Chefs' Warehouse, Inc. Q3 FY2024 earnings call

• Business and demand trends improved sequentially through the third quarter, with customer activity accelerating into the latter half and momentum continuing into October.
• Operating divisions across domestic and international markets delivered strong growth in gross profit dollars and margin, and progress in increasing relevance with the customer base.
• Engaged a global consulting firm to assist in driving top line and bottom-line improvements to target annual incremental margin gains.
• Progressed in route consolidation initiatives, including eliminating routes and transfers in certain markets, with completion of Northern California protein processing and distribution consolidation expected by Q1 2025.
• Investments in digital platforms continued, with approximately 54% of customers ordering through domestic specialty locations online as of Q3 2024, up from 48% in 2023 and 20% in 2019.
• Combined Texas operations saw year-to-date 2024 EBITDA margin improve approximately 110 basis points versus the same period in 2023.

Net sales for the quarter ended September 27, 2024, increased approximately 5.6% to $931.5 million from $881.8 million in the third quarter of 2023. Specialty sales were up 7.5% organically over the prior year, driven by unique customer growth of approximately 4.7%, placement growth of 10.8%, and specialty case growth of 3.1%. Organic pounds in center-of-the-plate were approximately 1% higher than the prior year third quarter. Gross profit margins increased approximately 58 basis points, with gross margin in the specialty category increasing approximately 50 basis points and in the center-of-the-plate category increasing approximately 45 basis points year-over-year.

• Full year 2024 net sales estimated in the range of $3.710 billion to $3.775 billion.
• Full year 2024 gross profit expected to be between $890 million and $906 million.
• Full year 2024 adjusted EBITDA expected to be between $210 million and $219 million.
• Convertible notes maturing in 2028 are expected to be dilutive in the fourth quarter and full year 2024, with fully diluted share count approximately 45 million shares for those periods.

• Forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from expectations.
• Risks mentioned in the earnings release and discussed in annual reports on Form 10-K and quarterly reports on Form 10-Q, available on the SEC website.

Q: Mark Carden asked about traffic challenges and salesperson hiring A: James Leddy said there was a blip in July due to international travel, and Christopher Pappas said they continue to hire as training qualified salespeople takes time Q: Alexander Slagle asked about Texas business margin and cross selling A: James Leddy said Hardee's dilutes overall EBITDA margin by ~20-25 basis points, and Christopher Pappas talked about cross selling and taking market share through investments Q: Andrew Wolf asked about margin expansion cadence and progress A: James Leddy said they aim for 20-25 basis points of adjusted EBITDA margin improvement annually, and Christopher Pappas discussed investments in systems and capacity leading to margin expansion Q: Kelly Bania asked about margin expansion contributors and restaurant openings A: Christopher Pappas talked about margin expansion from various initiatives including route consolidation and disciplined shedding of low-margin business, and said core customers are performing well with restaurant openings continuing Q: Todd Brooks asked about consulting firm impact and holiday feedback A: Christopher Pappas said the consulting firm provides outside perspective on projects, and he noted positive holiday tone with customers booking less far ahead Q: Peter Saleh asked about market differences and acquisitions A: Christopher Pappas said mature markets are one-stop shops, and James Leddy said margin expansion is based on organic growth with acquisitions opportunistic Q: Ben Klieve asked about lower margin business rationalization impact A: James Leddy and Christopher Pappas discussed that attrition of lower margin business contributes to margin expansion, with examples from past acquisitions like New England