Business context and reporting period
The Chefs’ Warehouse, Inc. filed this Form 10-K for the 52-week fiscal year ended December 24, 2021. The company distributes specialty foods, produce, and center-of-the-plate products to foodservice customers in the United States and Canada, and also operates direct-to-consumer platforms. The filing reports annual results; it does not provide a clear set of standalone fourth-quarter financial results.
Financial performance and liquidity
- Revenue: $1.746 billion, up 57.0% from $1.112 billion in fiscal 2020. Management attributed $574.2 million of growth to organic recovery and $59.9 million to acquisitions. Estimated inflation was 9.6% in specialty products and 18.1% in center-of-the-plate products.
- Product mix: Center-of-the-plate products were $877.1 million, or 50.2% of sales. Specialty-category case count rose approximately 33.8%; center-of-the-plate pounds sold rose 28.2%.
- Gross profit and margin: $390.5 million, up 57.4%; gross margin was 22.4%, compared with 22.3%. Specialty-category margin improved 379 basis points, while center-of-the-plate margin declined 350 basis points year over year.
- Operating and net results: Operating income was $10.8 million, versus an operating loss of $102.7 million in 2020. Net loss was $4.9 million, or $0.13 per diluted share, compared with a net loss of $82.9 million, or $2.46 per diluted share.
- Interest and taxes: Interest expense was $17.6 million, down from $20.9 million. The income tax benefit was $1.9 million, versus a $40.7 million benefit in 2020.
- Cash flow and investment: Operating cash flow was negative $19.9 million, compared with positive $42.9 million in 2020, primarily reflecting a $62.3 million working-capital investment to support growth. Investing cash outflow was $49.0 million, including $38.8 million of capital expenditures and $10.2 million for acquisitions. Financing cash outflow was $9.2 million.
- Liquidity: Cash and cash equivalents were $115.2 million, down from $193.3 million. ABL availability was $109.5 million. The company reported $157.8 million of working capital excluding cash; balance-sheet current assets less current liabilities imply working capital of approximately $272.9 million including cash.
- Debt: Management reported approximately $404.3 million of indebtedness, including $168.7 million of term loans, $204.0 million of convertible debt, $20.0 million of ABL borrowings, and $11.6 million of finance lease and other financing obligations. The balance-sheet carrying amount for total debt obligations was $399.3 million after deferred financing fees and discounts.
Material changes versus the prior comparable period
Fiscal 2021 showed a substantial rebound from the pandemic-disrupted 2020 year: sales increased 57.0%, gross profit increased 57.4%, and the company returned to operating profitability. The 2020 comparison included approximately $14.6 million of inventory obsolescence charges and a $15.8 million non-cash bad-debt charge, as well as a $24.2 million trademark impairment. In 2021, the company recorded a further $0.6 million Cambridge trademark impairment. SG&A increased 12.7% in dollars but fell to 21.7% of sales from 30.3%, largely reflecting sales recovery and operating leverage.
Cash declined as receivables and inventory expanded with activity. The company issued an additional $50.0 million of 1.875% convertible senior notes in March 2021, using proceeds to repay the 2022 term-loan tranche and part of its ABL borrowings. It completed three acquisitions in fiscal 2021. After year-end, on December 28, 2021, it agreed to acquire CGC Holdings for $28.0 million in cash, subject to a working-capital adjustment.
Outlook, commentary, risks, and unusual items
- Management said it returned to profitability in the second quarter of 2021 and views its liquidity as sufficient for working capital, capital expenditures, debt service, and other needs over the next 12 months. It expects fiscal 2022 capital expenditures, excluding acquisitions, of approximately $35 million to $45 million. The filing gives no specific revenue or earnings guidance.
- Management’s strategy emphasizes recovering and growing customer volumes, improving operating efficiency, investing in facilities and technology, and pursuing selective acquisitions. Los Angeles and Miami facility build-outs were expected to be completed in 2022; approximately $20 million of related construction-in-process remained.
- On February 16, 2022, the company obtained unconditional waivers from term-loan and ABL lenders in connection with noncompliance with certain negative covenants. The filing does not identify the specific covenants or provide further detail on the circumstances in the supplied text.
- Debt and refinancing warrant attention: the 2025 term-loan tranche has a springing maturity in June 2024 if the 2024 convertible notes have not been repaid or refinanced with qualifying debt. The company also has variable-rate debt; it estimated that a 100-basis-point rate increase would reduce annual after-tax earnings by approximately $1.4 million.
- Key operating risks include continued COVID-19 effects, food and labor inflation, labor shortages, supply-chain disruption, volatile protein prices, customer credit losses, weather and geographic concentration, and competitive pressure in a low-margin business. New York represented approximately 19.1% of fiscal 2021 sales.
- Other notable items: the company’s financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting. The auditor identified accounting for convertible notes as a critical audit matter; this did not modify the audit opinion. No pending legal proceeding was identified as likely to have a material adverse effect.
Most important facts for investors to verify
- Whether sales recovery and margin performance persisted after fiscal year-end, particularly given the differing specialty and center-of-the-plate margin trends and elevated inflation.
- The nature, implications, and continuing status of the February 2022 lender waivers and the company’s compliance with debt covenants.
- Cash conversion and working-capital needs as receivables and inventory grew, alongside planned capital expenditures and the CGC acquisition.
- Debt maturities, refinancing requirements for the 2024 convertible notes, variable-rate exposure, and potential dilution from convertible securities.
- Whether customer credit quality, labor availability and costs, and food-supply conditions affect profitability or liquidity.