Chefs' Warehouse Inc (CHEF) 2025 Q2 法說會逐字稿

Greetings and welcome to the Chefs' Warehouse second-quarter 2025 earnings conference call. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman and CEO and James Leddy, our CFO. By now, you should have access to our second-quarter 2025 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section.

Throughout this conference call we will be presenting non-GAAP financial measures, including among others, historical and estimated EBITDA and adjusted EBITDA as well as historical adjusted net income, adjusted earnings per share, adjusted operating expenses, adjusted operating expenses of percentage of net sales and as a percentage of gross profit, net debt leverage and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated differently and similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release and second-quarter 2025 earnings presentation.

Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release, others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website.

Today, we are going to provide a business update and go over our second quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on the Chefs' Warehouse website under the Investor Relations section titled second-quarter 2025 earnings presentation. Please note that these slides are disclosed at this time for illustration purposes only, then we will open up the call for questions.

With that, I will turn the call over to Chris Pappas. Chris?

Thank you, Alex, and thank you all for joining our second-quarter 2025 earnings call. Second quarter business activity displayed typical seasonality as revenue and profitability improved across our network. Our operating divisions, domestic and international, delivered strong unit volume and unique item placement growth and managed pricing effectively while providing our customers with high quality product and high value service during the quarter.

I'd like to thank all the Chefs' Warehouse teams from sales, procurement operations to all the supporting functions for their dedication and contribution to a strong second quarter and first half of 2025.

During the second quarter, Chefs' Warehouse achieves the Great Place to Work certification for the fourth consecutive year. We view this certification as recognition of our unique culture and our focus on people as our greatest asset and dynamic and competitive food away from home industry.

All of us at Chefs' Warehouse recognize and give thanks to our customers and supplier partners, their support and confidence in our people, quality, and diversity of products. A high touch flexible distribution platforms continues to drive our company forward. As discussed on our first quarter call, as part of the process of integrating our Hardie's operation in Texas with our legacy, CW specialty and protein operations, we have taken a number of actions to merge our cultures, streamline operations, and drive both top line and bottom-line improvements as we make progress creating the Chefs' Warehouse model in Texas.

This has included the attrition of a non-core commodity protein program during the first quarter and the subsequent elimination of a non-core specialty produce processing and packaging program early in the second quarter. These actions are aimed at creating distribution capacity for specialty category and customer growth, operating cost efficiency, and improved profitability as we continue to scale in the Lone Star State. As such, given these non-core programs were high case and pounds volumes, we will present price and volume metrics as reported and also excluding the impact of these changes to present more representative year-over-year price inflation and volume change for our business overall.

With that, please refer to slide 3 of the presentation. A few highlights from the second quarter include 8.4% growth in net sales. Specialty sales were up 8.7% over the prior year, which was driven by unique customer growth of approximately 3.6%, placement growth of 8.7%, and reported specialty case growth of 3.5%. Excluding the elimination of the Texas Produce Processing and Packaging Program, specialty case growth was 5.8% versus the prior year quarter. Pounds in Center-of-Plate were approximately 4.0% lower than the prior year second quarter, excluding the attrition related to the Texas commodity protein program, Center-of-Plate pounds growth was 5.8% higher than prior year second quarter.

Gross profit margins increased approximately 59 basis points. The gross margin in the specialty category increased approximately 59 basis points as compared to the second quarter of 2024, while gross margin in the Center-of-Plate category increased to approximately 56 basis points year-over-year. Jim will provide more details on gross profit and margins in a few moments.

Now please refer to slide 4 for an update on certain of our operating metric improvements. In summary, chart one shows continued improvement in gross profit dollars per route. Second quarter 2025 trailing 12 months was 2.8% higher versus full-year 2024 and 36.2% higher than 2019. Chart two shows second quarter 2025 trailing twelve-month adjusted operating expense as a percentage of gross profit dollars improvement by 69 basis points versus full-year 2024 and 160 basis points versus 2019. Second quarter of 2025 trailing twelve-month adjusted EBITDA per employee increased 7% versus full-year of 2024 and 26% versus 2019.

