Chefs' Warehouse, Inc. — Q3 2022 Form 10-Q
Reporting period: Thirteen and thirty-nine weeks ended September 23, 2022; comparisons are to the periods ended September 24, 2021. The company distributes specialty foods and foodservice products. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions.
Financial performance
| Metric | Q3 2022 | Q3 2021 | 39 weeks 2022 | 39 weeks 2021 |
|---|---|---|---|---|
| Net sales | $661.9m | $484.3m | $1,822.1m | $1,187.5m |
| Gross profit / margin | $157.8m / 23.8% | $110.0m / 22.7% | $431.3m / 23.7% | $264.8m / 22.3% |
| Operating income (loss) | $22.1m | $10.4m | $56.0m | ($5.0m) |
| Net income (loss) | $8.3m | $3.5m | $26.6m | ($13.4m) |
| Diluted EPS | $0.21 | $0.09 | $0.68 | ($0.36) |
- Q3 sales increased 36.7%; management attributed $107.2m, or 22.2% growth, to organic growth and $70.3m, or 14.5%, to acquisitions. For the 39-week period, sales rose 53.4%, including $435.8m organic growth and $198.8m from acquisitions.
- Q3 gross margin expanded 113 basis points, while SG&A was 19.7% of sales versus 20.5% a year earlier, reflecting improved fixed-cost leverage. For the 39 weeks, gross margin rose 137 basis points and SG&A declined to 20.0% of sales from 22.7%.
- Q3 interest expense increased to $10.7m from $4.2m. The company cited higher debt and variable interest rates, plus $4.5m of refinancing transaction costs. Other operating expense included a $4.7m non-cash increase in contingent earn-out fair value.
Cash flow, debt and liquidity
- For the 39 weeks, operating cash flow was $31.7m, compared with cash used of $26.3m in the prior-year period. Investing used $93.7m, including $31.7m of capital expenditures and $62.0m for acquisitions. Financing provided $92.3m, principally reflecting new term-loan proceeds.
- At September 23, cash was $145.4m; current assets were $591.5m and current liabilities $236.9m. Working capital excluding cash was $209.2m. ABL availability was $176.8m, and the company reported total liquidity of $531.4m using its stated components.
- Total debt obligations on the balance sheet were $499.2m, including $493.1m long-term and $6.1m current. Separately, management reported aggregate indebtedness of $513.7m including finance leases and other financing obligations.
- In August, the company refinanced and increased its term loans to $300m, with maturity in August 2029, subject to a springing maturity condition tied to the 2024 convertible notes. The term-loan rate was 7.9% at quarter-end. The ABL commitment is $200m; all borrowings were repaid by quarter-end, with $23.2m reserved for letters of credit. The term-loan amendment removed a minimum-liquidity covenant.
Outlook, commentary and risks
- Management forecast fiscal 2022 capital expenditures, excluding acquisitions, of approximately $36m–$45m and said available cash, working capital and ABL availability should cover operating, capital and debt-service needs for the next 12 months. No revenue or earnings guidance was provided.
- Management cited continuing recovery in demand, with Q3 organic specialty case count up approximately 18.3% and center-of-the-plate pounds sold up 11.6%. Estimated year-over-year inflation was 15.0% in specialty products and 2.2% in center-of-the-plate products. Specialty margin pressure from product inflation was partly offset by improved center-of-the-plate margins.
- Key disclosed risks include food, labor, fuel and interest-rate volatility; low-margin operating economics; supply or distribution disruptions; acquisition integration and growth execution; economic and restaurant demand conditions; and potential impacts from COVID-19. A 100-basis-point increase in market rates was estimated to reduce annual after-tax earnings by approximately $2.2m.
- The company carried a $21.3m federal tax refund receivable and said IRS processing was significantly delayed, though it expected receipt within one year; timing remained uncertain. Ordinary-course legal proceedings were not considered likely to have a material adverse effect, and no material amounts were accrued.
Important facts for investors to verify
- How much of future sales growth and margin performance reflects organic volume versus pricing, inflation and acquisitions.
- The term-loan and ABL springing maturity provisions, covenant triggers, and the sensitivity of earnings and cash flow to variable rates.
- Acquisition purchase accounting and contingent earn-out valuations; earn-out fair-value changes materially affected reported operating expenses.
- Timing and collectability of the $21.3m tax refund receivable, alongside working-capital requirements as sales growth normalizes.
- Whether the stated fiscal-year capital spending range and 12-month liquidity assessment remain appropriate as costs, demand and financing conditions change.