Shares of China’s Luckin Coffee plummet 80% after investigation finds COO fabricated sales
Luckin Coffee was supposedly Starbucks Top Competitor in China.
Luckin Coffee disclosed that an internal investigation has found that its chief operating officer fabricated 2019 sales.Shares cratered more than 80% in premarket trading after the release of the regulatory filing.
Luckin Coffee disclosed Thursday that an internal investigation has found that its chief operating officer fabricated 2019 sales by about 2.2 billion yuan ($310 million).
The investigation found that Jian Liu, Luckin’s chief operating officer, and several employees who reported to him, had engaged in misconduct, including fabricating sales. Liu and the employees implicated in the misconduct have been suspended, and Luckin said it will take legal action against those responsible.
Jian couldn’t be located for comment.
The 2½-year-old company, which had hoped to overtake Starbucks as China’s top coffee chain, said investors should not rely on its prior financial statements and earnings releases.
Luckin said the internal investigation is at a preliminary stage and its estimate of the fabricated sales has not been verified by its independent auditor.
Luckin has tried to build a customer base with smaller locations formatted for convenience and offering steep discounts. In January, the company said that it had more than 4,500 locations in China, several hundred more than Starbucks. Starbucks has responded to the competitive threat by opening cafes in China designed for quicker pick-up and delivery and less seating.
Luckin Coffee Stock.