With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?

Thank you, Chris. Good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity. Please refer to slide 5. Our net sales for the quarter ended June 27, 2025, increased approximately 8.4% to $1.035 billion from $954.7 million in the second quarter of 2024. Net inflation was 7.2% in the second quarter, consisting of 5% inflation in our specialty category and 10.8% inflation in our center-of-plate category versus the prior year quarter.

Reported inflation was impacted by two primary factors in the second quarter versus the prior year quarter. Center-of-plate inflation was impacted by the commodity poultry program attrition in 2025, excluding this attrition impact, net inflation in center-of-plate category was 4.1% versus the reported 10.8%. Continued growth in specialty cross sell as we further integrate CW and Hardie's results in elevated reported specialty second quarter inflation. Excluding this impact, specialty inflation was approximately 2.3%, and overall inflation for the company was approximately 3% versus the prior year quarter.

Gross profit increased 11.1% to $254.3 million for the second quarter of 2025 versus $229 million for the second quarter of 2024. Gross profit margins increased approximately 59 basis points to 24.6%. Selling general and administrative expenses increased approximately 9.7% to $213.8 million for the second quarter of 2025 from $194.8 million for the second quarter of 2024. The increase was primarily due to higher costs associated with compensation and benefits to support sales growth, higher depreciation driven by facility and fleet investments, and higher self-insurance related costs.

Adjusted operating expenses increased 9.3% versus the prior year second quarter, and as a percentage of net sales, adjusted operating expenses were 18.25% for the second quarter of 2025. Operating income for the second quarter of 2025 was $40.2 million compared to $33.9 million for the second quarter of 2024. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling general and administrative expenses versus the prior year quarter.

Our GAAP net income was $21.2 million or $0.49 per diluted share for the second quarter of 2025 compared to net income of $15.5 million or $0.37 per diluted share for the second quarter of 2024. On a non-GAAP basis, we had adjusted the EBITDA of $65.4 million for the second quarter of 2025 compared to $56.2 million for the prior year's second quarter. Adjusted net income was $22.5 million or $0.52 per diluted share for the second quarter of 2025 compared to $17 million or $0.40 per diluted share for the prior year's second quarter.

Turning to the balance sheet and an update on our liquidity, please refer to slide number 6. At the end of the second quarter, we had total liquidity of $260.3 million comprised of $96.9 million in cash and $163.4 million of availability under our ABL facility. During the second quarter, we repriced our $253.5 million term loan maturing in 2029, reducing the coupon from term SOFR plus a fixed spread of 3.5% to term SOFR plus a fixed spread of 3%.

In addition, during the quarter, we repurchased approximately 160,000 shares under our $100 million authorized buyback program. To date, repurchases total approximately $27 million of equivalent shares inclusive of shares were purchased in 2024 and 2025. As of June 27, 2025, total net debt was approximately $544.1 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 2.3 times.

Turning to our full year guidance for 2025, based on the current trends in the business, we are raising our full year guidance as follows. We estimate the net sales for full year 2025 will be in the range of $4 billion to $4.06 billion, gross profit to be between $964 million and $979 million and adjusted EBITDA to be between $240 million and $250 million. Please note, for the full year 2025 we expect the convertible notes maturing in 2028 to be diluted and therefore we expect the fully diluted share count to be approximately 46 million to 47 million shares.

Thank you. And at this point we'll open it up to questions, operator.

(Operator Instructions)

Mark Carden, UBS Investment Bank.

So I want to start on the underlying health at the restaurant level. You continue to see solid growth despite some of the traffic challenges the broader industry continues to face. You're in market demographic, yeah, it's of course it's a little bit different from the industry, but are you seeing any pockets of weakness or elevated restaurant closures within really any of the channels in which you operate? Or has it been pretty resilient across the board?

