Luckin Coffee (Trans): SSS Under Pressure, Store Margin Back to Pre-Subsidy Levels

Dolphin Research's compiled Trans of $Luckin Coffee(LKNCY.US) FY26 Q3 earnings call

I. Key Takeaways

1. Shareholder returns: The BOD approved a new 1-year $500mn buyback, to take effect after the current $500mn program is fully utilized. As of Sep 30, the existing plan had repurchased approx. 96 mn Class A ordinary shares (approx. 12 mn ADSs) for a total of $391 mn.

2. Outlook: No quantitative revenue or profit guidance for Q4 or the full year. Management noted the decline in self-operated SSS narrowed sequentially from Jul to Sep, and the pace of improvement accelerated into Q4.

3. This quarter's key financials

a. Revenue: Total net revenue rose 17% YoY to RMB 17.9bn, with GMV up 20% to RMB 20.7bn. Growth was driven by network expansion and higher cup volume from increasing monthly transacting customers.

b. Profit: GAAP OP grew 55% YoY to RMB 2.8bn, with OPM at 15.4% (+380bps). Non-GAAP NP rose 51% YoY to RMB 2.1bn, a quarterly record, with Non-GAAP NPM at 12% (+270bps).

c. Self-operated vs. partner stores: Self-operated store revenue increased 17% YoY to RMB 12.9bn. Store-level OP rose 56% to RMB 3.0bn, with a 23.3% margin (+580bps).

Partner store revenue was up 12% YoY to RMB 4.2bn, with cup growth partly offset by lower delivery mix reducing delivery service fees.

d. Delivery and raw materials: Delivery expense fell from 19% to 10% of revenue; in absolute terms it declined 38% YoY to RMB 1.8bn, reflecting a sharp shift from delivery to pickup. Raw material costs were 38% of revenue (vs. 36% a year ago), mainly due to delivery-mix changes affecting ASP per cup.

e. Opex: Store rent and other operating costs were 22% of revenue (vs. 20% a year ago), as last year's subsidies boosted cup volume and scale effects. Selling expense ratio was 5.5% (vs. 4.9%), driven by higher traffic investment after the subsidy battle. G&A was 6% (approx. 5%), reflecting SBC, headcount and R&D.

4. Cash flow and balance sheet: Q3 operating cash flow was RMB 4.1bn. Total cash (incl. restricted cash, term deposits and ST investments) was RMB 14.3bn as of Sep 30, vs. RMB 9.0bn at end-2025. Net cash was RMB 11.1bn, supporting expansion and ongoing shareholder returns.

II. Call Details

2.1 Management Commentary

1. SSS and store profitability: The fade of delivery subsidies weighed on SSS, but self-operated store margins have largely returned to pre-subsidy levels.

a. Last year's delivery subsidies boosted both delivery order volume and ASP per cup, creating a high base for Q3. This year, platform subsidies fell sharply; self-operated SSS was -11.1% YoY, with the decline narrowing MoM since Jul and the improvement accelerating, in line with prior updates.

b. Versus Q3 2024, the delivery mix remains meaningfully higher and the store base nearly doubled, yet store-level margins for self-operated stores have broadly returned to that level. Management believes this validates the scaled growth model.

2. Store network: Store openings remain far ahead of the industry, with 38,909 stores globally, up 33% YoY.

a. China: Net adds of 2,543 in the quarter to 38,630 stores (25,277 self-operated; 13,353 partner), expanding across city tiers and counties in line with demand. New openings this year show healthy unit economics.

b. Overseas: Net adds of 56 to 279 stores, including 103 self-operated in Singapore, 22 self-operated in the U.S., and 154 partner stores in Malaysia. Singapore surpassed 100 stores and is now the No.2 coffee chain locally by store count, with the unit model largely proven.

3. Product: Reinforce a coffee-centric professional image, while expanding non-coffee to cover more dayparts and occasions.

a. Launched 41 made-to-order beverages and 20+ snacks in Q3. The coffee line introduced Ethiopia Gesha cold brew and several derivatives, and two highly rated experimental-store signatures were rolled out nationwide as limited-time offers.

b. The Thai milk tea series launched in Aug sold over 13 mn cups in its first week, a YTD record for a new product's first week. Management views this as evidence of the acquisition potential of non-coffee offerings.

4. Users and brand: Avg. monthly transacting customers exceeded 120 mn, a record, and per-customer spend kept rising.

a. Over 28 mn new transacting customers were added in Q3, bringing the cumulative total to over 520 mn. Per-customer spend has increased steadily this year, hitting another high in Q3.

b. During the Jul World Cup, the company ran brand campaigns as a sponsor of the Spain and Portugal national teams, pairing IP collaborations with new product launches.

2.2 Q&A

Q: How much long-term store whitespace remains in China, and how do you think about the opening pace at the current scale?

A: Whitespace is driven by China coffee demand growth rather than a fixed store-count ceiling. Management sees significant room for growth in both the consumer base and consumption frequency vs. mature markets, and demand growth will continue to open healthy unit-econ whitespace per store. Monthly transacting customers keep hitting new highs, while per-customer spend continues to trend up.

With a self-operated-led model and mature site-selection and ops systems, the company can identify locations against overall demand and open efficiently. Extending products into more dayparts and occasions also supports further openings. The company will maintain a competitive opening pace, let demand dictate where to open, and ensure healthy unit economics, without providing a specific numeric target.

Q: What drove the Q3 SSS decline? After subsidy impacts fade, how should we think about SSS in Q4 and beyond?

A: The SSS decline narrowed sequentially from Jul to Sep, with faster improvement into Q4. Jul–Aug last year marked the peak of the delivery subsidy battle; this year subsidies fell sharply, and higher-ASP delivery orders dropped meaningfully. While pickup recovered, both cup volume and ASP per cup still weighed on SSS. As customers revert to pickup, the order mix is healthier, better leveraging store density and operating efficiency.

Management views Luckin as in a rapid expansion phase, with growth also driven by new stores and efficiency, so SSS is not viewed in isolation. SSS moves in waves: when openings accelerate, SSS faces near-term pressure; when openings slow and demand grows, SSS improves quickly. Openings accelerated from H2 2023 to H1 2024, pressuring SSS; with slower openings in H2 2024, SSS improved notably, turned positive by year-end, and continued into 2025 before the subsidy battle.

SSS is a management tool to dynamically calibrate opening pace. The company is confident in continued improvement, but the top priority remains to increase share long term under healthy unit economics per store.

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