Even in the midst of a financial fraud scandal, Luckin Coffee (Nasdaq: LK) is still opening its stores at an alarming rate. On May 14th Bloomberg cited data from Thinknum Alternative Data, a New York-based company that collated data from public channels for Luckin Coffee, which had opened an average of 10 stores a day in the second quarter of May 12, bringing the total number of stores to 6,912.
Bloomberg said the pace of expansion, though slower than in the first quarter, was still faster than in the same period last year. Justin Zhen, co-founder of Thinknum Alternative Data, said: “Luckin Coffee is still accelerating its store opening. For any restaurant company, opening ten new stores a day is still very fast. “
Since Luckin’s coffee chain went public in the U.S., the number of coffee chains has entered a period of high growth in the third quarter of 2019, the fourth quarter and the first quarter of 2020, with average daily volumes of 13.9, 7.9 and 20.1, respectively, according to data compiled by Bloomberg.
Luckin Coffee is headquartered in Xiamen, Fujian Province and opened in January 2018. In November 2017, Qian Zhiya stepped down as a director and COO of Shenzhou Auto, leaving the company to start a business and setting up Luckin Coffee. The two-year-old Luckin Coffee, which has been in existence through “crazy” store openings and user subsidies, not only quickly gained a foothold in The Chinese coffee market, but also launched its fastest IPO in China in May 2019 on NASDAQ.
On April 2 this year, Luckin Coffee announced that it had found that Liu Jian, the company’s chief operating officer, had made financial fraud involving about 2.2 billion yuan in transactions, and that the company’s board of directors had set up a special committee to conduct an internal investigation. In addition, several U.S. law firms have filed a class-action lawsuit against Luckin Coffee for making false and misleading statements that violate U.S. securities laws.
Luckin Coffee’s shares plunged after the news broke. The stock has been suspended since April 7, after Nasdaq asked for more information from Luckin Coffee, and its final sale was $4.39, leaving it with a market value of $1.1 billion.
The U.S. SEC is investigating financial fraud by Luckin coffee employees, according to a source familiar with the matter, as cited by the news agency. The CSRC has also publicly stated that luckin coffee has for the first time made a solemn position to the outside world since it was exposed for financial fraud and has communicated with the US SFC on cross-border regulatory cooperation. The CSRC also said the U.S. Securities and Futures Commission had responded positively.
Although the company’s internal investigation has not reached a conclusion, luckin coffee’s management has been shaken recently. On the evening of May 12, Beijing time, luckin Coffee’s board of directors terminated chief executive Qian Zhiya and Chief Operating Officer Liu Jian and received two requests to withdraw from the board, according to documents filed with the Securities and Exchange Commission by Luckin Coffee. In addition to Qian And Liu Jian, the company suspended six other employees who were involved in or understood financial fraud, or asked them to take time off, according to the company’s internal investigation.
At the same time, the company’s chairman Lu Zhengyao also left the “nomination and corporate governance committee.” Although Luckin Coffee did not directly point out Lu Zhengyao’s exit in the announcement, the Nomination and Corporate Governance Committee did not have Lu Zhengyao’s name in the “Nomination and Corporate Governance Committee”, but was composed of independent directors Zhuang Weiyuan, Daisu Capital founder Li Hui and Guo Jinyi.
On the night of the announcement of the suspension of the CEO and Chief Operating Officer, luckin Coffee’s president’s office issued an internal letter saying that luckin coffee had been in an unprecedented crisis since the fraud, with its brand image and reputation affected and apologized to employees for their distress.
The internal letter also said that the investigation of the incident is still ongoing and that the company will cooperate with the investigation. The new management will restructure the company as soon as possible, reshape the corporate culture, strengthen internal controls to ensure legal compliance, and maintain business stability.