Ayush Bansal
Image: Pandaily
Luckin Coffee Inc is planning to list its shares once again in the United States nearly two years after the Chinese company was rocked by a $300 million accounting scandal.
According to two people with knowledge of discussions among the company’s senior management. Luckin is exploring whether to relist on Nasdaq, possibly as soon as the end of this year.
A relisting would be likely to face fewer regulatory obstacles than a Chinese company pursuing an initial public offering in the US because its shares are still traded there. It has continued to file earnings reports, according to one of the people close to the situation.
Luckin was once regarded as the biggest challenger to Starbucks’ dominant position in the Chinese market. But it delisted from Nasdaq in June 2020 and agreed to pay $180 million six months later to settle the accounting fraud charges filed by the U.S. Securities and Exchange Commission. The company claims it raised more than $864 million from investors during the accounting fraud.
According to the report, Luckin’s third-quarter revenue jumped 106% to $370 million, though the strong growth can likely be attributed to a decline in year-ago sales during the first year of the COVID-19 pandemic. Luckin operates 5,671 stores, about 500 more stores than Starbucks operates in China.
Luckin’s Q3 financial report showed that its total net revenue in the period was 2.35 billion yuan ($364.7 million), an increase of 105.6% compared with 1.143 billion yuan in the same period last year. Its net loss was 23.5 million yuan, a year-on-year decrease of 98.6%. The firm’s average monthly transacting customers totaled 14.7 million, up 79.2% year-on-year.
“We are seeing strong performance across the business . . . with increased customer retention and order frequency [and] greater brand recognition,” said Jinyi Guo, chair and chief executive of Luckin, in its latest earnings report.
Shares in Luckin have continued to trade over-the-counter in the US since it was delisted. They gave the company a market valuation of about $2.5bn.
About Scandal
Luckin made false statements and fabricated its financial performance to lure in investors. Luckin failed to disclose accurate revenue and expenses and also obtained money through false bank statements. Moreover, Luckin failed to maintain adequate internal accounting controls or keep accurate financial records. The company knew its financial statement and records were misleading and deceptive. Luckin conspired with funding companies, vendors, and third-party shell companies to fabricate expenses and costs.
The SEC charged Luckin with fabricating untrue statements from April 2019 to January 2020 regarding revenue, expenses, and net loss to deceive investors about Luckin’s financial performance. The SEC finalized the investigation and announced a penalty against Luckin on 16 December 2020. This resulted in Luckin agreeing to a settlement, including permanent injunctions and paying USD180 million in monetary penalties. Luckin has not admitted to or denied the allegations.
About Company
Luckin is a beverage retailer in China selling mainly coffee and tea. After opening its first Beijing and Shanghai stores in January 2018, Luckin rapidly expanded by establishing 4,507 stores in the following two years. Luckin claimed it served more than 40 million customers as of the end of 2019, becoming the largest coffee retailer in China, overshadowing its rival, Starbucks, in the region.
In a bid to increase market share, if consumers purchased Luckin products with coupons via the company’s app, Luckin offered them sizeable discounts or free products. Specifically, Luckin provided two methods for consumers to buy goods, either
(1) through a digital payment platform operated by a third-party, such as WeChat Pay or Alipay, or
(2) by redeeming coupons through Luckin’s app. Customers could buy these coupons in advance through Luckin’s app by transferring money from WeChat Pay or Alipay. According to Luckin, the revenue from the sale of coupons was calculated based on the number of redemptions, instead of the actual number of coupons sold.