Scandal-Mired Luckin Coffee Makes Huge Comeback In China

Luckin Coffee, the Chinese startup that became mired in a fraud scandal and was kicked off Wall Street two years ago, is making a comeback, Michelle Toh reported for CNN Business.

Photo Insert: Luckin was forced to retreat from its public listing in New York in 2020 following the admission that its earnings had been fabricated.

The coffee chain on Tuesday posted first quarter earnings showing a jump of almost 90% in revenue and its first-ever profit, despite challenging COVID lockdowns. It also ended the period with 6,580 stores in mainland China.

That's more than Starbucks, which has just over 5,650 outlets in China. Luckin now calls itself the country's largest coffee chain. Some of its stores are self-operated, while others are run by partners. Starbucks' outlets in China are entirely company-owned.

The Chinese company's latest earnings offer a look into its recovery since it admitted in 2020 to making up some of its sales numbers, leading to its ejection from the Nasdaq. In an interview Wednesday, CEO Jinyi Guo acknowledged that many analysts may still be skeptical of Luckin's finances.

Since 2020, "we have taken a lot of measures to clean up our own house," he said, noting that it had brought in external lawyers to review its operations and reorganized its teams. Guo, a senior vice president of product development, was promoted to chairman and CEO during the crisis.

Luckin also has one particular person to thank for its recent performance: Olympic superstar Eileen Gu.

The company partnered with the Chinese freeski champion last summer, which has created a "sizable effect" for its business, said Guo. Gu went on to become a breakout sensation of the Winter Olympics in February, taking home more medals than any other Chinese team athlete at the Games.

Luckin was founded in 2017 as a trendy alternative to the traditional coffeehouse. It focuses on catering to young people, with mostly takeaway booths and cashless payments.

From its inception, the company enjoyed a rapid ascent, quickly becoming one of China's top "unicorns," or privately-held firms worth at least $1 billion. At one point, it opened some 2,000 stores in just 12 months.

In 2019, Luckin went public in New York, where it was welcomed by investors who believed it could be a serious challenger to Starbucks. But the company was forced to retreat the following year following the admission that its earnings had been fabricated.

Luckin was ultimately delisted from the Nasdaq, and its chairman and CEO were both fired. It was also slapped with a $180 million fine by the US Securities and Exchange Commission (SEC.) Shares in the company now trade over the counter in the US, giving the company a market cap of $2.2 billion, compared with more than $4 billion when it went public.

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