The Chefs’ Warehouse Reports Third Quarter 2023 Financial Results

RIDGEFIELD, Conn., Nov. 01, 2023 (GLOBE NEWSWIRE) -- The Chefs’ Warehouse, Inc. (NASDAQ: CHEF) (the “Company” or “Chefs’”), a premier distributor of specialty food products in the United States, Middle East, and Canada, today reported financial results for its third quarter ended September 29, 2023.

Financial highlights for the third quarter of 2023:

• Net sales increased 33.2% to $881.8 million for the third quarter of 2023 from $661.9 million for the third quarter of 2022.
• GAAP net income was $7.3 million, or $0.19 per diluted share, for the third quarter of 2023 compared to $8.3 million, or $0.21 per diluted share, in the third quarter of 2022.
• Adjusted net income per share¹ was $0.33 for the third quarter of 2023 compared to $0.41 for the third quarter of 2022.
• Adjusted EBITDA¹ was $50.3 million for the third quarter of 2023 compared to $41.0 million for the third quarter of 2022.

“Third quarter business activity improved sequentially within the quarter, following a softer than expected July and August primarily due to the placement of the 4^th holiday and observed higher than anticipated overseas travel. Coming out of the summer season, the demand and pricing environment improved as more typical seasonal trends emerged”, said Christopher Pappas, Chairman and Chief Executive of the Company. “As we moved into September, we saw significant sequential improvement in gross profit margins across our markets and we expect this trend to continue as we move into the fourth quarter and new year. I would like to thank our teams across Chefs’ Warehouse for delivering strong growth in customer acquisition, placement growth and volume growth during the quarter. We remain focused on providing our customers with the highest-quality product and high-touch service as we continue to grow categories, integrate our recent acquisitions, and drive organic growth across domestic and international markets.”

Third Quarter Fiscal 2023 Results

Net sales for the third fiscal quarter of 2023 which ended September 29, 2023 increased 33.2% to $881.8 million from $661.9 million for the third fiscal quarter of 2022 which ended September 23, 2022. Organic sales increased $46.9 million, or 7.1% versus the prior year quarter. Sales growth of $172.9 million, or 26.1%, resulted from acquisitions. Organic case count increased approximately 9.1% in the Company’s specialty category with unique customers and placements increases at 10.8% and 14.2%, respectively, compared to the prior year quarter. Organic pounds sold in the Company’s center-of-the-plate category increased approximately 6.6% compared to the prior year quarter. Estimated inflation was 1.6% in the Company’s specialty categories and 3.1% in the center-of-the-plate categories compared to the prior year quarter.

Gross profit increased approximately 31.6% to $207.7 million for the third quarter of 2023 from $157.8 million for the third quarter of 2022. Gross profit margin decreased approximately 29 basis points to 23.6% from 23.8%. Gross margin in the Company’s specialty category decreased 84 basis points and gross margin decreased 104 basis points in the Company’s center-of-the-plate category compared to the prior year quarter.

Selling, general and administrative expenses increased by approximately 37.9% to $179.6 million for the third quarter of 2023 from $130.3 million for the third quarter of 2022. The increase was primarily due to higher costs associated with compensation and benefits, facility costs and distribution costs to support sales growth in the current quarter. As a percentage of net sales, operating expenses were 20.4% in the third quarter of 2023 compared to 19.7% in the third quarter of 2022.

Operating income for the third quarter of 2023 was $25.5 million compared to $22.1 million for the third quarter of 2022. The increase in operating income was driven primarily by higher gross profit and lower other operating costs, partially offset by higher selling, general and administrative expense, as discussed above. As a percentage of net sales, operating income was 2.9% in the third quarter of 2023 as compared to operating income of 3.3% in the third quarter of 2022.

Income tax expense was $6.8 million for the third quarter of 2023 compared to $3.1 million for the third quarter of 2022. The higher effective tax rate in the third quarter of 2023 was primarily driven by a $2.1 million charge in the current period for return-to-provision adjustments related to prior year returns.

