Ruixing coffee has experienced ups and downs in just four years. At present, the speed of “coming back from the dead” is a little faster than expected.
This evening, Ruixing coffee (OTC Code: lkncy) announced its unaudited financial results for the three months ended March 31, 2022. According to the financial report read by xiaoshidai, Ruixing’s total net income increased by 89.5% to 2.404.6 billion yuan (RMB, the same below) in the first quarter of 2022.
It is worth noting that Ruixing achieved corporate level profitability for the first time – in the first quarter, the company’s operating profit under U.S. accounting standards (GAAP) was 16.1 million yuan, while the operating loss in the same period in 2021 reached 364 million yuan. The operating profit under non GAAP in the first quarter was 92.1 million yuan, while the loss in the same period in 2021 was 307.6 million yuan.
“Our strategy and our operation plan will continue to improve this quarter.” Guo Jinyi, chairman and CEO of Ruixing coffee, said today, “despite the persistence of adverse factors related to the epidemic, we reported strong revenue performance. We also achieved the first positive quarterly operating profit since the establishment of the company. This is an important milestone and confirms our strategic plan.”
At the just concluded performance meeting, executives of the company, including Guo Jinyi, further interpreted the performance of the first quarter and talked about the impact of the epidemic and the product innovation that continued to produce popular models. This is the first time that it has held a performance meeting in the past two years since it withdrew from the market due to financial fraud.
Let’s pay attention.
First “becoming a regular”
“In Chinese, my name is easy to remember: I am cautious in my words and deeds, and I am the same in my appearance. My personal hobbies are running and coffee. Later, I became one of the founders of the company. After the fraud storm, I was appointed as CEO, and two months later, the board appointed me as chairman.” At the beginning of the long lost performance meeting, Guo Jinyi first reviewed Ruixing’s two years of “falling into the altar”.
“The past two years have been a major test for the company and myself. After two years, we held a performance meeting again. I also hope that I can establish a longer-term trust with you like my name.” “Being realistic and pragmatic is the primary standard of our value judgment,” he said
Ruixing handed over a convincing return report card.
In addition to the significant increase in net income and operating profit, the financial report shows that in the first quarter, Ruixing net opened 556 new stores, which increased by 9.2% month on month compared with the number of stores by the end of the fourth quarter of 2021. As of March 31, 2022, the total number of Ruixing stores has reached 6580, including 4675 self operated stores and 1905 affiliated stores.
Among them, in the first quarter, the revenue of Ruixing self operated store was RMB 1.7147 billion, an increase of 66.2% compared with RMB 1.031.5 billion in the same period in 2021. The same store sales of self operated stores increased by 41.6%, compared with 94.5% in the same period in 2021. The operating profit at the store level reached 348.5 million yuan, and the operating profit margin of the store was 20.3%, compared with 64.1 million yuan and 6.2% in the same period last year.
“Our efficient store operation, as well as greater scale and operating leverage, have brought strong store profit margins to our self operated stores, especially considering that the first quarter was the weakest quarter for our self operated stores in the past, because the purchase volume will decrease during the Spring Festival.” Guo Jinyi said.
As for affiliated stores, the revenue in the first quarter was 549.3 million yuan, an increase of 239.3% over 161.9 million yuan in the same period in 2021. “Our affiliated stores and our self operated stores are highly complementary, and the scale is further expanded in this quarter. The income of affiliated stores accounts for about 1 / 4 of our total income in the first quarter.” Guo Jinyi pointed out.
In addition, in the first quarter, the average monthly trading customers of Ruixing were 16 million, an increase of 83% compared with 8.7 million in the same period in 2021.
At present, Ruixing has become the coffee chain with the largest number of stores in China. “As of the first quarter, our direct stores were located in more than 50 cities and our joint ventures entered more than 220 cities. In the future, we will adhere to the densification of the layout in the first, second and third tier cities and accelerate the sinking to low tier cities. We are full of confidence in the future.” Guo Jinyi said.
“Hot money” frequently
Behind Ruixing’s successful “blood recovery”, product innovation has made great contributions.
According to the financial report, Ruixing launched 34 new fresh extract coffee products in the first quarter. “This has made a significant contribution to our performance.” Guo Jinyi said that this success continues. “In April, our new coconut cloud latte sold more than 4.95 million cups in the first week after its launch.”
According to official data, the new product “raw coconut latte” launched by Ruixing in 2021 has become popular rapidly after listing. As of early April this year, the cumulative sales volume of raw coconut latte has exceeded 100 million cups. In April this year, the “coconut cloud latte” jointly launched by Ruixing coffee and coconut juice once again became a popular model, attracting many consumers to taste and swipe the screen.
It can be seen that the frequent explosion of funds also makes Ruixing’s product logic begin to change. Now, what makes Ruixing products out of the circle is no longer the low price under high subsidies, but really sought after by consumers with innovation in taste and other aspects.
However, the fierce competition of this track also lies in that it is difficult for popular products to form obvious barriers to competition. After the popularity of the raw coconut latte created by Ruixing coffee, a group of competitors followed suit and successively launched similar coconut coffee drinks. For example, TIMS coffee also launched the raw coconut cold extract series last year, and launched five new products of the “raw coconut family” series in April this year.
