Caixin
Jul 02, 2021 08:31 AM
BUSINESS & TECH

Luckin Discloses It Overstated 2019 Revenue by $328 Million

Luckin said it operated more than 5,200 stores in China as of June.
Luckin said it operated more than 5,200 stores in China as of June.

China’s Luckin Coffee Inc. issued amended financial results Wednesday showing that its overstatement of 2019 revenue was 2.12 billion yuan ($328 million), in line with its April 2020 estimate.

The coffee chain also reported fourth-quarter 2019 results and vowed to issue 2020 financials as soon as possible. Luckin delayed its 2019 fourth-quarter report because of the fraud scandal, which led to the company’s delisting from the American Nasdaq stock market.

The disclosures offer a closer look at how the company inflated its 2019 revenue by more than 60% by fabricating customer and transaction data. The startup sent jitters through the stock market after an internal audit in April 2020 put the overstatement at 2.2 billion yuan.

The accounting fraud prompted Luckin to revamp management and led to a series of lawsuits against the company. Luckin was delisted from the Nasdaq in June 2020. It now trades on the over-the-counter market or pink sheets.

The filing Wednesday also showed that Luckin inflated 2019 costs and expenses by 1.34 billion. The company’s 2019 net revenue totaled 3 billion yuan with total operating expense of 6.2 billion yuan, reflecting massive spending on discounts to attract customers.

According to the updated figures, Luckin’s revenue in the 2019 second quarter was 653 million yuan, compared with 909 million yuan in the false filing. Third-quarter revenue was 843 million yuan, compared with the previously reported 1.5 billion yuan.

The company inflated the average monthly number of customers by 100,000 in the second quarter and 460,000 in the third quarter, Luckin said. The company also inflated operating costs by more than 50% during the two quarters.

The filing showed that Luckin’s 2019 fourth-quarter revenue was 1.05 billion yuan, up 25% from the previous quarter. The net loss was 1.1 billion yuan. Luckin previously projected fourth quarter revenue at over 2.1 billion yuan.

Luckin booked a net loss of 3.2 billion yuan in 2019, compared with a loss of 1.6 billion yuan a year earlier. As of Dec. 31, 2019, Luckin had total cash holdings of 4.9 billion yuan with liabilities of 4.6 billion yuan.

Luckin filed for bankruptcy protection in New York in February this year. The petition, filed under chapter 15 of title 11 of the U.S. Code, is part of Luckin’s efforts to insulate its business in China and will effectively shield the company from lawsuits by U.S. creditors as it restructures.

In April, Luckin secured $250 million from investors to help bolster the business. The company’s operations in China have largely remained normal.

In a separate statement Wednesday, Luckin said it operated more than 5,200 stores in China as of June.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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