Luckin Coffee, the second-largest coffee chain in China, is nearing the end of one of the biggest financial misconduct investigations of 2020.

Luckin coffee stock jumped 15% after releasing its updated financials — with ~328m less in falsified sales.

What’s the big deal? In Apr 2020, Luckin admitted its Chief Operating Officer faked a large portion of its sales — sending its stock down 75%.

Within 3 years of founding, the Chinese Starbucks challenger expanded rapidly using free drink coupons, went public in the US and then was exposed for running an accounting scandal.

• How 2020 started: In Feb 2020, Luckin filed for bankruptcy — it replaced its CEO and several of its exec team, and its stock was delisted from the NASDAQ.
• How’s it going: Luckin’s stock is up 33% in 2021, it received a lifeline of $250m from early investors in April, and made progress in debt renegotiations.

Luckin now trades on the US over-the-counter exchange, where riskier stocks reside.

The new Luckin: Throughout the bankruptcy process, Luckins’ stores remained open. Despite its issues along with COVID impacts, these stores thrived and sales grew in 2020 — but at a much slower pace.

• Sales growth is expected to fall from previous triple-digit growth rates to 27-40%.
• To focus on profitability over growth, Luckin is also cutting down the number of stores.

Looking forward: Despite making progress in 2021, Luckin investors are still operating in the dark. In the 9 months ending Sept 2019, Luckin lost $324m — a figure that is likely to be much worse with its corrected sales.

Meanwhile, local competition is taking advantage of Luckins’ pains by expanding, and bubble tea is moving into  coffee’s territory (see Nayuki — the fruit/bubble tea chain which went public recently in HK)