Chefs’ Warehouse, Inc. — Q1 2022 Form 10-Q
Business context and period. The company distributes specialty foods and other products to foodservice customers, primarily independent restaurants and fine-dining establishments. This unaudited report covers the 13 weeks ended March 25, 2022; the comparable period ended March 26, 2021.
Financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $512.1 million | $280.2 million |
| Gross profit / margin | $117.5 million / 22.9% | $58.9 million / 21.0% |
| Operating income (loss) | $6.3 million | $(20.1) million |
| Net income (loss) | $1.4 million; $0.04 per diluted share | $(17.9) million; $(0.49) per diluted share |
| Cash provided by operating activities | $10.3 million | Cash used: $11.7 million |
| Cash used in investing activities | $42.2 million | $2.9 million |
| Cash used in financing activities | $3.9 million | $3.7 million |
At March 25, 2022, cash was $79.4 million, total debt obligations were $398.5 million, and total liabilities were $737.1 million. Working capital excluding cash was $165.1 million; availability under the asset-based loan (ABL) facility was $126.2 million. Management reported covenant-defined minimum liquidity of $210.8 million.
Changes and management commentary
- Sales increased 82.8% year over year. Management attributed $176.3 million of the increase to organic growth and $55.6 million to acquisitions. Organic specialty case count rose approximately 47.3%, and organic center-of-the-plate pounds sold rose 26.0%.
- Management estimated year-over-year inflation of 14.9% in specialty products and 28.5% in center-of-the-plate products. Gross margin improved about 191 basis points, which management attributed largely to favorable mix toward higher-margin specialty products.
- SG&A rose 37.2% to $110.1 million, mainly from compensation and benefits supporting growth. SG&A fell to 21.5% of sales from 28.6%, reflecting improved fixed-cost leverage.
- The company reported positive operating cash flow, compared with an operating cash outflow in the prior-year quarter. Investing outflows included $14.2 million of capital expenditures and $28.0 million paid for the Capital Seaboard acquisition.
- The December 2021 Capital Seaboard acquisition contributed $31.7 million in Q1 sales and $1.1 million of pretax income. The company recorded $659,000 of acquisition-related professional fees.
Outlook, risks and unusual items
- Management expects fiscal 2022 capital expenditures, excluding acquisitions, of approximately $36 million to $45 million and believes available cash, working capital and ABL capacity can meet operating, investment and debt-service needs over the next 12 months. The filing does not provide sales or earnings guidance.
- On March 11, 2022, the company increased ABL commitments from $150 million to $200 million. The facility matures in 2027, subject to specified springing maturity provisions. Approximately $188.2 million of debt bore variable interest rates; management estimated a 100-basis-point rate increase would reduce annual after-tax earnings by about $1.4 million, all else equal.
- The company identified pandemic-related demand effects, food and labor inflation, labor shortages, supply availability, fuel costs, product-price volatility, low margins, acquisition execution, and economic conditions as risks. Management cautioned that quarterly results may not indicate full-year performance.
- Contingent earn-out liabilities increased by $299,000 to $7.2 million, with fair values based on Level 3 estimates. The company reported no material change in previously disclosed risk factors, no material off-balance-sheet arrangements, and no legal proceedings expected by management to materially affect the financial statements.
Important facts for investors to verify
- How much of future sales growth reflects volume, price inflation, and acquisitions, and whether gross-margin improvement is sustained.
- Whether inflation, labor costs, supply constraints, and customer demand affect margins and cash conversion in subsequent quarters.
- Capital Seaboard’s integration, final purchase-price allocation, and contribution to results; the filing describes its allocation as preliminary.
- Debt maturities and refinancing conditions, ABL availability and covenant headroom, and sensitivity to rising interest rates.
- Actual fiscal 2022 capital expenditures and operating cash generation versus management’s expectations.