Luckin Coffee’s value crashes after it admits falsifying sales data
Chinese chain Luckin Coffee has admitted senior executives exaggerated sales to boost the company’s worth and reputation.
In a stunning admission, the company has advised investors not to rely on financial statements for the nine months to September last year. Transactions totalling about 2.2 billion yuan (US$310 million), have been cited.
COO Jian Liu and an unspecified number of other employees have been suspended while the company’s board investigates their misconduct.
“Certain costs and expenses were also substantially inflated by fabricated transactions during this period,” Luckin said in a stock exchange filing.
Shares in the company plunged by 81 per cent yesterday after the company’s admission.
Launched in January 2018, Luckin Coffee’s growth trajectory was so fast the company was valued at an astonishing US$2.2 billion within 12 months.
The true extent of the misrepresentations remains unclear while a panel reviews financial records. However, in November, the company claimed sales were running at six-times the rate of the previous year.
Prior to its listing in the US, the company secured investment from the Singapore Government sovereign wealth fund GIC and China International Capital Corp, among others. It raised US$778 million in early January, and $645 million in a US IPO.
Luckin Coffee has previously been touted as a serious threat to US chain Starbucks which currently dominates China’s fast-growing coffee cafe market.
Luckin Coffee’s aggressive competitive strategy involves an IT-focused approach whereby customers purchase coffee via an app, with which they can then monitor brewing progress via livestream. It was counting on technology and a considerably lower price point to win market share from Starbucks.
Luckin Coffee was planning to reach 10,000 locations by the end of next year, but analysts are now casting doubt on its ability to achieve that goal. At the end of last year it had 4500.
“It will take several years for management to repair its credibility,” Keybanc Capital Markets analyst Eric Gonzalez said in a note to clients, reported by Bloomberg.