Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Chefs' Warehouse Inc (CHEF, Financial) reported a strong 7.2% organic growth in net sales for the second quarter of 2024.
- Specialty sales increased by 7.5% organically, driven by unique customer growth of approximately 8.2% and placement growth of 11.3%.
- Gross profit margins improved by approximately 35 basis points, with the specialty category seeing a 50 basis point increase.
- The company has made significant infrastructure investments, adding approximately 1 million square feet of distribution capacity since 2019.
- The Chefs' Warehouse Inc (CHEF) has increased its sales force by approximately 10% per year since 2021, with even higher growth in key markets like Florida and California.
Negative Points
- Selling, general, and administrative expenses rose by 8.8% due to higher depreciation, amortization, and costs associated with supporting sales growth.
- The company faces risks and uncertainties that could cause actual results to differ materially from expectations, as highlighted in their forward-looking statements.
- Net inflation was reported at 3.3% in the second quarter, with the center-of-the-plate category experiencing 4.3% inflation.
- The company is experiencing some moderation in demand or volume, particularly during the summer months.
- The Chefs' Warehouse Inc (CHEF) is still working towards achieving its year-end 2025 capital allocation goals, with a current net debt to adjusted EBITDA ratio of approximately 3.2 times.
Q & A Highlights
Q: Can you discuss the case growth opportunity for the back half of the year and the drivers that give you confidence in continuing organic case growth?
A: Christopher Pappas, CEO, mentioned that their clientele had a strong second quarter and expects a typical summer pattern with a resurgence in September. They are confident due to investments in hybrid sales, increased sales teams, and warehouse capacity. They are winning in new restaurant openings, which compensates for any headwinds in customer counts.
Q: Could you provide insights on the potential cadence of margin leverage in the back half of the year?
A: James Leddy, CFO, explained that the guidance implies a deceleration in organic revenue growth due to tougher comparisons from last year. The margin issue last year was driven by protein markets, not volume, and they expect a more typical pattern this year.
Q: Are there any geographic disparities in performance across your customer base?
A: Christopher Pappas noted no significant disparities across regions. While some higher-end steakhouses have seen a trade-down effect, international markets and several domestic markets are performing well. They continue to add customers in regions like Southern California and Florida, offsetting any softness in same-store sales.
Q: How are new restaurant openings impacting your business, and do you expect this trend to continue?
A: Christopher Pappas believes that new restaurant formations will continue due to changing real estate dynamics and consumer behavior. Developers are building restaurants to attract people to new areas, and there is a proliferation of new types of food outlets, which supports continued growth.
Q: Can you elaborate on the impact of beef prices on your business and any forward-looking outlook?
A: James Leddy stated that beef prices have not increased as much as expected, with recent moderation in prices. Christopher Pappas added that while there is some substitution from steaks to burgers, demand for premium steaks remains strong. They offer various cuts and sizes to meet customer needs and maintain profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
