The Telegraphed Trough Arrives: Margins Halve and Net Income Falls 39%, While the Full Year Still Grew 43% and the Unit Machine Stays Intact

Results vs. Consensus

Luckin reports in renminbi with a USD convenience translation; we keep RMB as the currency of record. Coverage on the OTC ADR is thin and Q4 consensus was especially dispersed, but the shape is clear: revenue landed roughly in line with a bar the Q3 call had already lowered, while the bottom line and margin came in below the level the Street was carrying.

Year-over-Year Comparison (Q4)

Sequential Comparison (vs. Q3 2025)

Some of the sequential decline is ordinary seasonality: Q4 is the off-peak for China's freshly-brewed-beverage category, and revenue, customers and store margin all step down from the Q3 summer peak every year. What is not ordinary is the magnitude of the same-store deceleration, from +14.4% to +1.2%, which is the subsidy fade, not the weather.

Full Year 2025 Summary

Quality of Beat/Miss

• Revenue: In line and still growing 33%, with the deceleration from Q3's +50% entirely expected. Full-year revenue of RMB49.3B (+43%) confirms 2025 was an exceptional growth year in aggregate; Q4 is the seasonally and subsidy-driven soft quarter within it.
• Margins: The clear miss. GAAP operating margin of 6.4% is the lowest of the post-restructuring growth run, down from 11.6% in Q3 and 10.5% a year ago. The composition is unusual: delivery expense actually fell sharply to 12.8% of revenue from 18.9% as platforms cut subsidies, but the off-peak deleverage pushed materials (39.9%) and store rent (24.7%) back up, and the lower volume gave less to leverage against. The store-level margin fell to 15.0%.
• EPS: GAAP net income of RMB518.2M fell 39.1%, hurt by the operating compression and a higher effective tax rate. Non-GAAP net income of RMB698.6M (5.5% margin) was the more flattering cut, but still down materially. This is the first year-over-year decline in quarterly GAAP earnings since the recovery began.

Segment Performance

The two-engine structure behaved as expected into the off-peak: self-operated revenue grew with units but its margin compressed under the seasonal deleverage and residual delivery mix, while the asset-light partnership channel again grew faster and held its share of the mix.

Self-Operated Stores

Self-operated revenue grew 32.0% to RMB9.55B, but store-level operating profit was roughly flat year over year at about RMB1.4B, dropping the store-level margin to 15.0% from 19.8% a year ago. The driver is a combination this quarter rather than delivery alone: the off-peak season provided less fixed-cost leverage, materials cost ran at 40% of revenue against elevated green-coffee-bean prices, and the same-store sales of +1.2% meant very little organic volume to absorb the cost base. The +1.2% itself is the headline soft spot, down from +14.4% in Q3.

"Same-store sales growth was 1.2% for this quarter, mainly driven by cup volume growth. Store-level operating profit remained largely flat year over year at RMB1.4 billion, with self-operated store-level operating margin of 15%." — An Jing, CFO

Assessment: This is the cleanest read yet on how much of 2025's same-store strength was subsidy-borrowed. A franchise that printed +13.4% and +14.4% same-store in Q2 and Q3 fell to +1.2% the moment the platforms pulled back. The bull counter is that customers stayed (98.4M monthly, near the peak) and that pickup-mix normalization restores store margin over time; the bear reading is that +1.2% is closer to the underlying organic rate than the mid-teens prints were. The truth sits between, and 2026 will reveal which end.

Partnership Stores

Partnership revenue grew 39.2% to RMB2.85B, again outgrowing the self-operated base and holding about 22% of the mix. The channel continues to broaden the footprint into lower-tier geographies at low capital intensity for Luckin, and the partnership store base now sits above 10,000 units.

"Revenues from partnership stores increased by 39% year over year to RMB2.8 billion... from increased sales of materials, higher contribution from profitable partnership stores and increased delivery service fees." — An Jing, CFO

Assessment: Partnership remains the capital-efficiency hedge and the lower-tier expansion vehicle. Its steadier growth through the trough is a reminder that the model's footprint expansion does not depend on the subsidy dynamic the way the blended margin does.