Yeah, I mean, I think there's always a little choppiness somewhere, but overall, we're really pleased with what we're seeing and our team's ability to continually take more market share in our markets that we've invested heavily over the past 10 years in infrastructure and our salespeople and technology. So I think it's Goldilocks for us.

I think overall our customers are doing pretty well, and we have a constant new customer base that brings in a lot of volume. And our customers that like to use all parts of Chefs' Warehouse, all our divisions, which is really our mission right now, we want to be where the chef shops and we're offering more and more categories. And I think that we're benefiting from -- I think our customer base is a little more resilient, so I think it's like the Goldilocks from customers are doing pretty well. We're taking more market share, and we continue to harvest our investments.

Makes sense. And then we continue to see a greater push for return to the office policies really across the country. Have you guys seen much of a corresponding uplift yet on business dining at this stage?

I think, to me, I think it's a net ad, but I always say you can't eat the same meal twice. So if you're going into the office, you're not eating locally where you were working or living or getting your food from before. So I think the back to the office is helping with more of the lunch business in the major cities and I think bringing people out, more Friday dinners that we were seeing. But I think it's still balanced to us. It's -- if you're commuting to the city, you're taking away cash from your local markets, so I don't think it's a big thing that we're focused on.

Alexander Slagle, Jefferies.

How's the the summer travel changes and then to the degree anything has changed. How's that impacting demand and I know that the foreign travel to New York and maybe tourism to some of the other big cities is reportedly down, but kind of curious what you're seeing on that front.

Yeah, I would say that, the last couple of years, July, especially, maybe a little bit in early August, surprised us a little bit to the downside based on the -- what appeared to be the extreme over tourism happening in Europe. People were spending their restaurant dollars in Lisbon, Paris, and Madrid, and not in New York City and San Francisco.

But I think, we had a pretty good July this year came in -- coming in really close to what we expected, maybe even a little bit better. So I don't know whether that is changing a little bit but the summer is July and August are seasonally slow, especially in the big cities. You get the shore business that pumps up and we are seeing that, but I don't know whether it's a change or whether maybe a little bit of that over tourism is getting a little tired.

Yeah, I think it's getting back to what I call it normality, Alex. I think coming out of COVID, I said we probably need four or five years to see what's the new normal and the craziness with travel and the Amalfi Coast and Barcelona signs, tourists go home. I think it's getting a little more balanced.

We were cautiously optimistic going into the summer and I think we're pretty pleased what we saw. I think from my seat, I was really pleased. I was a little more nervous about June, July, and I think it's coming in pretty strong. So we're cautiously optimistic that our higher level customer, the price points, a little more insulated and tourism is down for sure places like Vegas and some other parts that we're here, but other areas, they're up 120%. So I think it's a rebalancing.

And I had a follow up on the Hardie's planned nutrition, just trying to get an idea of what magnitude we should think about in terms of the headwind on reported case growth and pounds as we look ahead to the third quarter just -- should it be similar to what we saw in the second quarter, and I know you said the specialty attrition, the produce piece had started during the 2Q, so I didn't know if that was early on in the 2Q or midway or trying to get a feel for that.

Yeah, I would expect so. The protein, the large commodity poultry program, that kind of started midway through the first quarter, so the impact was less. We did call it out when we reported first quarter, but it was less than the impact on the -- in the second quarter. So our reported center played pounds down 4%, but excluding that program up almost 6%. So that was a very high-volume program, almost 10% of our total pounds for the quarter and for the year.

So we'll continue to call that out until we lap it, which with both programs, we won't fully lap them until the second half of next year. So we'll continue to just call it out as these are highly transactional, high volume, low dollar, low margin programs but getting rid of them will make us a more profitable company. It already -- we're already starting to see some of the benefits and taking some of the cost out and the distribution and operational benefits.

So -- but it'll continue to impact the reported volume numbers and price numbers. We'll have to adjust both.

