Luckin Coffee, Inc. Q2 FY2026 earnings call

• Store Network Expansion

  • Maintained industry-leading store expansion pace, adding over 5,000 new stores in H1 2026, reaching a total global store count of 36,310 by end-Q2 (up 39% YoY).
  • In China, added 2,688 new stores in Q2, reaching 36,087 total Chinese stores split between 23,625 self-operated and 12,462 partnership stores, with deepened coverage across all city tiers and consumption scenarios.
  • In international markets, added 46 new stores in Q2 to reach 223 total international stores, with 89 self-operated in Singapore, 20 self-operated in the US, and 114 franchise stores in Malaysia. Management is refining localized operations and store-level economics to support future disciplined expansion.

• Product Innovation

  • Continued strengthening of Luckin's positioning as a professional coffee brand, launching 28 new freshly brewed beverages and over a dozen new snack items in Q2.
  • Flagship products hit major cumulative sales milestones: the Little Butter series surpassed 500 million total cups sold by end-Q2, and 5 of the company's 25 products with over 100 million cumulative cups sold are non-coffee offerings.
  • Launched the annual flagship Calamansi Americano, which sold over 10 million cups in its first launch week with strong repeat purchase performance, and expanded non-coffee lines including yogurt smoothies and iced milk beverages to broaden the product portfolio.
  • Advanced a wellness-oriented product strategy, integrating health-focused R&D in partnership with Peking University Health Science Center and launching the public Coffee Health Education Initiative in June 2026.

• Customer Growth & Experience

  • Added over 25 million new transacting customers in Q2, bringing cumulative transacting customers to nearly 500 million, and average monthly transacting customers reached a new high of over 110 million (up 23% YoY).
  • Leverages data-driven insights and an accessible dense store network to improve customer experience, with diversified brand partnerships to deliver emotional value beyond products and deepen customer connection.

• Financial Performance

  • Delivered solid top-line growth and continued profitability recovery, with overall operating income growing 22% YoY to RMB 2.1 billion and an operating margin of 13.4%. Delivery expenses as a share of revenue fell to 10% from 14% YoY as delivery competition normalized and fulfillment efficiency improved.

Luckin Coffee reports revenue across self-operated and partnership store segments, plus product-based revenue breakdowns: 1. Self-operated stores: Revenue increased 27% year-over-year (YoY) to RMB 11.6 billion, accounting for 73% of total net revenues. Store-level operating profit increased 26% YoY to RMB 2.5 billion, with a 21.3% self-operated store-level operating margin. 2. Partnership stores: Revenue increased 28% YoY to RMB 3.7 billion, accounting for 26% of total net revenues. Growth was driven primarily by ongoing expansion of the partnership store network. By product category: 1. Freshly brewed drinks: Net revenues of RMB 11.2 billion, representing 70% of total net revenues. 2. Other products: Net revenues of RMB 892 million, representing 6% of total net revenues. 3. Other revenue streams: Net revenues of RMB 171 million, representing roughly 1% of total net revenues. Overall total net revenues for Q2 2026 reached RMB 15.9 billion, up 29% YoY, with adjusted operating profit of RMB 2.1 billion (up 22% YoY) and an operating margin of 13.4%.

• Management is cautiously optimistic about second half 2026 operating performance. The high base effect from elevated 2025 H2 delivery subsidies is expected to persist in Q3 2026, particularly in July and August when 2025 subsidies were most intense.
• Profit and margin recovery trends are expected to remain clear, supported by a continued decline in delivery mix from 2025 peak levels and ongoing improvements to delivery fulfillment efficiency.
• Internal operational and product initiatives, including cup size upgrades and hit product innovation, are expected to continue supporting average selling price and cup volume growth.
• Management will continue to maintain a competitive industry-leading pace of store expansion in the second half of 2026, leveraging long-term demand growth in China's coffee market to gain sustainable market share.
• The company will adapt strategies flexibly to evolving market conditions and consumer demand, balancing long-term growth investment with ongoing profitability improvement to drive higher-quality sustainable growth.

• Near-term same-store sales face pressure from the high base effect created by elevated industry delivery subsidies in the first half and third quarter of 2025, which has already resulted in a 5.3% YoY decline in self-operated same-store sales in Q2 2026.
• Cost headwinds include raw material price fluctuations that increased material costs as a percentage of revenue from 37% to 39% YoY, and rising payroll and rental costs driven by continued rapid store expansion, which increased store rental and operating costs as a percentage of revenue from 22% to 27% YoY.
• Industry-wide macro and demand weakness has created broader growth challenges for the coffee sector, with multiple competitors already slowing their store expansion pace amid market pressure.
• Forward-looking statements related to future growth and profitability inherently carry additional uncertainties and risks, as disclosed in the company's SEC filings.

Q: Given the tough July-August demand period and ongoing normalization of delivery competition, what is the outlook for same-store sales and margin/earnings in the second half of 2026?

A: Food delivery competition has returned to rational levels faster than management expected at the start of the year, with the high base effect from 2025 subsidies already visible in Q2 2026 same-store sales. The high base effect from intense 2025 July-August subsidies will persist in Q3 2026, but margin improvement trends are clear, driven by lower delivery mix and better fulfillment efficiency. Internal product initiatives like cup upgrades and hit innovation support average selling price and volume, and management remains cautiously optimistic, balancing growth and profitability as they adapt to market changes.

Q: The company has maintained a very fast store expansion pace while most industry competitors have slowed expansion amid broader market pressure. What is the reasoning for continued fast expansion, and what is the expansion strategy for the second half?

A: Management remains highly confident in the long-term growth potential of China's coffee market, which is still in the early stage of habit formation with large room for penetration and consumption frequency growth. Luckin has built a digitally driven, highly replicable scalable operating model that allows it to open new stores quickly while maintaining quality via data-driven site selection and operations. Expanding the store network creates a virtuous cycle that strengthens brand influence and scales product innovation, so management will maintain a competitive expansion pace to capture long-term growth and grow market share.