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Luckin Coffee will be larger than Starbucks in China before 2020: CFO

Brian Sozzi
Editor-at-Large

Luckin Coffee’s growth engine remains in hyper-charged mode.

The fast-growing China-based coffee company, founded in October 2017, will have more than 4,500 stores in the country by the end of 2019, Luckin Coffee CFO Reinout Schakel said on Yahoo Finance’s The First Trade. That will make it larger than rival Starbucks (SBUX), which currently has more than 4,000 stores in China with plans to reach 6,000 by 2022.

Luckin Coffee (LK) ended the third quarter with 3,680 stores, up an astounding 209.5% from a year ago. The company has managed to grow aggressively in China by using technology to plot where to erect stores. Moreover, Luckin Coffee’s stores resemble more kiosks than a traditional retail store such as Starbucks allowing for quick builds.

Luckin Coffee’s super-charged store base growth — and new forays into tea and juice — has led those on Wall Street to bet it will turn profitable sooner than expected. Schakel hinted that view in the market isn’t misguided.

“The productivity at the store level is increasing materially, we have quite a bit of leverage. With that leverage, you can see a very clear trend in terms of profitability. We have reached our store level profitability in the third quarter ahead of what I think most people were expecting. We look forward to continuing that trend and to reach our breakeven point sometime next year,” Schakel said.

Customers sit inside a Luckin Coffee shop at a shopping center in Beijing, Saturday, May 18, 2019. Shares of Luckin Coffee, a fast-growing rival to Starbucks in China, rose 20% in their U.S. stock market debut Friday. (AP Photo/Mark Schiefelbein)

Luckin Coffee’s third quarter sales surged 557.6% to RMB 1,493.2 million. Operating profits for Luckin Coffee’s stores clocked in at RMB 186.3 million versus a loss of RMB 126 million a year go. Adjusted earnings came in at a loss of RMB 2.08 a share compared to a loss of RMB 3.52 a share.

The reversal in profits for Luckin Coffee’s stores has helped set the stock price ablaze: Luckin’s stock is up 32% in the five days following its November 13 earnings report.

A new wrinkle to the growth story: expanding the Luckin Coffee brand outside of China with joint venture partners. Schakel says Luckin Coffee has signed a deal with a partner in the Middle East to open stores. And he didn’t rule out entering the U.S. market.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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