Key KPIs

Key Topics & Management Commentary

Overall Management Tone: Consistent and unsurprised. Management framed the Q4 trough as exactly what it had pre-announced at Q3, leaned hard on the full-year record and the 20,000-self-operated-store milestone, and was candid that 2026 same-store sales and profitability will stay volatile as the order mix shifts back toward pickup against a high base. The posture was confident on the franchise and the long-term, deliberately measured on the next several quarters, with no attempt to dress up the margin.

1. The Same-Store Deceleration to +1.2%

The defining datapoint of the quarter was the collapse in self-operated same-store growth from the mid-teens to +1.2%. Management attributed it to seasonality, the platforms' subsidy pullback in the off-peak, and the cup-volume mix, and stressed that all of it was within expectations set on the prior call.

"Our fourth-quarter same-store sales performance and profit performance were affected by a combination of factors, including seasonality, changes in food-delivery-platform subsidy dynamics, and cup-volume mix. All of these factors are in line with our expectations." — Jinyi Guo, Co-founder & CEO

Assessment: The "in line with expectations" framing is credible because management did pre-warn at Q3, and the customer count staying near 100M argues the demand base did not collapse, only the per-store subsidy lift. But +1.2% is a sobering reset for a stock that the market had been pricing on mid-teens same-store momentum, and it reframes 2026 as a year of lapping rather than compounding.

2. The 2026 Outlook: More Volatility Before Normalization

Asked directly for 2026 color on store openings, same-store sales and margins, management reaffirmed share gains as the top priority and was explicit that near-term same-store and profitability volatility will persist as the delivery mix shifts back to pickup against the subsidy-inflated 2025 base, with elevated bean costs an added headwind.

"Considering the high base created by large-scale subsidies in 2025, we may continue to see some near-term volatility and challenges in same-store performance and profitability in 2026... we believe these short-term fluctuations don't change the underlying drivers of our long-term growth." — Jinyi Guo, Co-founder & CEO

Assessment: This is a second consecutive quarter of management talking down the near term while affirming the long term. The candor is a positive for credibility, but it removes any near-term catalyst from the bull case: management itself is telling investors that 2026 same-store sales and margins are likely to stay choppy. That argues for patience, not for chasing the de-rate up or down.

3. The Full-Year Record and the 20,000-Store Milestone

Management anchored the call on the full-year achievement: RMB49.3B revenue (+43%), 8,708 net new stores, 4.1B cups sold, and crossing 20,000 self-operated stores, a first for any food-and-beverage chain in China. It opened its 30,000th store, an Origin Flagship in Shenzhen.

"We officially became the first food-and-beverage chain in China to surpass 20,000 self-operated stores... another testament to Luckin's brand leadership, reflecting our stronger market responsiveness, operational discipline and scaled execution efficiency." — Jinyi Guo, Co-founder & CEO

Assessment: The milestone is real and the full-year numbers are genuinely strong; this was a great year for the franchise even with a weak Q4. The scale advantage is the foundation of the long-term thesis and it deepened materially in 2025. The market's challenge is that scale is the slow-compounding part of the story while the margin reset is the fast-moving part, and right now the fast-moving part is pointed down.

4. Below-Store Cost Lines in the Off-Peak

Unlike prior quarters, the off-peak removed the clean below-store leverage story: materials held at ~40% of revenue (elevated bean costs), store rent at ~25% (less volume to leverage), and only delivery improved, falling to 12.8% from 18.9% in Q3 as subsidies receded. The CFO again noted delivery cost per order fell year over year.

