Imagine this. It's January 2020. Everyone is entering the new decade with optimism. People dream that they're going to start living life like Jay Gatsby. The massive stock market crash of 2018, which was caused by trade wars and inflation worries, were long behind us as 2019 was a year of stellar gains. If 2019 had fantastic gains, we assume that performance will repeat and 2020 will also come with high stock gains, right?
Throughout this, Muddy Waters
says that they're shorting Luckin Coffee because the company was being accused of fabricating their sales numbers. On SeekingAlpha, there are writers
betting against Muddy Waters's claims. Andrew Left of Citron Research even doubts
Muddy Waters's claims. But then, late February 2020, China starts imposing lockdowns in each city, one by one. As March arrived, countries in Europe and Asia start closing down their borders. Then by mid March, the US and all other countries start going into lockdown.
During the early stages of the lockdowns, Luckin Coffee made a public statement
saying that the COO and other employees within the firm had engaged in misconduct that includes fabricating transactions, adding that fake transactions from Q2 2019 to Q4 2019 amount to ~$310 million.
Since then, many of us have moved on from the stock and thought it would be bankrupt. Instead, it hasn't, and the company is rebounding stronger.
Since delisting from the US stock exchanges and paying penalties to the SEC, Luckin Coffee was able to get out of bankruptcy
in April 2022. In mid-2022, the company ended Q1 2022 with 6,580 stores
in mainland China, which is more than the 5,650 stores that $SBUX
had in the same region. With its marketing partnership with Olympian Eileen Gu
, the company has been able to see more sales success despite the lockdowns. In June 2023
, Luckin Coffee opened its 10,000th store in mainland China. As of recently, it unveiled its first alcohol-infused latte and sold 5.4 million cups
of it in a single day.
As much as I am cautious about investing in businesses that only operate in China, I am surprised to see Luckin Coffee rebound stronger than ever before despite lockdowns, fraud allegations, etc.