(Yicai) Nov. 18 -- Luckin Coffee, Starbucks Coffee's main rival in China, reported a 2.7 percent drop in third-quarter profit from a year ago after delivery costs surged amid intensifying competition between food delivery platforms and despite strong top-line growth.

Net profit was CNY1.3 billion (USD182.9 million) in the three months ended Sept. 30, the Xiamen-based company said in a financial report released yesterday. Revenue jumped 50 percent to CNY15.3 billion (USD2.2 billion), thanks to the addition of 3,008 new stores and a record 112.3 million average monthly customers.

“Our scale-driven strategy continued to yield strong results as we capitalized on the rapid expansion of China's freshly-brewed beverage market,” Chief Executive Guo Jinyi said on the company’s earnings conference call.

Luckin Coffee had 29,214 outlets worldwide as of the end of September, almost two-thirds of which it operates itself. Income from self-operated shops jumped 48 percent to CNY11.1 billion, while that from partnership stores surged 62 percent to CNY3.8 billion.

Profit margin shrank because the subsidy battle being waged between delivery platforms in China sharply inflated logistics and commission expenses, the company said. Delivery costs more than tripled to CNY2.9 billion, squeezing its operating margin based on generally accepted accounting principles to 11.6 percent from 15.5 percent.

For self-operated shops, operating margin shrank to 17.5 percent from 23.5 percent, net income dropped to CNY1.28 billion from CNY1.31 billion a year ago, and net margin narrowed to 8.4 percent.

Food delivery platforms are already scaling back their subsidies, Guo pointed out, but added that elevated coffee bean prices may weigh on growth into early next year.

Deliveries will remain a sideline to the company’s mainly pickup-based orders business in China, which is more economical while preserving product quality, he also noted. 

Pressed on a recent remark that Luckin Coffee intends to rejoin a major US stock exchange, Guo said “we currently have no specific time line or schedule for us listing on the mainboard. Our top priority at the current stage remains focusing on our strategy execution and business development.”

Luckin Coffee delisted from the Nasdaq in June 2020 following a major financial scandal.

The firm had cash and short-term investments of CNY9.4 billion as of Sept. 30, up from CNY5.9 billion at the end of last year, boosted by CNY2.1 billion in operating cash flow.

Under intensifying competition from Chinese coffee brands such as Luckin and Manner Coffee, Starbucks said early this month that it will sell a 60 percent stake in its China business to Boyu Capital, a leading Chinese private equity firm, for about USD4 billion.

Announced just after Starbucks reported its fiscal 2025 earnings, the move marks a strategic shift in the firm’s second-biggest market, aiming to harness local investment and market know-how.

Editor: Martin Kadiev