On November 13th, Ruixing Coffee released the 2019Q3 financial report. On the same day, it was also the end date of the Ruixing coffee lock-up period.
Editor’s note: This article comes from the WeChat public account “Extraordinary Finance” ( ID: DifferentFin), author Hyun night snow.
On November 13, Beijing time, Ruixun Coffee (NASDAQ: LK) released its unaudited financial results for the three quarters ended September 30, 2019. According to financial report data, during the reporting period, net income was 1.493 billion yuan, a year-on-year increase of 557.6%; net loss was 531.9 million yuan, an increase of 9.7% year-on-year.
The reminder here is that on November 13th, the IPO lockout period of Ruixing Coffee ended. The total size of Ruixing IPO is only 14.2% of the outstanding shares, which means that after the lifting of the ban, the shareholders and insiders of the initial public offering will be able to sell a large number of shares held by them at any time. Once the previously restricted stocks are sold in large quantities, it is likely to flood the secondary market and may lead to a short-term plunge in stock prices.
Unlocking the ban on the earnings day Ruifu coffee resisted?
On November 13th, it is the release date of Ruixing Coffee’s third quarterly report, which is also the end date of the IPO lock-up period of Ruixing Coffee.
The coming of the lifting of the ban is a terrible thing for IPO stocks. The end of the stock lock-up period is not a good thing for many stocks. Before the company went public, those early investors, corporate executives and employees who bought the shares of the company were required to sell their shares for 90-180 days after the stock was listed.
The total size of Ruixing Coffee IPO is only 14.2% of the outstanding shares, which means that after the lifting of the ban, the shareholders and insiders of the initial public offering will be able to sell a large number of shares held by them at any time. Once the previously restricted stocks are sold in large quantities, it will generally bring huge downward pressure on the IPO stocks, which is likely to flood the secondary market. In the short term, there is a possibility that the stock price will plummet.
As Ruisheng Coffee’s performance in the third quarter of 2019 increased more than expected, the stock price rose. At the close, Ruisheng Coffee’s share price rose 13%, closing price of 21.46 US dollars.
From the current share price performance of Ruixing Coffee, its selling pressure is relatively small. This is mainly because the banned shares of Ruixing Coffee are held by insiders. Next, the spectacle of financial affairs for everyone to simply sort out the situation of Ruisheng coffee holdings.
From the perspective of the shareholding structure disclosed in the Ruixing Coffee Prospectus, the shares of Ruixing Coffee are highly concentrated in the “Shenzhou Department” with Lu Zhengyao as the core. According to the prospectus, Lu Zhengyao, chairman of Ruixing Coffee (the same chairman of China Uniq), holding 30.53% of shares, being the largest shareholder; Qian Zhiya holding 19.68%, and the two held a total of more than 50%.
In addition, Li Hui’s Daxie Capital is the largest institutional investor in Ruixing Coffee, holding 11.0%; Liu Erhai’s Joy Capital holds 6.75%. Li Hui, founder of Daxie Capital, and Liu Erhai, founder of Joy Capital, are Lu Zhengyao’s long-term capital supporters, and the three are also known as the “iron triangle” of the Shenzhou system.
Dalian Capital, Joy Capital and Junlian Capital have all had different degrees of cooperation with China UCAR. Liu Erhai was once one of the leaders of Lenovo Investment (now renamed Junlian Capital), representing Lenovo’s investment in Lu Zhengyao’s car rental in China. Li Hui once joined Shenzhou UCAR as vice chairman in 2016-2017.
The role that Lu Zhengyao plays in it cannot be ignored. Ruixing’s calendar financing is also carried out around Lu Zhengyao’s “friend circle”. Rui Xing has been listed for more than a year, and the “capitalism” centered on Lu Zhengyao’s circle of friends is revealed behind it. In the short term, it is less likely that holders of the internal banned shares of Ruixing Coffee will sell off in large quantities.
In addition, according to previous reports, Ruixun submitted documents to the US Securities and Exchange Commission (SEC), documents show that Singapore Government Investment Corporation (GIC), GIC Special Investment Co., Ltd., Louis Dreyfuss, Melvin Capital Management LP and Darsana Capital Partners It holds 13.63%, 13.04%, 8%, 6.78% and 11.2% shares respectively.
The head of the lifting of the ban is some top PEs, with a total lock of 30%. Melvin Capital Management LP and Darsana Capital Partners are hedge funds. Ruixing’s prospectus shows that Darsana Capital Partners has invested in Ruixing Coffee before the Ruixing Coffee IPO.
Louis Dreyfu is one of the world’s four largest grain producers. Ruixun Coffee issued a total of US$50 million of Class A common stock to Louis Dreyfus in parallel private placement. The price per share is equivalent to the public offering price, which is the cornerstone. investor. On September 25 this year, Xinrui Xun Coffee and Louis Dreyfus Group (LDC) signed a strategic cooperation agreement in Singapore, and the two parties will jointly build a juice joint venture. As of now, there is no further promotion and progress disclosure.
rootAccording to foreign media reports, US hedge fund Daxie Cohen and his family fund 5% of the goods in the secondary market, and declared on August 15, 2019, the investment exceeded 390 million US dollars, corresponding to 17 million shares. If the fund is reduced by more than 5%, it needs to be declared.
In view of the above situation, this is part of the reason for the sudden decline in Ruixing Coffee on the first day of the lifting of the ban.
