Photo/Lan Suying (NBD)

Nov. 18 (NBD) – Shares of coffee chain start-up Luckin Coffee Inc. (Nasdaq: LK) have jumped by 44 percent since the company's announcement of the latest earnings report on November 13.

The new financial report showed in the three months ended September 30 of 2019, Luckin Coffee reaped 1.54 billion yuan (219.89 million U.S. dollars) of net revenue, up 540.2 percent from 240.8 million yuan for the same period of 2018.

National Business Daily noticed that the loss for the quarter was still heavy but was narrowing. Its net loss stood at 531.86 million yuan in the July-September period, though higher than 484.93 million yuan of 2018's third quarter, yet lower than the figures for the past four quarters.

Buoyed by the declining loss and surging revenue, stock of Luckin Coffee soared to 27.02 U.S. dollars on Friday, hitting a record high since the coffee chain operator went public on May 17 this year, and pushing the company's valuation to around 6.49 billion U.S. dollars.

Luckin Coffee, founded in October 2017, established and expanded its business aggressively and speedily. The start-up maintained a fast pace of new store opening, while carrying out a large number of promotion activities.

By the end of the third quarter of 2019, it has operated 3,680 stores, representing a rise of 209.5 percent compared to 1,189 stores at the end of the same quarter last year. To gain a foothold after entering new markets, Luckin Coffee provided a huge amount of coupons and free coffee products for consumers.

Such a strategy resulted in high marketing expenses and thus heavy deficit.

Yang Fei, CMO of Luckin Coffee, mentioned early this year the company's promotion strategy will continue in the coming 3-5 years. But he revealed in a speech delivered last month that the chain may reduce the total amount of subsidies for consumers in the future.

In an effort to create more growth engines, Luckin Coffee is diversifying its product lines, which currently include coffee, tea, nuts, desserts and diet-friendly food.

It is noted that the firm launched Luckin Tea nationwide this July and upgraded it into an independent brand two months later. Also in September, Luckin Coffee formed a joint venture with French agricultural products producer Louis Dreyfus Company to produce and sell juice products under co-branded Not From Concentrate. Moreover, it started selling cups and other merchandise products under a three-year cooperation agreement with Zhejiang Haers Vacuum Containers, a Chinese manufacturer of food containers.

So far, the non-coffee businesses contributed up to 45 percent of the total revenue, 20 percent of which were generated by Luckin Tea, the coffee chain firm's CEO Jenny Zhiya Qian disclosed during the conference call for the financial results of the third quarter this year.

However, the exploration in non-coffee fields further pushed up sales and marketing expenses. The metrics rose by 147.6 percent year-on-year to 557.7 million yuan in the three months ended September 30.

But Qian believed the costs spent in the period were necessary for the healthy development of Luckin Coffee. "We consider our new marketing initiatives as an evolution of our current business model and are part of our strategy to serve more customers," said Qian.

Email: lansuying@nbd.com.cn