Yeah, Alex, I mean, the way we look at it and I think it's the way you should look at it, trying to analyze the strength of the business is it's just carving out a chunk, and we've done this over the last -- we've done it over 40 years, but since we had a lot of acquisitions over that period of time and I've called out that -- we're buying companies because we think they're really good companies and they've got great people and they give us a territory or category, but there's chunks of it that it's not what Chefs' Warehouse done and it's a matter of time before we can cycle it out and we did that. New England was the best example, I think, with what we what we saw and happened at Sid Wainer, we shrunk them almost 50% and then we regrew them. And they have the profit levels of a typical Chefs' Warehouse, and that's what's happening in Texas.

It's a small part of our business, so I don't like to spend that much time on it, but just to give you the insights, the team is performing there, it's a long-term business plan we have there. They're meeting our expectations. They are profitable. They continue to become more profitable, and this is a natural shedding of business that doesn't really fit into Chefs' Warehouse.

So as we continue to grow that market and we look to see our facilities and how to get more of the blend of Chefs' Warehouse into Hardie's, over time it's going to look more and more like New England, and I would say now we're probably in the second inning. We were in the first inning, tremendous upside is coming.

And just the specialty cases that impact that was sort of the full quarter impact that we saw in the second quarter, so maybe see similar magnitude?

Yes, we exited that program in April so it covered almost the entire quarter.

Todd Brooks, Benchmark Company.

Hey, congrats on really strong results you've been accounting for the Hardie's exits and I have a question on Hardie's kind of following up on what Alex was asking about -- is the right way to think about this. It looks like with the pricing benefits from an inflation standpoint, one being just the kind of Hardie's cross sell that you sized.

It seems like from a profitability standpoint or a pricing net volume standpoint, it's flattish to slightly positive in specialty and probably a 300 basis point drag from a sales standpoint for center-of-plate. Part of that obviously requires the inflation outlook to kind of hold with what you've seen in the first half. So Jim, I was wondering about second half inflation outlook in general and are these the type of drags if we're modeling both case impacts and pricing impacts for the Hardie's exit for the next couple of quarters to frame it up with. Thanks.

I think the best way to answer that is really just to point to the aggregate inflation environment excluding these product mix changes that are happening because of the transition that Chris just very nicely articulated. A reported aggregate inflation was 7.2%, but if you exclude the two programs that we're trading out of, it's 3%, and it's 2.3% on the specialty side and 4% on the center-of-plate, the year-over-years. And so, that's the environment that we're seeing for 95% of our business when you're excluding these two programs that are just highly transactional and not part of what we really do.

So I would just say that that's what we expect really for the remainder of the year. I don't think there's anything we see other than potential unforeseen impacts from tariffs that nobody really knows what the impact will be yet. I mean, we've modeled what we think and we think it's going to be at most low single-digit impact on aggregate year over year inflation, but I would just mention that sequential inflation has been very moderate, actually, specialty and produce have been slightly deflationary sequentially versus the first quarter and center-of-plate has been slightly inflationary versus the first quarter. So I think that's the best way to frame how we're thinking about price and inflation for the remainder of the year.

Peter Saleh, BTIG.

I want to ask about the gross margin. I know there's a lot of moving parts here, but I mean gross margin was 50 basis points stronger than what we anticipated, and I think the best number that you guys have posted in about six years. So just trying to understand is this the new level of gross margin, or is there a lot of moving parts here with some of this inflation noise and the Hardie's business if you could just help us parse that out that'd be helpful.

Yeah, thanks for the question, Pete. Yeah, I think you're saying that it's a lot of moving parts is a good way to characterize it. There's the noise from the Hardie's transformation. Which are very low margin type of businesses, so that's bringing up a little bit of the year-over-years, but I would say that the major part of it is if you were to go to that -- the waterfall we put out on our 2028 goals and the initiatives under each of those areas in terms of pricing and procurement, our digital platform growth and how that's contributing, our operating units and they're implementing the select prime technology to reduce inventory damages and returns, et cetera.

