The Chefs’ Warehouse, Inc. — Q1 2024 Form 10-Q
Business context and period: Specialty food and center-of-the-plate distributor serving restaurants and other foodservice customers in the U.S., Middle East and Canada. The unaudited quarter covered 13 weeks ended March 29, 2024; comparisons are with the 13 weeks ended March 31, 2023. Amounts below are U.S. dollars; financial statement figures are in millions unless noted.
Financial performance
- Sales: $874.5 million, up $154.8 million (21.5%). Management attributed $63.3 million (8.8%) to organic growth and $91.5 million (12.7%) to acquisitions. Organic specialty case count rose about 4.6%, and center-of-the-plate pounds sold increased 6.2%.
- Gross profit and margin: $209.4 million, up 23.4%; gross margin was 23.9%, versus 23.6%. Management cited higher sales and price inflation; margins fell 4 basis points in specialty and rose 18 basis points in center-of-the-plate.
- Operating costs and earnings: SG&A was $190.3 million, up 21.9%, or 21.8% of sales versus 21.7%. Operating income was $16.0 million, versus $11.9 million. Interest expense rose 32.4% to $13.2 million. Net income was $1.9 million, versus $1.4 million; diluted EPS was $0.05, versus $0.04.
- Cash flow: Operating cash flow was $30.9 million versus cash used of $2.3 million. Management attributed the improvement mainly to lower inventory purchases; the prior-year quarter included a strategic inventory build. Investing cash outflow was $17.4 million, including $17.1 million of capital expenditures. Financing cash outflow was $21.3 million.
- Liquidity: Cash was $42.3 million, down from $49.9 million at December 29, 2023. Working capital excluding cash was $290.6 million. ABL borrowing availability was $162.1 million, with $100.0 million outstanding and $28.0 million reserved for letters of credit.
- Debt: Total debt obligations were $722.8 million, compared with $718.0 million at year-end; $55.5 million was classified as current. Variable-rate indebtedness totaled $369.5 million. A 100-basis-point rate increase would reduce annual after-tax earnings by approximately $2.6 million, all else equal.
Material changes, outlook and risks
- March’s amendment reduced the spread on the senior secured term loan B by 75 basis points. The company also prepaid $6.0 million of term-loan principal. The amendment and prepayment generated financing-related charges.
- Management expects fiscal 2024 capital expenditures, excluding acquisitions, of approximately $35 million–$45 million and believes available cash, working capital and ABL capacity are sufficient for operating and other liquidity needs over the next 12 months.
- The $39.7 million 2024 Convertible Senior Notes mature in December 2024. The filing provides no specific refinancing plan or earnings guidance.
- Other notable items include $3.1 million of other operating expenses, with management citing employee severance; a $23.3 million expected income-tax refund receivable included in prepaid and other current assets; and a 30.0% effective tax rate, up from 26.0%, mainly due to nondeductible compensation items.
- Key risks include thin margins and inflation or deflation in product, labor and distribution costs; competition; supply-chain and food-safety disruptions; acquisition integration and execution; substantial indebtedness and variable interest rates; and the ability to maintain liquidity. Management reported no material change to the risk factors in its 2023 Form 10-K. Ordinary-course legal matters were disclosed, with no material accrual recorded.
Important facts for investors to verify
- How much sales growth and future profitability depend on acquired businesses versus organic growth, and how integration is progressing.
- Plans for the December 2024 convertible-note maturity and the sensitivity of interest expense to variable rates.
- Whether expected capital spending and operating cash generation support debt service, liquidity and the share-repurchase program.
- The filing reports 134,553 shares repurchased under the program in its narrative and equity statement, but the issuer-purchases table reports 134,533; verify the correct figure. The narrative gives an average price of $37.16 and remaining authorization of $95 million.
- Whether the expected $23.3 million tax refund is collected and whether severance, acquisition-related costs or other unusual items recur.