"Delivery expenses as a percentage of total net revenue increased to 13% from 9% in the same period of 2024. However, on a per-order basis, delivery costs declined year over year, reflecting improved operational efficiency." — An Jing, CFO

Assessment: The per-order delivery efficiency is the one quietly encouraging cost signal: as the mix normalizes back toward pickup in 2026, both a lower delivery share and a lower per-order cost should help the margin recover. The offsetting risk is the green-bean cost line, which is a genuine, externally-driven 2026 headwind that scale cannot fully solve.

5. International: Singapore Validated, Malaysia On Plan

International reached 160 stores. Management called Singapore (81 self-operated stores) the second-largest coffee chain in the market by store count, with store-level profitability achieved since the second half of 2025 and the model "largely validated." Malaysia (70 franchise stores) hit its first-year target via a master-franchise model; the U.S. (9 stores) remains an early-stage exploration.

"In Singapore... we had over 80 stores by the fourth quarter, making us Singapore's second-largest coffee chain by store count... since the second half of last year, we've achieved stable store-level profitability with the business model largely validated." — Jinyi Guo, Co-founder & CEO

Assessment: International graduated from "soft-opening optionality" at Q2 to "model validated in one market" at Q4. Singapore profitability and the Malaysia franchise template are real proof points that the digital model travels, which makes the international call option more tangible, though still immaterial to the near-term model at 160 of 31,048 stores.

6. Cash and the Conspicuous Silence on Capital Return

Year-end cash was RMB8.96B, a slight sequential dip from Q3 on a soft RMB565M of Q4 operating cash inflow (off-peak plus working capital). Despite a rebuilt balance sheet, a strong full-year cash generation, and a public relisting ambition, the print again carried no buyback, dividend or capital-return announcement.

Assessment: With earnings down and the stock off its highs, a capital-return signal would have been a natural way to support the equity, and its continued absence is notable. It leaves capital allocation as an unaddressed lever and an open question for 2026.

Guidance & Outlook

Luckin issues no formal numeric guidance. The qualitative 2026 framing was the most cautious of the cycle on the near term: share gains remain the priority, but same-store sales and profitability are expected to stay volatile as the order mix shifts back toward pickup against the high subsidy base, with elevated bean costs an added margin drag. Management emphasized disciplined focus on stores, costs and price levels.

"As we maintain healthy profitability levels, we remain committed to steadily growing our market share, strengthening our industry-leading position and unlocking long-term growth potential." — Jinyi Guo, Co-founder & CEO

Implied trajectory: Expect 2026 revenue growth to decelerate from 2025's +43% as the subsidy base laps, same-store sales to stay low and choppy in the first half, and margins to remain pressured before a back-half recovery as the pickup mix normalizes, partially offset by the bean-cost headwind.

Guidance style: Conservative and consistent. For two straight quarters management has under-promised on the near term while pointing to the long-term franchise; investors should model 2026 as a digestion year, not an acceleration.

Analyst Q&A Highlights

Three questions were taken, on the Q4 same-store miss and 2026 outlook, on the intensifying cross-category competition, and on the international strategy. The call was interrupted twice by speaker-line connection issues, an operational hiccup rather than a substantive one. Notably, no analyst pressed on the U.S. relisting this quarter, leaving the Q3 commitment without an update.

The Q4 Same-Store Miss and the 2026 Framework

The lead question asked management to reconcile the strong store-opening beat with the weaker-than-expected same-store performance, and to lay out how to think about 2026 store pace, same-store trend and margins at both store and company level. Management called the Q4 softness fully expected, reaffirmed share gains as the priority, and conceded that 2026 same-store and profitability will see continued near-term volatility.

Q: "Store expansion is definitely a strong beat... but same-store sales performance seems to be weaker than expected... how should we think about the outlook for '26, including new-store opening pace, same-store-sales trend and margins on both store level and company level?"
— Jessie Xu, JPMorgan

A: "Our fourth-quarter same-store sales and profit performance were affected by seasonality, changes in food-delivery-platform subsidy dynamics, and cup-volume mix... all in line with our expectations... considering the high base created by large-scale subsidies in 2025, we may continue to see some near-term volatility and challenges in same-store performance and profitability in 2026."
— Jinyi Guo, Co-founder & CEO

Assessment: The answer was honest and complete, and it set the 2026 expectation clearly: a digestion year on same-store and margin, with the store machine still running. For modeling purposes it is the most useful exchange of the call, because management effectively confirmed the Street should not extrapolate either the 2025 same-store strength or expect a quick margin snap-back.

