HF Foods Group Inc. (HFFG) Earnings

Management highlights

- Overall Industry Context: Broader food service industry continued to face 2025 headwinds of cost pressure and lower customer foot traffic in Q1 2026, with added pressure from rising fuel prices. HF Foods delivered sustained momentum against this challenging backdrop. - Transformation Progress: The company completed key components of its long-term transformation plan across sales, digital infrastructure, and facilities: 1) Consolidated two separate sales call center operations into one unified team as of December 2025, improving sales process control, customer service, consistent pricing, and driving lower sales commission costs already; 2) Completed full ERP implementation, and is now in the system and data optimization phase. The new ERP enables consolidated purchasing across distribution centers for better purchasing efficiency, enhanced route optimization, and SKU recategorization. The next digital phase is development of a custom customer portal to improve transaction visibility and operational efficiency; 3) Completed acquisition of the previously leased Chicago facility, and is expanding cooler and ambient storage capacity as part of its cross-selling organic growth strategy. - Facilities Expansion: The Charlotte facility is structurally complete and awaiting final local government permits, with full operational launch expected in late Q2 or early Q3 2026. This will shorten seafood distribution routes in the Southeast. Phase two of the Atlanta freezer expansion will double cold storage capacity from 10,000 to 20,000 square feet (addressing historical capacity constraints) and is expected to be operational by the end of 2026. These three facility projects are the cornerstone of the company's cross-selling growth strategy for the Southeast and Midwest, with an estimated several hundred million dollars in available organic growth opportunity in these two regions. - M&A Strategy: M&A remains a core growth pillar. HF Foods is the only scaled food service provider focused on the Asian specialty market in the U.S., positioning it as the preferred strategic acquirer in the space. The company is focused on geographic expansion into high-potential markets, capturing synergies, growing its customer base, and expanding product/service capabilities. It remains disciplined and is actively evaluating attractive tuck-in opportunities, with proven experience navigating the tariff landscape that supports successful integration of acquisitions. - Market Position: HF Foods operates in a $50 billion total addressable market with only ~$1 billion in current net revenue, making it the largest player in the Asian specialty distribution space with significant long-term growth runway.

Guidance

Management expects short-term margin pressure to persist through Q2 2026 and potentially into Q3 2026, driven by elevated cost of goods sold and outbound distribution costs from rising fuel prices and lingering impacts of higher post-tariff inventory costs. The Charlotte facility is projected to come online in late Q2 or early Q3 2026, with benefits expected to accrue in the second half of 2026. The Atlanta freezer expansion is expected to be fully operational by the end of 2026. Sales force stabilization after consolidation is largely complete, with full ramp-up of cross-selling capabilities for seafood in the Southeast expected in the second half of 2026. Management reaffirmed its commitment to its existing long-term capital investment and transformation plan, and remains optimistic about M&A opportunities in 2026 and beyond.

Segment performance

HF Foods reports overall net revenue of $312 million for Q1 2026, a 4.5% year-over-year increase. Revenue growth was driven by volume growth and improved pricing in the Seafood segment, plus volume growth in the Commodity segment, partially offset by volume decreases in the Other category. Seafood is the company's largest product category, representing over 40% of annual net revenue at more than $400 million in annual top-line revenue. Gross profit for the overall company was $50.5 million (a 0.8% year-over-year decrease), with gross profit margin of 16.2% (down from 17.1% YoY), due to the higher sales mix of lower-margin seafood and higher landed costs. DS&A expenses were $49.5 million (a $0.3 million YoY decrease), equal to 15.9% of net revenue (down from 16.7% YoY). Adjusted EBITDA for the company was $10.1 million, a 3.8% YoY increase.

Risks & headwinds

- Persistent near-term upward pressure on fuel and other input costs, which cannot be fully passed through to customers in highly competitive markets, creating margin pressure. - Delays in the Charlotte facility's launch timeline are ongoing, as the project is held up waiting for final local government operating permits. - Historical cold storage capacity constraints in Atlanta have limited growth in that market prior to completion of the expansion project. - Larger buffet-style restaurant customers continue to experience sustained lower foot traffic compared to pre-headwind levels. - Short-term margin pressure from the product mix shift toward higher-volume, lower-margin seafood. - Forward-looking results are subject to general macroeconomic uncertainty and tariff impacts that could differ from current expectations.

Analyst Q&A

• Q: How will near-term rising fuel and input cost headwinds impact gross margins, and how much can internal efficiency gains from the new ERP offset these pressures? /

  A: Management expects elevated costs to persist through Q2 and potentially Q3 2026, as higher post-tariff inventory costs that hit in 2025 continue to flow through results. In addition to ERP-enabled efficiencies, the company has already cut occupancy costs via owning the Chicago facility, reduced professional fees, and gained sales operation efficiency from the unified sales center to offset headwinds and deliver year-over-year bottom line improvement.

• Q: Have rising fuel cost pressures on smaller independent food distributors increased the flow of M&A opportunities for HF Foods? /

  A: Management confirmed that inbound M&A inquiries have increased in recent months, as smaller, often family-owned distributors are squeezed by higher inventory and fuel operating costs. This mirrors the pandemic period, when market pressure pushed more small owners to seek exit opportunities, creating a favorable pipeline of attractive tuck-in targets for HF Foods, which is actively evaluating increased opportunity.

• Q: What will be the long-term gross margin and growth impact of the new Charlotte and expanded Atlanta facilities for the Southeast region? /

  A: These facilities are core to the company's cross-selling strategy for frozen seafood, the company's largest product category, which had very limited penetration in the Southeast historically. Once operational, shorter distribution routes will improve efficiency and pricing power versus smaller competitors. Atlanta has already launched new dedicated seafood routes for existing customers, and Charlotte will deliver benefits in H2 2026 once permitting is complete.

• Q: Has rising fuel changed customer foot traffic behavior, and how far along is the sales force consolidation process, and what benefits will it deliver? /

  A: Management reports no material change in overall foot traffic in Q1 2026 or early April, with low foot traffic still limited to larger buffet customers. Cost pass-through is market-dependent, with higher pass-through possible in markets where HF has high market share, and limited pass-through in highly competitive markets. Sales force consolidation is largely complete, with 2026 focused on training for cross-selling seafood to new customers in the Southeast, with full ramp-up expected in H2 2026.