffee prices.

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Luckin Coffee earnings

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Luckin Coffee’s revenue for the quarter came in at $869 million, a 41.5% increase from the same quarter in 2023. This growth happened as the company continued opening its stores in China and in Singapore.

Luckin Coffee, the biggest competitor to Starbucks, said that it ended the quarter with over 18,590 stores. Most of these stores are self-operated while 6,391 are franchises. Additionally, the average number of monthly transacting customers jumped to over 59.9 million. 

Most importantly, Luckin Coffee managed to dramatically narrow its loss. Its net loss came in at RMB 83.2 million or $11.5 million, a big improvement from the RMB 564 million that it made in the same quarter in 2023. 

Luckin Coffee

Luckin Coffee earnings

Luckin Coffee’s results came at a time when signs are showing that the Chinese economy is recovering. For example, as I wrote on Monday, the Hang Seng index and other Chinese stock indices have moved into a bull market. Industrial production and retail sales have jumped.

At the same time, competition in the coffee industry has grown substantially as evidenced by the recent Starbucks weak earnings. The company is competing with many other smaller enterprises in the coffee store industry. In a statement, Jinyi Guo, the CEO said:

“ Such growth was accomplished despite seasonality headwinds and increased competition. We opened 2,342 net new stores in this quarter, including two new ones in Singapore, bringing our total store count to 18,590 by the end of March.”

Meanwhile, the cost of essential items is in rising. The price of Arabica and Robusta coffee brands has soared by double-digits this year. Sugar is also rising, which could affect its margins. 

The results showed that store-level operating margins came in at 7%, down from 25.2% in the comparable quarter. 

Luckin Coffee stock price analysis

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Luckin Coffee stock

Luckin Coffee chart by TradingView

Turning to the daily chart, we see that the Luckin Coffee stock price has been in a strong bearish trend in the past few months. It has moved from last year’s high of almost $40 to about $22. 

The stock formed a death cross in January as the 50-day and 200-day Exponential Moving Averages (EMA) made a bearish crossover. It has also moved below the 50% Fibonacci Retracement level. 

A closer look shows that the stock has formed a head and shoulders pattern, whose neckline is at $19.35. Therefore, if this happens, the next point to watch will be the 61.8% Fibonacci Retracement point at $18.

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