Pictrue: REUTERS/BRENDAN MCDERMID
Pictrue: REUTERS/BRENDAN MCDERMID

BEIJING — Luckin Coffee posted a bigger-than-expected quarterly loss in its first results as a public company, hurt by soaring costs as it opened stores at a rapid clip and invested aggressively to take on Starbucks. 

Luckin's US-listed shares, which have gained about 44% from its May initial public offering (IPO) price, fell 6.5% to $22.95 in pre-market trading on Wednesday.

Luckin has gone toe-to-toe with Starbucks in China since it opened its doors early last year, and the results highlight the Chinese company's high cash-burn rate as it offers cut-price alternatives.

Luckin's operating expenses surged more than three times in the June quarter, as it opened 593 new stores taking its total to 2,963, about 1,000 fewer than Starbucks.

On an adjusted basis, Luckin lost 48 cents per share. Analysts expected a loss of 43 cents, according to IBES data from Refinitiv.

"(While) Luckin probably has done slightly better in the most recent quarter in terms of acquiring and keeping customers, the company is still having to work on aggressive recruiting of customers, which hurts the bottom line," Ben Cavender, Shanghai-based principal at China Market Research Group, said before the results were released.

Luckin has also expanded beyond coffee, allowing customers to buy food and other beverages via its app.

Last month it signed a preliminary deal to set up a joint venture with Kuwait's Americana Group to launch a coffee business in the Greater Middle East region and India.

Luckin's breakneck expansion is in stark contrast to Starbucks, which opened its first store in China in 1999 and has spent two decades reaching its current store count.

The US chain, responsible for the rise of coffee drinkers in largely tea-drinking China, has witnessed a sharp rise in competition over the last two years and Luckin stands out as its most aggressive rival.

Starbucks has countered with a coffee-delivery partnership with Alibaba and last month opened its first express retail store, with a barista at the concierge counter to help customers with ordering and pickup, in a direct challenge to Luckin's pickup-store format.

Analysts reckon both coffee companies will soon see more competition from smaller rivals.

"At home Luckin is facing increasing competition both from quick service restaurant brands like KFC that are placing greater emphasis on coffee, as well as smaller chains like Manner Coffee that are using somewhat similar business models to interact with the consumer," said Cavender.

Luckin's total net revenue surged more than seven-fold to 909.1 million yuan in the June quarter.

For the current third quarter, it expects revenue between 1.35 billion yuan ($192.4m) and 1.45 billion yuan. Analysts were expecting revenue of $229.4m.