The Chefs' Warehouse Third Quarter 2026 Earnings Call - CHEFS' WAREHOUSE INC

Financial Performance:

• Q3 2026 net sales reached $1.135 billion, up 11.2% YoY, driven by 10.3% organic sales growth and 0.9% from acquisitions.
• Gross profit increased 15% to $284.3 million; gross margin expanded 84 basis points to 25% (Specialty +63 bps, Center-of-plate +137 bps).
• Adjusted EBITDA rose to $82.2 million (from $65.1 million); Adjusted Net Income was $29.5 million ($0.66/share) vs $21.5 million ($0.50/share) prior year.
• SG&A increased 12.1% to $233.4 million due to higher compensation, facilities, fuel, and depreciation; Adjusted OPEX as % of net sales stood at 17.8%.
• Total liquidity was $348.1 million ($164.7M cash + $183.4M ABL availability); Net debt to Adjusted EBITDA was 1.4x as of quarter-end.
• Net debt is projected to be $550–$600 million by year-end 2026, with a leverage target of 1.7–2.0x.
• Net inflation for the quarter was 4.1% (Specialty 2.6%, Center-of-plate 6.6%).

Guidance and Future Outlook:

• Full-year 2026 net sales guidance raised to $4.56–$4.61 billion; Gross profit to $1.13–$1.14 billion; Adjusted EBITDA to $317–$321 million.
• Q4 2026 interest expense guidance: $15.5–$17.5 million (including ~$2.7M one-time refinancing costs).
• Fully diluted share count expected at 43–43.5 million for Q4 2026, reducing to 42–43 million for 2027.
• Management maintains a cautious but optimistic outlook for 2027–2030, expecting consistent 7%+ EBITDA margins, driven by operating leverage and AI integration.
• Q4 growth is expected to be consistent with prior quarters, offsetting the loss of acquisition contribution from the earlier year and a tougher year-over-year comparison.

Business Segments and Product Lines:

• Unique customer growth was 4.4% YoY, improving to ~5.7% when excluding Middle East conflict impacts.
• Center-of-plate pounds grew 6.6% YoY; Specialty sales grew 8.4% YoY.
• Middle East operations (UAE, Qatar, Oman) are performing well with revenue at ~100% of prior year levels, supported by tourism and expatriate return; delivering high EBITDA margins.
• New product launches and unique item placements are driving sales; the company continues to expand into new categories and territories.
• Facility investments are ongoing in Texas (Dallas consolidation), New England (capacity consolidation), Las Vegas (protein processing expansion), and Midwest markets.
• No new facility announcements for the New York metro market yet; multiple scenarios being evaluated.

Market and Competitive Landscape:

• Market share gains are occurring alongside growth from new categories and territories; "Goldilocks" environment with strong demand.
• The company is transitioning from a traditional distribution model to a more mature "Chef's Warehouse" operating model with higher-margin product mixes.
• Competitive landscape involves strong execution by the sales team and leveraging scale to improve procurement and pricing power.
• Demand remains robust for private events and corporate celebrations in Q4, offsetting some softness in a la carte dining and certain conferences.

Risks and Challenges:

• Ongoing geopolitical conflict in the Middle East poses a risk to customer growth in that region.
• Rising fuel and inbound freight costs are impacting operating expenses, though largely passed through to gross margins; 2027-2030 modeling assumes a "new world" of higher baseline costs.
• Labor shortages: Difficulty in recruiting and retaining specialized sales talent is a constraint; hiring is aggressive but cannot fully meet demand.
• Protein price volatility remains a factor.
• Refinancing risks: The company successfully settled 2028 convertible notes with new term loans and equity issuance, but future leverage must be maintained within target ranges.

Management Commentary and Tone:

• Tone was highly confident, with CEO Chris Pappas praising team execution and the "passion" for the business.
• Management emphasized a disciplined approach to capital allocation, including the strategic refinancing to reduce share count and lower maturity risks.
• AI and digital tools are viewed as critical for future efficiency and margin expansion, with a focus on "more with less" due to demographic headwinds.
• Management expressed "cautious optimism" regarding long-term margin sustainability, citing a combination of product mix, scale leverage, and technology.

Analyst Questions and Answers:

• UBS (Mark Carden): Asked about growth drivers and Q4 slowdown; Management attributed growth to a mix of market share, new categories, and consumer demand, with Q4 consistency due to lapping acquisitions and Middle East conservatism.
• Morgan Stanley (Brian Harbor/Hillary Lee): Inquired about margin expansion and inflation; Confirmed 7%+ EBITDA margin sustainability; noted fuel prices are the primary driver of OPEX variance, with offsets in gross profit.
• Jefferies (Alex Slagle): Asked about freight, 2027 outlook, and inflation; Management stated freight costs are managed well via procurement and pricing, and long-term models assume higher cost structures.
• BTIG (Peter Salah): Questions on gross margin sustainability and hiring; Margins driven by product mix and scale; Hiring remains a challenge due to high skill requirements, though recruitment is aggressive.
• BMO (Kelly Banya): Asked about top-line momentum and holiday visibility; Management cited strong private event demand in Q4 and noted no significant signs of slowdown.
• StoneX (Todd Brooks): Asked about inflation embeds and facility plans; Inflation assumed consistent at 3-4%; Facility consolidation plans confirmed for multiple markets, with New York still under review.

Other Key Points:

• The company executed a major refinancing in Q3/Q4: Priced a new $675M term loan to settle 2028 convertible notes and prepay a 2029 term loan.
• Settlement of convertible notes involved $2.7 million in cash for principal/premium and issuance of 2.7 million shares for the remainder of the minimum.
• CEO reiterated that the business model relies on "20 base hits and doubles" rather than home runs to drive long-term value.
• The company is leveraging AI technology for pricing, sourcing, logistics, and inventory management to maintain competitiveness.
• Strong momentum continued into October, with revenue trends building into the holiday season.