We're in the early innings, a lot of the benefits from those things, but we're starting to see them and all of those things coming together have started to contribute to the gross profit dollar growth and margin improvement. I will remind you that gross profit margins are an output, so in a different inflationary or deflationary environment, if you -- as long as you're focusing on gross profit dollars per unit, per pound per drop, per truck, et cetera.

You can get the gross profit dollar growth that you need to drive EBITDA growth and the margins will move around within a range and that's pretty typical.

And then just -- I know you mentioned tariffs, have you -- is it fair to say that you haven't seen any impact yet from tariffs but are expecting something in the back end of the year?

No, we've seen impact. Remember, I mean, he hit the -- most of what we import is from the EU and that was slapped with 10% months ago, right? So announcing now it's 15% and we still don't know what the exclusions are going to be. We're expecting exclusions, products that don't grow here, we think they're probably not going to get as tariff or tariffs, so we definitely saw an increase in certain categories.

And like Jim says, it's not -- you're not tariffing the freight, you're not tariffing a lot of the other input costs that go into the total price. So we did see a few points of inflation. So I think we took that hit and it's probably a little bit more, but we've also had a lot of deflation in product lines. So something like chocolate that went through the roof has come down some, olive oil went through the roof, that price has come down. Produce has been deflationary, the whole bird flu is that thing figures itself out. You have deflation.

So at the end of the day it's kind of moderate, we're modeling in the moderate inflation sequentially that we're reporting right now. We don't see anything big on the horizon.

I would just add, Pete, that we have a bit of a natural advantage given our business model. We have 130-plus different types of olive oils in our distribution centers. So our diversity of product and the amount of skews that we carry for each category give us a little bit of an advantage from a substitution and alternative perspective. So just wanted to add that.

(Operator Instructions)

Kelly Bania, BMO Capital Markets.

Wanted to just ask about your outlook here for the second half, and the first half's been quite strong. It seems like the momentum, the seasonality all continues, but I guess the guidance kind of assumes a slowdown in the top line and the EBITDA growth.

So I was just wondering if you can help us understand if that's just conservatism or is there anything to to call out specifically that we should think about modeling for the second half.

Thanks Kelly. Now, most of it is based on the strength of the second half last year. So as we got into September in the fourth quarter of last year, we had really strong performance. So as we went in, we built our guidance and our plan for this year. We understood that there was going to be a little bit of imbalance between the first half of the year and the second half of the year, but what I would say is it's really not a commentary on what we expect for the second half or the full year guidance if you take the mid to the top end of the range, which we feel pretty good about.

You're talking about a typical type of percent of revenue or percent of EBITDA based -- comparing the second half to the first half that we have in a typical Chefs' Warehouse here based on seasonality. So I think it implies 6% revenue growth in the second half on top line, EBITDA growth of close to 14%. And that gets us to a full year, 6.5% to 7%, which is top line growth implied, which is the top end of our medium to long term growth algorithm. So -- and it implies really strong operating leverage. I think our operating leverage in the first half was about 200 basis points and it implies a full year similar. So no, I think it's just more about the comp to last year than it is anything about what we expect this year.

Okay, that's helpful, fair enough. Also wanted to ask, I know there's been a lot of questions about the Hardie's and the planned attrition, but I guess the placement growth is one item that I don't think would be negatively impacted by that. It would seem that's indicative of kind of some really strong cross-selling and so, some success with that. Can you elaborate on that and just what you're learning as you do that cross-selling with the Hardie's business in the Texas region?

Yeah, well, again, so turn the clock back a little bit. We bought Hardie's, great people, great company, not a Chefs' Warehouse, so we knew that we were going to use it at base to really expand and ultimately build a $500 million CW business across Texas and it was all based on cross selling, right? So we took a produce provider with lots of routes and we took some specialty businesses. We opened up in Allen Brothers in Texas, which was a tremendous feat by our team to get a green field going. And all that is feeding, so CW's specialty.

