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6.15.20   2:12 PM Innovation - Consumer

Luckin Coffee's store count plunges as coffee chain faces fraud controversy

Luckin Coffee stock endured a turbulent 2020, but some investors keep buying in.

Despite facing a delisting, Luckin Coffee ($LK) shares began trading again last month - and not unlike other major public companies swirling the drain, 2020's bizzaro rules aren't just keeping shares afloat, now, Luckin stock is going up. 

But investors may not be taking into account alternative data signaling dire issues for the Chinese coffee retailer. 

Recently, Luckin Coffee slashed its store count by nearly 12%, coming amid allegations of fraud and an investigation that revealed hundreds of millions of dollars worth of fraud committed by senior leadership. 

Up until recently, the company's alternative data reflected ongoing growth of store count in China - that is, until the drop-off that we track, above. Starbucks, on the other hand, is growing store count in Asia, and opening more stores in China post-pandemic. 

Despite the fraud accusations and the sliding alternative data, Luckin still may maintain a foothold in critical Chinese markets that could help its survival, even if it is booted off of exchanges. But the threat of Coronavirus lingers over even the Chinese economy, which more successfully contained the virus on the first pass than US officials, and China is seeing illnesses spike again this summer. 

In the span of little over a year, Luckin Coffee saw its IPO debut, shares rose to more than $50, and crashed, more than 90%, to less than $4 before the market opened June 15. Last week, multiple reports emerged speculating that Luckin Chairman Lu Zhengyao would possibly face criminal charges - which comes after he defaulted on a half-billion-dollar loan that made Goldman come calling; and COO Jian Liu and others were suspended from the company in April as the company tried to fend off allegations of fabricating transactions. 

There are plenty of IPOs that were white-hot in 2019, and many of them have seen the bloom come off of their rose in a turbulent 2020. But of that class, few companies face charges as serious, or prospects as challenging, as Luckin does today. 

About the Data:

Thinknum tracks companies using the information they post online - jobs, social and web traffic, product sales, and app ratings - and creates data sets that measure factors like hiring, revenue, and foot traffic. Data sets may not be fully comprehensive (they only account for what is available on the web), but they can be used to gauge performance factors like staffing and sales.

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