The huge loss in the third quarter was 530 million yuan, an increase of 10% year-on-year
Financial report data shows that in the third quarter of 2019, Ruixing Coffee’s net income was 1.5416 billion yuan, a year-on-year increase of 540.2%.
The prospectus shows that Ruisheng Coffee’s core businesses include Freshly brewed drinks, Other products and Others. Fresh drinks include freshly brewed coffee, freshly squeezed juice, etc. Other products include light snacks, small snacks, and Boss lunches. At present, Ruixing Coffee also began selling cups and other peripheral goods.
The income from fresh drinks is the main source of revenue for Ruixing Coffee. The total revenue of fresh drinks has been over 70%. According to financial data, in the third quarter of 2019, fresh beverages revenue was 1.145 billion yuan, accounting for 74.3% of total revenue, which was higher than the 72.5% revenue in the second quarter.
Rui Xun Coffee launched Xiaolu Tea in July. In September, Xiaolu Tea operated as an independent brand and launched a new retail partner model. The third quarterly report did not disclose in detail the revenue of Xiaolu Tea, actual business growth data, and the situation of Xiaolu Tea.
However, Lu Zhengyao, chairman of Ruixing Coffee, responded to the analysis of the problem, saying that the Xiaolu Tea Partner model was launched for more than a month, and nearly 2,000 people paid the quality guarantee. According to media reports, Xiaolu Tea has opened 42 stores in 28 cities across the country.
Financial report data shows that as of the end of the third quarter, the total number of Ruixing coffee shops was 3,680, an increase of 209.5% compared with 1,189 stores in the same period last year. The company’s goal in 2019 is to open 2,500 new stores and plans to build more than 4,500 total stores. Qian Zhiya said: “By the end of this year, we will achieve the goal of becoming the largest coffee chain brand in China.
In the third quarter, Ruixing Coffee’s net loss was 531.9 million yuan, an increase of 9.7% over the same period last year of 484.9 million yuan. Although the operation efficiency and profitability of Ruixing Coffee Store are improving, it still fails to change the current situation of Ruixing Coffee’s continued loss. The reason is that the money subsidy is too high, and the marketing cost is too high.
In the third quarter, Ruishun Coffee’s sales and marketing expenses were RMB 557.7 million, an increase of 147.6% compared with RMB 225.3 million in the same period last year, mainly due to the increase in advertising expenses. Including the advertising costs of Xiaolu Tea, Xiaolu Tea invites the popular traffic star Xiaozhan as its new brand spokesperson.
Little Deer Tea continues the strategy of subsidizing the money for Ruixing coffee. “Drink a cup for a coupon”, “10 for ten” and “55 for a coupon”, these crazy subsidies are full of “Rui Xing coffee” taste.
Unlike Ruixing Coffee Crazy Open Store, this year, Xiaolu Tea launched a new “new retail partner” model.
According to Xiaolu Tea’s official website, “New Retail Partner” is a new agent model based on the new retail model of the Internet. The partner and Rui Xing jointly operate the Xiaolu Tea Shop. Joint operation, risk sharing, and profit sharing. In addition, the “new retail partner” model does not charge an initial fee in the early stage, and in the early stage of market expansion, Ruixing will give partners a subsidy to develop new customers.
The thing that reminds everyone here is that the “new retail partner” does not charge the initial fee, but it does not mean that no upfront investment is required. At present, a number of inputs are required in the early stage, including store decoration (7-80 million yuan), equipment purchase fee (about 150,000 yuan), and a 50,000-yuan quality guarantee (return of cooperation). In addition, the “new retail partner” also has to pay for store rents, utilities, and staff.
The introduction of this model allowed Ruixun Coffee to be “liberated”, which reduced the cost of Ruixing Coffee’s expansion to a certain extent, and also transferred some of its operating costs to “partners”. At the same time, the quality guarantee can also help Ruixun Coffee to revitalize some funds, so Ruixing Coffee has also been criticized by the outside world.
Rui Xun Coffee is also in the layout of the fashion business, starting to sell peripheral goods. In August of this year, Ruixun Coffee launched a antler cup. Similarly, in October of this year, Xiaolu Tea launched Xiaochao’s customized coffee-free cup in the official APP, Tmall and Jingdong. In terms of marketing strategy, Xiaolu Tea and Ruixun Coffee still have a high consistency.
In addition to marketing expenses, the cost of Ruisheng Coffee also includes: raw material costs, store operating costs, general and administrative expenses, depreciation expenses and opening costs.
Rui Xing Coffee No.The material cost in the third quarter was 721.1 million yuan, up 375.5% from the 1516 billion yuan in the third quarter of 2018; the store rental and other operating costs were 477.3 million yuan; the depreciation expense was 108.5 million yuan; the general and administrative expenses were 246.1 million yuan; Before the store opened and other expenses were 21.8 million yuan.
From the overall data, although Ruisheng Coffee solved the problem of single store profit through the increase of income, but to achieve the overall profit of the company, it is necessary to further improve efficiency, reduce costs, and effectively control and reduce marketing expenses.
However, the competition in the tea market is fierce. At present, the brand of Xiaolu tea is still in the early stage of promotion. Brand promotion, investment in burning money, subsidy and retention rate are all facing challenges. How long does it take for Ruixing Coffee to finally turn around and lose money? We will wait and see.