So the growth, if I laid out the 5-year plan, I mean we have a 10-year plan, is to continue to grow Hardie's like a Chefs' Warehouse. So negativity part in dropping, certain clientele that lots of volume but not the kind of business Chefs' Warehouse does, right? And then refilling up those routes with more Chefs' Warehouse type accounts, more of the independents, more of the higher quality restaurants throughout Texas, all the groups that we serve. So the mix is going to come in waves, Kelly, with protein boxes, produce boxes, and a specialty and broad line.

So it's going to be a little muddy, but again, I think I said earlier we're probably in the second inning. We've made the business more profitable. It continues to become more profitable every day and the mix is going to be muddy. I don't know if we have a lot more shedding to do of -- we call it non-CW business, right? We've done a lot.

So at this point it's really turning on the faucet. We continue to hire salespeople and we're selling more and more of the Chefs' Warehouse boxes, but the exact numbers, it's going to be a little muddy.

Okay, no, that's helpful. Also just starting to get the question from more investors just about M&A obviously, you've been kind of on pause here for I believe about maybe two years, but are you thinking of restarting that? Is there anything in the pipeline, maybe just help us understand where the thought process is on future M&A at this point?

Yeah, I mean, I think we've always been opportunistic except for CME. In the Middle East, there's been nobody really like a Chefs' Warehouse to buy, so we're always having to buy someone who we think we can Chefasize. And maybe gives us a category we need or a territory like Hardie's. It was the way to get into Texas. So we're constantly looking at deals. I mean, my desk has 20 deals on it all the time. It's just a matter of valuations. We thought valuations were too high for a while coming out of COVID for the type of businesses that they were and there's always an outlier. There might be something that's really great and interesting that we haven't seen, so we'd be interested in that.

But right now, I think there's small things we can do, some tuck in acquisitions to the facilities that we've built that have lots of capacity because we don't want to eat up all that capacity as soon as we've invested all that money to be able to organically grow the market. So I think the crystal ball would say there's going to be a few points a year of foldings to feed our -- I think we're having tremendous organic growth right now from all our investments.

So I think you're going to see a combination of that over the next few years and like Jim said, we feel really good and strong about the plan we put out till 2028, which gets us EBITDA percentage way over 6% and just filling up the capacity that we've had and also finishing a few of the markets that we've entered while we look at some of the markets to complete us as a national footprint, there's a few markets that we're still looking to get into.

Elle Niebuhr, Lake Street Capital Markets.

I was wondering if you could touch base on your 2028 goals and relate them to the strong results you've seen in the first half of the year.

Are any of the catalysts that you've laid out in your 2028 goals contributing to the positive results today or do you still kind of view them as ambitions?

Yeah, I think I mentioned earlier when we were talking about the gross profit margin and gross profit dollar improvement that if you go to that -- you just go to some of the initiatives we laid out in that waterfall, it's actually in the appendix of the presentation that we posted for today's call on our website, everything from what our procurement and pricing teams and category management teams are doing on predictive demand forecasting, working with our suppliers through issues like tariffs and all of the route consolidation that we're doing.

I talked about Select Prime and that technology process that our operators have implemented to improve our inventory management, and then I can't say enough about our digital growth. We're at right around 60% of our specialty, orders and sales are coming through our digital platform. We have roughly 40% growth in orders versus the prior year. So all of that is contributing as well as the continued progress on acquisition, integration, and growth. Our Chefs' Middle East businesses firing on all pistons and doing really well. We've talked a lot about Texas and some of the things we're doing there.

So we're in the early innings in a lot of those initiatives, but they -- many of them have definitely contributed to the success in the first half.

Thank you. At this time, there are no further questions, and I would like to turn the call back over to Chris Pappas, CEO, for closing comments.

Well, we thank everyone for joining us today and congratulations again to our team for a great quarter and all their hard work and as core New Yorkers too, we'd like to say that our hearts and prayers are out to devastating nightmare, the insane loss of life that New Yorkers have have seen this week with the attack in the office building in New York. So our prayers are out for those families and we look forward for everybody joining us on our next earnings call. Thank you very much.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.