The Evolving Competitive Landscape

The second question probed the increasingly diverse competition, including cross-category tea-versus-coffee dynamics. Management argued the market is still early, that more entrants expand the category and accelerate consumer education, and that long-term competitiveness now rests on integrated capabilities, brand, experience, product innovation, store coverage and digital/AI, where it believes Luckin has built a systematic edge.

Q: "The coffee market is getting way more diverse... we see more cross-category competition between tea and coffee brands. How do you see the current competition evolving, and what does it mean for Luckin?"
— Becky Kai, Macquarie

A: "Freshly brewed coffee brands can no longer rely solely on pricing, individual hit products or single marketing campaigns... long-term competitiveness increasingly depends on an integrated set of capabilities... with our 30,000 stores nationwide... our clear scale advantage better positions us to capture the sustained demand growth."
— Jinyi Guo, Co-founder & CEO

Assessment: A confident, framework-level answer that leans on scale and integrated capability rather than engaging on price directly. It is the right strategic articulation, but it again sidesteps the specific question of per-cup pricing pressure from low-cost challengers, which remains the unquantified competitive risk.

International Expansion Strategy

The third question asked for an assessment of overseas progress and the forward plan. Management detailed Singapore's validation (second-largest by store count, store-level profitability since H2 2025), Malaysia's on-plan master-franchise build (70 stores), and the early-stage U.S. effort (9 stores), while reiterating that China remains the core and most attractive market.

Q: "Our global expansion has been underway for some time now. How should we evaluate the current progress of overseas expansion, and what's the strategy and plan for the future?"
— Sijie Lin, CICC

A: "In Singapore... after three years of exploration... since the second half of last year, we've achieved stable store-level profitability with the business model largely validated... building on the brand influence established in Singapore, we entered Malaysia in 2025 through a master-franchise model... by year-end, we had opened 70 stores there, achieving our first-year store-opening target."
— Jinyi Guo, Co-founder & CEO

Assessment: The most constructive disclosure of the call. Validated unit economics in Singapore and a working franchise template in Malaysia move international from pure optionality toward a credible, if early, second growth vector. It does not change the 2026 numbers, but it lengthens the runway and supports the long-term franchise argument that underpins the Hold rather than a more negative stance.

What They're NOT Saying

1. A quantified margin-trough and recovery path: Q4 is plainly the trough, but management still will not commit to where store margin bottoms or when it recovers, leaving the most important 2026 modeling input to inference.
2. The underlying organic same-store rate: Was +1.2% a clean read on demand ex-subsidy, or an over-correction into the off-peak? Management did not disaggregate, and it is the crux of the 2026 debate.
3. Any capital return despite the de-rate: With the stock down from its highs, RMB9B of cash, and a relisting ambition, there was again no buyback or dividend, and no explanation of capital-allocation intent.
4. An update on the U.S. relisting: The Q3 commitment went unmentioned and unprompted; the catalyst is dormant for now.
5. Per-cup pricing under competition: The competition answer stayed at the capability level; the specific ASP impact of the low-price coffee war was not addressed.

Market Reaction

• Pre-print setup: LKNCY closed at $37.55 on February 25, up roughly 12% year to date and up about 16% over the trailing 30 days, having recovered well off the late-2025 lows but still below its 52-week closing high of $43.03. The stock entered the print having rallied into it, leaving little margin for a soft number.
• Print-day session (February 26, BMO): Shares gapped down 4.3% to open at $35.93 on the margin and net-income miss, traded in a tight $35.01 to $36.30 band, and closed at $36.28, down 3.4% on the day, on volume of 3.6M versus a 1.8M 30-day average (2.0x).
• Index context: The S&P 500 fell 0.5% on the session, so most of the decline was stock-specific.