Net income for the third quarter of 2023 was $7.3 million, or $0.19 per diluted share, compared to net income of $8.3 million, or $0.21 per diluted share, for the third quarter of 2022.

Adjusted EBITDA¹ was $50.3 million for the third quarter of 2023 compared to $41.0 million for the third quarter of 2022. For the third quarter of 2023, adjusted net income¹ was $13.7 million, or $0.33 per diluted share compared to adjusted net income of $16.4 million, or $0.41 per diluted share for the third quarter of 2022.

Full Year 2023 Guidance

Based on current trends in the business, the Company is providing full year financial guidance as follows:

• Estimated net sales for the full year of 2023 will be in the range of $3.35 billion to $3.425 billion;
• Gross profit to be between $797.0 million and $812.0 million and
• Adjusted EBITDA to be between $188.0 million and $196.0 million
  

Update regarding Chefs’ Warehouse Capital Allocation plans for 2024 and 2025

• We expect to gradually reduce capital expenditures to approximately 1% of revenue over the next 2 years to facilitate higher free cash flow conversion.
• We are targeting 2.5x to 3.0x net debt to adjusted EBITDA leverage by year-end 2025.
• Our Board of Directors has authorized a 2-year share repurchase program up to $100 million. We are targeting $25 million to $100 million share re-purchase by year-end 2025. The ultimate total repurchased, if any, will depend on our success in expanding our ability to allocate cash towards repurchase via amendment to our Term Loan maturing in 2029, which is currently underway, market conditions and free cash flow generation over the 2-year period.
  

Third Quarter 2023 Earnings Conference Call

The Company will host a conference call to discuss third quarter 2023 financial results today at 8:30 a.m. EDT. Hosting the call will be Chris Pappas, chairman and chief executive officer, and Jim Leddy, chief financial officer. The conference call will be webcast live from the Company’s investor relations website at http://investors.chefswarehouse.com. An online archive of the webcast will be available on the Company’s investor relations website.

Forward-Looking Statements

Statements in this press release regarding the Company’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. The risks and uncertainties which could impact these statements include, but are not limited to the following: our sensitivity to general economic conditions, including disposable income levels and changes in consumer discretionary spending; our ability to expand our operations in our existing markets and to penetrate new markets through acquisitions; we may not achieve the benefits expected from our acquisitions, which could adversely impact our business and operating results; we may have difficulty managing and facilitating our future growth; conditions beyond our control could materially affect the cost and/or availability of our specialty food products or center-of-the-plate products and/or interrupt our distribution network; our distribution of center-of-the-plate products, like meat, poultry and seafood, involves exposure to price volatility experienced by those products; our business is a low-margin business and our profit margins may be sensitive to inflationary and deflationary pressures; because our foodservice distribution operations are concentrated in certain culinary markets, we are susceptible to economic and other developments, including adverse weather conditions, in these areas; fuel cost volatility may have a material adverse effect on our business, financial condition or results of operations; our ability to raise capital in the future may be limited; we may be unable to obtain debt or other financing, including financing necessary to execute on our acquisition strategy, on favorable terms or at all; interest charged on our outstanding debt may be adversely affected by changes in the method of determining the Secured Overnight Financing Rate (“SOFR”); our business operations and future development could be significantly disrupted if we lose key members of our management team; and significant public health epidemics or pandemics, including COVID-19, may adversely affect our business, results of operations and financial condition. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. A more detailed description of these and other risk factors is contained in the Company’s most recent annual report on Form 10-K filed with the SEC on February 28, 2023 and other reports filed by the Company with the SEC since that date. The Company is not undertaking to update any information until required by applicable laws. Any projections of future results of operations are based on a number of assumptions, many of which are outside the Company’s control and should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced projections, but it is not obligated to do so.