In Ruixing’s view, the most important “moat” of its product strategy lies in the in-depth supply chain layout.
“In terms of product strategy, we focus on both specialty and taste. In terms of raw material procurement, we have become one of the largest importers of raw coffee beans in China, importing more than 15800 tons last year. In the first quarter, we purchased 3000 tons of coffee beans from Ethiopia. In addition, Ruixing’s first coffee baking factory in Fujian in April has been put into operation, and the second baking factory is also in the process of site selection. It will be my responsibility to continue to cultivate the coffee supply chain Our deepest moats and barriers. ” Guo Jinyi said.
He said that for good drinking, it mainly depends on the R & D department. Their most important work is to establish a perfect digital R & D system. “(the launch of several popular models shows that Ruixing has become a force leading beverage innovation in China.” Guo Jinyi said at the meeting today.
Epidemic impact
Since this year, many catering businesses, including coffee chains, have been shrouded in the “dark cloud” of the COVID-19.
Ruixing said today that the global economy, the Chinese market and the company’s business have been adversely affected by the epidemic. With the emergence of Omicron infection cases in China at the end of 2021 and spread to many major cities, many provinces and cities have launched the highest response level measures to the public health crisis.
Therefore, in the first quarter of 2022, the number of Ruixing’s temporarily closed stores gradually increased, of which march was the most affected. “In March 2022, the average number of stores closed per day was about 700. From April 2022, Shanghai has been under almost global static management, resulting in a further increase in the average number of stores closed per day. From April 1, 2022 to the day before the release of this financial report, the average number of temporary stores closed per day was about 950.” The company said.
“Since March, the continuous outbreaks in various places have brought many difficulties and uncertainties to the company. However, our performance in the first quarter is still positive.” Guo Jinyi said in terms of performance.
He pointed out that first, the geographical layout of stores is scientific. Some store types can naturally resist the risks brought by the epidemic. For example, those stores in office buildings and schools will be relatively closed. Second, the cost structure is reasonable. Third, the brand potential energy boost, “hand in hand with Gu Ailing has made us a great success”. Fourth, the ability of continuous product innovation. 34 new products were launched in the first quarter. The fifth is the emergency plan. During the epidemic period, the supply chain department will try its best to ensure supply.
“Since 2020, we have been acting quickly and decisively to cope with the changing environment.” Ruixing coffee CFO reinout schakel said at the meeting today that, for example, for stores designated as medium and high-risk areas, the company will strictly take a series of measures to deal with them. In addition, Ruixing also simplifies the menu and operation. In several cities including Beijing and Shanghai, Ruixing has established temporary warehouses to ensure the stability of supply chain and operation with emergency plans.
“Nirvana rebirth”
Since its establishment in 2018, Ruixing coffee has experienced the development track of crazy speed and ups and downs like a roller coaster in just over four years. It once set the world’s fastest IPO record, which took less than 18 months, but it withdrew from the market 13 months later due to the financial fraud scandal. At the same time, it was class sued by American investors to recover losses.
Now, less than two years after suffering a major blow from delisting, the coffee chain, which has fallen into the American powder plate market, continues to release signs of recovery. Under the impact of the epidemic, Ruixing has undoubtedly stood at a new starting point for development after bucking the trend and achieving positive quarterly operating profit for the first time.
“In the past two years, our strategy, operation, corporate governance, management structure and culture have been fundamentally improved. Except that the company name has not changed, we have been reborn and become a new company.” Guo Jinyi said at the meeting today.
He mentioned that over the past two years, Ruixing has been upgraded to a “team led by professionals under the modern governance structure”. Last week, the board of directors of the company made the latest adjustment and elected new directors. “The combination of new and old members of this board of directors can lead Ruixing to a new peak.” He said, “the company’s core management has seven people. They have experienced the test of difficult times together and will continue to struggle for Ruixing’s future.”
“Our vision is to become a world-class coffee brand. The brand value, the number of consumers, the number of stores and financial data should be world-class. At present, the number of our stores is the first in China, but there is still a lot of space from other dimensions.” Guo Jinyi said.
“With our strategy and focus on reshaping China’s coffee market, our coffee market is also very high.” He said that in terms of brand and growth, Ruixing adhered to the brand tone of “professional, young and fashionable”. “We will strive to build Ruixing into a century old brand with an everlasting foundation. We will continue to be committed to the long-term value of the capital market and strive to repay the society and shareholders.”
Specific to 2022, Ruixing did not give performance guidance today.
The company said that although it was encouraged by the government’s recent measures to support the local economy and recently saw some reopening in Shanghai, it expected that the company’s business would continue to be negatively affected by the market pressure related to the epidemic for the foreseeable time. Considering the nature of the epidemic and the severity of its impact on the global economy, “the extent of these negative effects is difficult to predict”.
“We will continue to pay close attention to the epidemic, but due to the lack of visibility into the uncertain and uncertain operating environment, we will not provide performance guidance at this meeting.” Schakel said.
“Although we expect that the market pressure related to the epidemic will continue to have an adverse impact on our business in the short term, our board of directors and management team believe that through continuous investment in core issues, we are able to meet and promote demand. With our strong financial position, first-class brand awareness, operational efficiency and leverage, we believe that we are able to seize major growth opportunities in the Chinese coffee market.” Ruixing said today.
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