A 3.4% drop on a 39% earnings decline is, in its way, a resilient reaction. The market had clearly pre-positioned for a weak Q4 after the explicit Q3 warning, so the print confirmed rather than shocked. The stock gave back part of its 30-day run-up and no more, which says the trough was largely in the price. It is not a capitulation, and it is not relief; it is a market marking time, waiting to see the 2026 normalization that management has promised but not yet delivered.

Street Perspective

Debate: Is +1.2% Same-Store the New Baseline or an Off-Peak Air-Pocket?

Bull view: The optimists argue +1.2% is an artificially depressed off-peak print distorted by the abrupt subsidy withdrawal, that the near-100M customer count proves the demand base is intact, and that same-store recovers as the pickup mix normalizes and easier comps arrive later in 2026.

Bear view: The skeptics counter that +1.2% is closer to Luckin's true organic same-store rate once you strip the subsidy, that the mid-teens prints of 2025 were borrowed, and that a maturing, hyper-competitive market structurally caps same-store growth in low single digits.

Our take: The first half of 2026, lapping the subsidy-inflated 2025 base, will likely show low and choppy same-store numbers regardless, so the debate will not resolve cleanly until the back half. We lean toward a partial recovery, not a return to mid-teens, which keeps us at Hold rather than turning either constructive or negative.

Debate: Does the Full-Year Strength Outweigh the Q4 Trough?

Bull view: Bulls point to FY revenue +43%, net income +22%, a record 8,708 net new stores, the 20,000-self-operated milestone and validated international unit economics, arguing Q4 is one weak quarter inside an exceptional year and the franchise has never been stronger.

Bear view: Bears argue the market prices the forward, not the trailing year, and the forward is a decelerating-revenue, compressed-margin 2026 that the trailing FY numbers flatter and obscure.

Our take: Both are correct on their own terms; the franchise is excellent and the 2026 setup is soft. That tension is precisely a Hold: too good to short, too soft near-term and too richly valued to chase.

Debate: Where Should the Stock Trade Through a Digestion Year?

Bull view: Bulls see the de-rate from the low-$40s as having already discounted the trough, with the relisting option and a 2026 recovery offering upside from here.

Bear view: Bears note that on falling near-term earnings the stock is not obviously cheap, that estimate revisions still point lower into 1H26, and that without a buyback or a relisting timeline there is no near-term catalyst to re-rate it.

Our take: Through a digestion year with no committed catalyst, in-line-with-market performance is the most likely path, which is the definition of our rating. We would upgrade on a confirmed margin trough plus a recovery signal or a concrete relisting timeline, and downgrade only on evidence the same-store reset is structural and permanent.

Model Update Needed

Valuation impact: We maintain our balanced stance. The model now reflects a 2026 digestion year, decelerating revenue, a margin that troughed in Q4 and recovers only partially through the year, and continued strong unit growth. The relisting and a potential capital return are discrete upside options we do not capitalize. The rating moves to Outperform on a visible margin recovery or a concrete relisting timeline, and to Underperform only if 2026 shows the same-store reset is permanent and the franchise's organic growth has structurally stalled.

Thesis Scorecard Post-Earnings

Grading the standing thesis carried from the Q3 recap.

Overall: The thesis is unchanged but the balance shifted toward the bears in the near term: both bear points are now materializing, two bull pillars softened to neutral on the off-peak, and only the category-runway pillar strengthened. The franchise is intact and the full year was excellent; the next several quarters are a digestion period that management has clearly flagged.

Action: Maintain Hold. The trough is anticipated and now visible, the franchise remains elite, and the stock has already de-rated, so there is no case to downgrade into a telegraphed bottom. But with 2026 guided choppy and no fresh catalyst, there is no case to upgrade either. We hold and watch for the margin recovery or a catalyst.