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As Luckin responds to fraud allegations, its stock remains down

Luckin saw its stock sink up to 27% on Friday after short-seller Muddy Waters disclosed a report alleging that Luckin fabricated financial figures.

China’s on-demand beverage chain Luckin Coffee saw its stock falling again 3.5% to USD 31.35 on Monday after it released a statement responding to the “misleading and false allegations” contained in an anonymous report cited by investment firm Muddy Waters.

In the report shared by Muddy Waters, the author alleged that Luckin has accounting issues and a flawed business model.

Luckin shares dropped as much as 27% on Friday after the report was made public. Muddy Waters tweeted that, according to the report, Luckin Coffee “is a fraud,” and that operating numbers have been inflated by around 69% in 2019 Q3, and 88% in 2019 Q4. The investment company added that it views the report as “credible.”

The author of the report claims to have documented 11,260 hours of store traffic surveillance video suggesting that Luckin magnified the number of items sold per store.

Luckin denied all allegations in a statement released on Monday, calling the report meritless and misleading. “The methodology of the report is flawed, the evidence is unsubstantiated, and the allegations are unsupported speculations and malicious interpretations of events,” the company said.

The coffee startup claimed that all of its “key operating data, including the number of items per store per day, items per order, and effective selling price, are tracked in real-time and can be verified.” The company added that it has a robust internal management system to ensure the integrity and consistency of the data.

In addition, Luckin expressed confidence in its business model, which is “supported by a disruptive new retail model, diversified product portfolio and strong financial position,” said the company.

Muddy Waters has not responded to Luckin’s statement as Feb. 4.

Founded in 2017, Luckin reported total net revenues of RMB 1,541.6 million (USD 215.7 million) in the third quarter of this year, up 540.2% from last year. However, the company booked RMB 531.9 million (USD 74.4 million) in net losses, widening by 18% from RMB 484.9 million in the third quarter of 2018.