• Net Sales: Increased 5.6% to $931.5 million from $881.8 million in Q3 2023.
• Gross Profit: Increased 8.2% to $224.7 million from $207.7 million in Q3 2023.
• Gross Profit Margin: Increased approximately 58 basis points to 24.1%.
• Operating Income: Increased to $31.9 million from $25.5 million in Q3 2023.
• GAAP Net Income: $14.1 million or $0.34 per diluted share, up from $7.3 million or $0.19 per diluted share in Q3 2023.
• Adjusted EBITDA: $54.5 million, up from $50.3 million in Q3 2023.
• Adjusted Net Income: $15.4 million or $0.36 per diluted share, compared to $13.7 million or $0.33 per diluted share in Q3 2023.
• Total Liquidity: $221.3 million, including $50.7 million in cash and $170.6 million of availability under ABL facility.
• Net Debt: Approximately $651 million, with net debt to adjusted EBITDA at approximately 3.1 times.
• Full Year 2024 Guidance: Net sales estimated between $3.710 billion and $3.775 billion; Gross profit between $890 million and $906 million; Adjusted EBITDA between $210 million and $219 million.

• Warning! GuruFocus has detected 5 Warning Sign with CHEF.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The Chefs' Warehouse Inc (NASDAQ:CHEF) reported a 5.6% organic growth in net sales for the third quarter of 2024.
• Gross profit margins increased by approximately 58 basis points, with specialty and center-of-the-plate categories showing significant improvements.
• The company achieved a strong year-over-year growth in unique item placements, enhancing customer relevance.
• Digital platform investments have led to increased online order adoption, with 54% of customers ordering online in Q3 2024 compared to 48% in 2023.
• The company has engaged a global consulting firm to drive top-line and bottom-line improvements, targeting annual incremental margin gains.

Negative Points

• Softer demand in July, partly due to Hurricane Beryl, impacted third-quarter revenue growth by approximately 1%.
• Selling, general, and administrative expenses increased by 7.4% due to higher depreciation, amortization, and costs associated with compensation and facilities.
• The integration of acquisitions like Hardee's is diluting overall EBITDA margins by about 20 to 25 basis points.
• The company continues to shed non-core, lower-margin business, which may impact top-line growth.
• The industry faces challenges with traffic and demand, particularly in the restaurant sector, which could affect future growth.

Q & A Highlights

Q: Can you provide insights into any additional pockets of softness that emerged for Chefs' Warehouse in Q3, or was it steady compared to recent quarters? A: James Leddy, CFO: We experienced a slight dip in July due to international travel trends, which may now be the new normal. This cost us about 1% on the top line for the quarter. However, our teams drove strong gross profit dollar growth and continued to take market share, offsetting some of the softness. Trends improved into September and continued into October.

Q: Have you seen any shifts in the salesperson hiring environment, particularly in competition for top talent? A: Christopher Pappas, CEO: We continue to hire and build our bench. It takes years to train qualified salespeople, and we focus on maintaining a strong team. Our salespeople are relationship managers, and we don't see much turnover. We are always looking to bring in new talent to support growth.

Q: How is the integration of Hardee's impacting overall EBITDA margins, and what progress has been made in cross-selling? A: James Leddy, CFO: Hardee's dilutes our EBITDA margin by about 20 to 25 basis points. We expect to recover this as we integrate the business over the next couple of years. We've made progress in operational efficiency and cost reduction, and we're integrating Hardee's with our specialty and protein businesses in Texas.

Q: Can you provide more detail on the route consolidation initiative and its impact on margin expansion? A: Christopher Pappas, CEO: Route consolidation is part of our ongoing efforts to improve efficiency. As we build larger warehouses and increase volume, more gross profit drops to the bottom line. We continue to shed non-core, low-margin business to focus on profitable growth.

Q: What are your expectations for inflation in the fourth quarter and into 2025? A: James Leddy, CFO: We expect organic revenue growth of 6% to 7% for the full year, with no significant changes anticipated for the fourth quarter. Inflation in the specialty category was driven by chocolate and dairy products, but we expect similar trends to continue into the next quarter.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.