The Chefs' Warehouse, Inc. Q2 FY2025 earnings call

• Second quarter business activity showed typical seasonality with revenue and profitability improvement across the network. - Achieved Great Place to Work certification for the fourth consecutive year. - Integrated Hardie's operation in Texas, including eliminating noncore commodity protein and produce processing/packaging programs to drive efficiency. - Key highlights: 8.4% growth in net sales, specialty sales up 8.7%, gross profit margins up 59 basis points, and improvements in operating metrics like gross profit dollars per route and adjusted operating expense as a percentage of gross profit.

Net sales for the quarter ended June 27, 2025, increased approximately 8.4% to $1.035 billion from $954.7 million in the second quarter of 2024. Specialty sales were up 8.7% over the prior year, driven by unique customer growth of approximately 3.6%, placement growth of 8.7%, and reported specialty case growth of 3.5%. Excluding the elimination of the Texas produce processing and packaging program, specialty case growth was 5.8% versus the prior year quarter. Pounds in center-of-the-plate were approximately 4.0% lower than the prior year second quarter, but excluding the attrition related to the Texas Commodity Protein program, center-of-the-plate pounds growth was 5.8% higher. Gross profit increased 11.1% to $254.3 million for the second quarter of 2025 versus $229 million for the second quarter of 2024, with gross profit margins increasing approximately 59 basis points to 24.6%.

• Raised full year 2025 guidance: net sales estimated in the range of $4 billion to $4.06 billion, gross profit between $964 million and $979 million, and adjusted EBITDA between $240 million and $250 million. - Expect the convertible notes maturing in 2028 to be dilutive, with fully diluted share count expected to be approximately 46 million to 47 million shares.

• Impact of noncore programs on reported volume and price numbers, as these programs were high in case and pounds volumes. - Potential tariff impacts, with some categories already seeing inflation due to tariffs and uncertainty around exclusions. - General risks associated with forward-looking statements, including uncertainties that could cause actual results to differ from expectations.

Q: So I want to start on the underlying health at the restaurant level. You continue to see solid growth despite some of the traffic challenges the broader industry continues to face. Your end market demographic, of course, it's a little bit different from the industry. But are you seeing any pockets of weakness or elevated restaurant closures within really any of the channels in which you operate? Or has it been pretty resilient across the board?

A: Yes. I mean I think there's always a little choppiness somewhere. But overall, we're really pleased with what we're seeing. And our team's ability to continually take more market share in our markets that we've invested heavily over the past 10 years in infrastructure and our salespeople and technology. So I think it's Goldilocks for us. I think overall, our customer is doing pretty well, and we have a constant new customer base that brings in a lot of volume and our customers that like to use all parts of Chefs' Warehouse, all our divisions, which is really our mission right now. We want to be where the chef shops, and we're offering more and more categories. And I think that we're benefiting from -- I think our customer base is a little more resilient. So I think it's like the Goldilocks from customers are doing pretty well. We're taking more market share, and we continue to harvest our investments.

Q: How is the -- like, the summer travel changes and then to the degree anything has changed, how is that impacting demand? And I know that the foreign travel to New York and maybe tourism to some of the other big cities is reportedly down, but kind of curious what you're seeing on that front.

A: Yes. Thanks for the question, Alex. Yes, I would say that the last couple of years, July, especially maybe a little bit in early August, surprised us a little bit to the downside based on what appeared to be the extreme over tourism happening in Europe. People were spending their restaurant dollars in Lisbon, Paris and Madrid and not in New York City and San Francisco. But I think we had a pretty good July this year, coming in really close to what we expected, maybe even a little bit better. So I don't know whether that is changing a little bit. But the summer is -- July and August are seasonally slow, especially in the big cities. You get the shore business that pumps up, and we are seeing that. But I don't know whether it's a change or whether maybe a little bit of that over tourism is getting a little tired.

Q: How is the -- like, the summer travel changes and then to the degree anything has changed, how is that impacting demand? And I know that the foreign travel to New York and maybe tourism to some of the other big cities is reportedly down, but kind of curious what you're seeing on that front.

A: Yes. Thanks for the question, Alex. Yes, I would say that the last couple of years, July, especially maybe a little bit in early August, surprised us a little bit to the downside based on what appeared to be the extreme over tourism happening in Europe. People were spending their restaurant dollars in Lisbon, Paris and Madrid and not in New York City and San Francisco. But I think we had a pretty good July this year, coming in really close to what we expected, maybe even a little bit better. So I don't know whether that is changing a little bit. But the summer is -- July and August are seasonally slow, especially in the big cities. You get the shore business that pumps up, and we are seeing that. But I don't know whether it's a change or whether maybe a little bit of that over tourism is getting a little tired.

Q: Congrats on a good quarter. I wanted to ask about the gross margin. I know there's a lot of moving parts here, but I think gross margin was 50 basis points stronger than what we anticipated, and I think the best number that you guys have posted in about 6 years. So just trying to understand, is this the new level of gross margin? Or is there a lot of moving parts here with some of this inflation noise and the Hardie's business? If you could just help us parse that out, that would be helpful.

A: Yes. Thanks for the question, Pete. Yes, I think you're saying that it's a lot of moving parts is a good way to characterize it. There's the noise from the Hardie's transformation, which are very low-margin type of businesses. So that's bringing up a little bit of the year-over-year. But I would say the major part of it is if you were to go to that -- the waterfall we put out on our 2028 goals and the initiatives under each of those areas in terms of pricing and procurement, our digital platform growth and how that's contributing, our operating units and they're implementing the Select Prime technology to reduce inventory damages and returns, et cetera. We're in the early innings, a lot of the benefits from those things, but we're starting to see them. And all of those things coming together have started to contribute to the gross profit dollar growth and margin improvement. I will remind you that gross profit margins are an output. So in a different inflationary or deflationary environment, if you're -- as long as you're focusing on gross profit dollars per unit, per pound, per drop, per truck, et cetera, you can get the gross profit dollar growth that you need to drive EBITDA growth and the margins will move around within a range, and that's pretty typical.