Luckin Coffee Refutes Short Seller Allegations

Luckin Coffee Inc - ADR LK bounced back on Monday but remains down about 7% since Thursday’s close following the release of an anonymous report accusing the company of fraud. In a statement released Monday, Luckin management emphatically denied the claims in the report and said it stands by its business model.

On Friday, Luckin shares initially dropped more than 19% after Muddy Waters Research tweeted a link to an anonymous report alleging Luckin is a fraud. Among other claims, the author of the report claims to have documented 11,260 hours of store traffic surveillance video that suggests Luckin inflated its number of items sold per store per day by 69% in the third quarter of 2019 and 88% in the fourth quarter of 2019.

Luckin Denies Claims

In its statement, Luckin called the report misleading, false and meritless.

“Luckin Coffee categorically denies all allegations in the Report. 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.

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The company specifically denied claims that Luckin inflated number of items per store per day in the last two quarters of 2019, claims that Luckin’s items per order had declined from the second quarter to the fourth quarter, it inflated its effective selling price in the third quarter, it overstated advertising expenses in an effort to inflate revenue in the third quarter and it inflated net revenues from other products in the third quarter.

“As a data-driven company, Luckin Coffee is committed to providing full and accurate disclosure to investors and to rebutting any false claims that attempt to undermine confidence in Luckin Coffee's business, management and results of operations,” Luckin said.

Benzinga’s Take

It’s difficult to know exactly how much of Luckin’s sell-off on Friday was due to the short seller report and how much of it was due to extremely weakness in Chinese stocks due to the coronavirus scare. It’s likely Luckin’s share price would have taken a big hit with or without the report due to the broad weakness in Chinese stocks.

Luck Coffee's stock traded higher by 4.5% to $33.96 per share at time of publication.

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