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

Explicit Guidance:

• FY2026 Full-Year Net Sales: Raised to a range of $4.56 billion to $4.61 billion.
• FY2026 Full-Year Gross Profit: Raised to a range of $1.13 billion to $1.14 billion.
• FY2026 Full-Year Adjusted EBITDA: Raised to a range of $317 million to $321 million.
• FY2027 Fully Diluted Share Count: Expected range of 42 to 43 million shares.
• Q4 2026 Interest Expense: Expected between $15.5 million and $17.5 million (includes ~$2.7 million in one-time refinancing costs).
• Q4 2026 Fully Diluted Share Count: Expected range of 43.0 to 43.5 million shares.
• FY2026 Year-End Net Debt: Expected to be in the range of $550 million to $600 million.
• FY2026 Year-End Net Debt Leverage: Expected to be in the range of 1.7 to 2.0 times adjusted EBITDA.
• FY2027 Adjusted EBITDA Margin: Guidance implies a sustained margin above 7%, consistent with the 2028 target.

Business-Segment Outlook:

• Middle East Operations: Revenue trends are approximately 100% of prior year levels driven by ex-patriots returning; December is identified as a powerful tourism month, with management adding conservatism to guidance due to regional uncertainties.
• Product Mix: Continued shift toward higher-margin products in both specialty and center-of-the-plate categories as sales teams mature and acquire more market share.
• Sales Force Capacity: Hiring continues "as fast as possible" to meet demand; current headcount cannot yet fully meet the workload, with existing salespeople managing too many accounts.
• Unique Customers: Excluding the impact of the Middle East conflict, Q3 2026 unique customer growth was approximately 5.7% (vs. 4.4% reported).
• Inflation Trends: Aggregate price inflation expected to remain consistent in the 2.5% to 3.5% range; specialty category inflation at ~2.5%, center-of-the-plate at ~6.6%.

Market and Competitive Outlook:

• Market Share: Management reports continuing to take market share from competitors while growing into new categories and territories.
• Pricing Power: Ability to pass through significant fuel cost increases to customers, though not 100% pass-through is possible; fuel costs are a primary driver of operating leverage shifts in the quarter.
• Inbound Freight: Teams managing procurement and pricing effectively in a higher freight cost environment; leverage is expected to improve as smaller markets gain scale.
• Seasonality: Fourth quarter demand driven by healthy private, corporate, and celebration events; some softness noted in "a la carte" spending in private clubs, offset by event volume.
• 2027–2030 Outlook: Business run on a "new world" model of moderate inflation and higher costs; management assumes headwinds like volatile protein prices are built into the forecast, viewing any upside as a "plus."

Macro / Industry Outlook:

• Economic Environment: Management describes the macro environment as "Goldilocks" with good demand; assumes a "new normal" of higher costs and inflation (2–4%) persisting through 2030.
• Fuel Prices: Diesel and fuel prices rose "egregiously" since March; while volatile, the company expects to continue passing costs to customers and mitigating via procurement leverage.
• Geopolitical Risks: Conflict in the Middle East impacted reported customer growth; ongoing uncertainty in the region drives conservatism in December forecasting.
• Demographics: Low global birth rates creating long-term labor supply constraints, necessitating reliance on AI and technology to maintain efficiency.

Strategic Initiatives:

• Capacity Expansion: New distribution facilities expected to come online over the next 2–3 years:
  • Texas: Consolidation in Dallas and building a new state-of-the-art DC.
  • New England: Facility consolidation underway.
  • Las Vegas: Protein processing expansion in progress.
  • Midwest: Facility projects underway in multiple markets.
  • New York: Exploring second facility options; multiple scenarios under review with no announcement to date.
• Digital & AI: Continued heavy investment in digital platforms and AI technology for pricing, sourcing, logistics, and inventory; viewed as a "tailwind" for 2030 efficiency, though current guidance does not rely on major "aha" moments from these tools.
• Capital Structure: Refinancing completed with a new $675 million seven-year term loan to settle 2028 convertible notes; objective to reduce fully diluted share count to align with 2030 targets.
• Procurement Leverage: Anticipated cost reductions via direct buying and volume purchasing as new facilities reduce LTL (less-than-truckload) needs.

Risks and Headwinds to Outlook:

• Fuel and Freight Costs: Rising fuel prices impact operating expenses; inability to pass 100% of costs through could compress margins.
• Geopolitical Instability: Ongoing conflict in the Middle East creates uncertainty for revenue and customer growth in that region.
• Labor Market: Difficulty in recruiting and retaining qualified sales staff with the required expertise; high turnover at lower levels; inability to hire fast enough to meet demand.
• Seasonality & Volatility: Potential for "tougher comparisons" in Q4 (e.g., 1% tougher comp); volatility in protein prices and tourism flows in the Middle East.
• Acquisition Integration: Lapping of the "A talco" acquisition in Q4 results in an ~80 basis point reduction in reported year-over-year sales growth.
• Implementation Risks: Delays or failures in facility consolidation and capacity additions could hinder the expected synergies and cost savings.

Management Tone on the Future:

• Confidence: "Cautiously optimistic" regarding 2027–2030 performance; believes the "new world" of higher costs is manageable via technology and scale.
• Conservatism: Explicitly noted that guidance includes conservatism, particularly regarding the Middle East (December) and the normalization of organic growth rates (dropping from ~11% in H1 to ~10% implied in H2).
• Strategic Confidence: High confidence in execution capability, digital transformation, and the ability to leverage new facilities for margin expansion.
• Shareholder Value: Management views the current financial targets as a "tremendous reward" for shareholders if achieved without relying on unexpected breakthroughs.

Miscellaneous:

• Refinancing Impact: The settlement of convertible notes involved issuing approximately 2.7 million shares of common stock; new term loan proceeds were used to prepay the 2029 term loan.
• Margin Sustainability: Management expects gross margin and EBITDA margin expansion to be sustainable, driven by product mix, scale leverage, and digital integration rather than one-off events.
• Capital Allocation: Balance sheet objectives are to maintain net debt leverage between 1.5x and 2.5x.