Behind The Numbers – The Chefs’ Warehouse (CHEF)
The Chefs’ Warehouse, with locations in major metropolitan areas across the United States and Canada, is an owner-operated specialty food distributor that serves the finest restaurants, hotels, caterers and gourmet stores.
Shares are marginally lower today following the company’s Q4 earnings results after the bell yesterday:
-EPS of $0.32 vs $0.32 estimate – In-Line
-Revenue of $394.06M vs $384.67M estimate – Beat
-Net Sales increased 10.3% Y/Y
-FY EPS Guidance of $0.91 – $1.01 vs $1.00 estimate
-FY Revenue Guidance of $1.52B – $1.57B vs $1.55B estimate
Organic case count grew approximately 6.5% in the Company’s specialty category with unique customers and placements growth at 5.9% and 4.4%, respectively, compared to the prior year quarter. Pounds sold in the Company’s center-of-the-plate category increased 4.9% compared to the prior year quarter.
Management, on the conference call, when discussing inflation expectations for both its Specialty and Center-of-Plate categories, called out a “mixed bag.” They said they are forecasting flat to 2% of specialty inflation as some categories in specialty are deflationary right now, like dairy, while they’re still seeing inflation in some of its bakery products. And then within the center-of-the-plate, they saw inflation in some of the lower meats like Choice in Q4, and they see that continuing. On the other hand, they see a little more deflation in some of the Primal cuts.
Tech/Process Enhancements
During the fourth quarter, CHEF said they expanded their team that focuses on customer experience, and they implemented several enhancements to its mobile app, including push messaging, barcode scanning, and multiple account capabilities. “These enhancements not only provide improved communication between our sales reps and customers, but also more efficient ordering process for our customers. Sales through our ecommerce and mobile platforms increased from approximately 8% of total revenue in October ’18 to approximately 10% of total revenue in January of ’19. Additionally, we have seen a 20% increase in mobile app utilization since our third quarter 2018 reporting.”
BMO Capital analyst Kelly Bania, in a post-earnings note, would say that CHEF maintained its 2019 guidance and is supported by: Continued investments into its sales organization which may not need to grow as much down the road as online ordering penetration changes the role of the sales rep. The analyst remains Market Perform rated with a $38 price target.
Finally, CEO Chris Pappas would add that they completed the initial phases of other several important technology and process enhancements that include:
• The implementation of off-truck scanning in their Mid-Atlantic specialty distribution center, and truck camera technology in their Northeast markets.
• Adoption in additional markets, such as Chicago, Florida, and North California will follow in 2019 with additional sites added in 2020.
• They also completed testing on an upgraded warehouse management system and process in their San Francisco center-of-the-plate facility and expect to go live in the first quarter of 2019.
• Finally, in Q4, they completed the retrofit of their Houston facility and the expansion of their distribution center in Portland, Oregon. Additionally, in 2019, they plan to complete the build out of their new facility in Dallas and begin expansion projects in Los Angeles and South Florida.