About The Chefs’ Warehouse

The Chefs’ Warehouse, Inc. (http://www.chefswarehouse.com) is a premier distributor of specialty food products in the United States and Canada focused on serving the specific needs of chefs who own and/or operate some of the nation’s leading menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores. The Chefs’ Warehouse, Inc. carries and distributes more than 55,000 products to more than 40,000 customer locations throughout the United States and Canada.

Contact:
Investor Relations
Jim Leddy, CFO, (718) 684-8415

1. We are presenting EBITDA and Adjusted EBITDA, which are not measurements determined in accordance with the U.S. generally accepted accounting principles, or GAAP, because we believe these measures provide additional metrics to evaluate our operations and which we believe, when considered with both our GAAP results and the reconciliation to net income, provide a more complete understanding of our business than could be obtained absent this disclosure. We use EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. The use of EBITDA and Adjusted EBITDA as performance measures permits a comparative assessment of our operating performance relative to our performance based upon GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
2. Represents non-cash stock compensation expense associated with awards of restricted shares of our common stock and stock options to our key employees and our independent directors.
3. Represents non-cash changes in the fair value of contingent earn-out liabilities related to our acquisitions, non-cash charges related to asset disposals, asset impairments, including intangible asset impairment charges, certain third-party deal costs incurred in connection with our acquisitions or financing arrangements and certain other costs.
4. Represents duplicate rent and occupancy costs for our Richmond, CA, Miami, FL, Portland, OR and Gibbstown NJ facilities.
5. Represents moving expenses for the consolidation and expansion of our Miami, FL facilities.
   
   

1. We are presenting adjusted net income and adjusted net income per share, which are not measurements determined in accordance with U.S. generally accepted accounting principles, or GAAP, because we believe these measures provide additional metrics to evaluate our operations and which we believe, when considered with both our GAAP results and the reconciliation to net income available to common stockholders, provide a more complete understanding of our business than could be obtained absent this disclosure. We use adjusted net income available to common stockholders and adjusted net income per share, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. The use of adjusted net income available to common stockholders and adjusted net income per share as performance measures permits a comparative assessment of our operating performance relative to our performance based upon our GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
2. Represents non-cash changes in the fair value of contingent earn-out liabilities related to our acquisitions, non-cash charges related to asset disposals, asset impairments, including intangible asset impairment charges, certain third-party deal costs incurred in connection with our acquisitions or financing arrangements and certain other costs.
3. Represents duplicate rent and occupancy costs for our Richmond, CA, Miami, FL, Portland, OR and Gibbstown, NJ facilities.
   
4. Represents moving expenses for the consolidation and expansion of our Miami, FL facilities.
   
5. Represents interest expense related to write-off of certain deferred financing fees and other third party costs related to our credit agreements.
   
6. Represents the adjustments to the tax provision values to normalize our annual effective tax rate on adjusted pretax earnings.
   
   

1. We are presenting estimated EBITDA and Adjusted EBITDA, which are not measurements determined in accordance with the U.S. generally accepted accounting principles, or GAAP, because we believe these measures provide additional metrics to evaluate our currently estimated results and which we believe, when considered with both our estimated GAAP results and the reconciliation to our estimated net income, provide a more complete understanding of our business than could be obtained absent this disclosure. We use EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our performance relative to our performance based upon GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
   
2. Represents non-cash stock compensation expense associated with awards of restricted shares of our common stock and stock options to our key employees and our independent directors.
   
3. Represents rent and occupancy costs expected to be incurred in connection with our facility consolidations while we are unable to use those facilities.
   
4. Represents non-cash changes in the fair value of contingent earn-out liabilities related to our acquisitions, non-cash charges related to asset disposals, asset impairments, including intangible asset impairment charges, certain third-party deal costs incurred in connection with our acquisitions or financing arrangements and certain other costs.
   
5. Represents moving expenses for the consolidation and expansion of our Miami, FL facilities.