The Chefs’ Warehouse Reports Fourth Quarter 2019 Financial Results

Net Sales Growth of 8.2%


RIDGEFIELD, Conn., Feb. 12, 2020 (GLOBE NEWSWIRE) -- The Chefs’ Warehouse, Inc. (NASDAQ: CHEF) (the “Company”), a premier distributor of specialty food products in the United States and Canada, today reported financial results for its fourth quarter ended December 27, 2019.

Financial highlights for the fourth quarter of 2019 compared to the fourth quarter of 2018:

  • Net sales increased 8.2% to $426.5 million for the fourth quarter of 2019 from $394.1 million for the fourth quarter of 2018.
  • GAAP net income was $10.9 million, or $0.36 per diluted share, for the fourth quarter of 2019 compared to $8.9 million, or $0.30 per diluted share, in the fourth quarter of 2018.
  • Adjusted EPS1 was $0.39 for the fourth quarter of 2019 compared to $0.32 for the fourth quarter of 2018.
  • Adjusted EBITDA1 was $28.2 million for the fourth quarter of 2019 compared to $24.6 million for the fourth quarter of 2018.

“We finished 2019 with solid revenue performance amidst a healthy consumer demand environment during the fourth quarter,” said Chris Pappas, chairman and chief executive officer of The Chefs’ Warehouse, Inc. “We enter 2020 celebrating our thirty-fifth year of operations. We are excited to continue on our path of growth and our mission of providing our customers with the highest quality ingredients and service that the Chefs’ Warehouse family and portfolio of brands have delivered since our company’s inception.”

Fourth Quarter Fiscal 2019 Results

Net sales for the quarter ended December 27, 2019 increased 8.2% to $426.5 million from $394.1 million for the quarter ended December 28, 2018. Organic growth contributed $16.2 million, or 4.1% to sales growth in the quarter. The remaining sales growth of $16.2 million, or 4.1%, resulted from acquisitions. Organic case count grew approximately 2.3% in the Company’s specialty category with unique customers and placements growth at 3.8% and 2.5%, respectively, compared to the prior year quarter. Pounds sold in the Company’s center-of-the-plate category decreased approximately 2.1% compared to the prior year quarter. Estimated inflation was 3.1% in the Company’s specialty categories and 5.3% in the center-of-the-plate categories compared to the prior year quarter.

Gross profit increased approximately 5.3% to $107.7 million for the fourth quarter of 2019 from $102.3 million for the fourth quarter of 2018. Gross profit margin decreased approximately 71 basis points to 25.3% from 26.0%. Gross margins in the Company’s specialty category increased 36 basis points and gross margins decreased 185 basis points in the Company’s center-of-the-plate category compared to the prior year quarter.

Total operating expenses increased by approximately 5.6% to $89.3 million for the fourth quarter of 2019 from $84.5 million for the fourth quarter of 2018. As a percentage of net sales, operating expenses were 20.9% in the fourth quarter of 2019 compared to 21.4% in the fourth quarter of 2018. Operating expenses as a percentage of sales was favorably impacted by lower general and administrative expenses, primarily due to lower compensation and benefits related costs, partially offset by higher warehouse costs related to the Company’s investment in Texas and its new facility in Los Angeles.

Operating income for the fourth quarter of 2019 was $18.4 million compared to $17.8 million for the fourth quarter of 2018. The increase in operating income was driven primarily by increased gross profit, offset in part by higher operating expenses, as discussed above. As a percentage of net sales, operating income was 4.4% in the fourth quarter of 2019 as compared to 4.6% in the fourth quarter of 2018.

Total interest expense decreased to $4.4 million for the fourth quarter of 2019 compared to $5.7 million for the fourth quarter of 2018. The decrease was primarily driven by a $1.1 million write-off of deferred financing fees during the fourth quarter of 2018 associated with the re-pricing of the Company’s Term Loan and lower effective interest charged on the Company’s outstanding debt.

Net income for the fourth quarter of 2019 was $10.9 million, or $0.36 per diluted share, compared to net income of $8.9 million, or $0.30 per diluted share, for the fourth quarter of 2018.

Adjusted EBITDA1 was $28.2 million for the fourth quarter of 2019 compared to $24.6 million for the fourth quarter of 2018. For the fourth quarter of 2019, adjusted net income1 was $12.1 million, or $0.39 per diluted share compared to adjusted net income of $9.6 million, or $0.32 per diluted share for the fourth quarter of 2018.

Full Year 2020 Guidance

Based on current trends in the business, the Company is providing the following financial guidance for fiscal year 2020:

  • Net sales between $1.85 billion and $1.91 billion
  • Gross profit between $478.0 million and $492.0 million
  • Net income between $26.9 million and $29.8 million
  • Net income per diluted share between $0.86 and $0.95
  • Adjusted EBITDA1 between $102.0 million and $106.0 million
  • Adjusted EPS1 between $0.91 and $1.00

This guidance is based on an effective tax rate of approximately 28.0% for fiscal 2020. Our full year estimated diluted share count is approximately 33.6 million shares. The Company expects its senior convertible notes to be dilutive for the full year and accordingly, those shares that could be issued upon conversion of the notes are included in the fully diluted share count.

1EBITDA, Adjusted EBITDA, adjusted net income and adjusted EPS are non-GAAP measures. Please see the schedules accompanying this earnings release for a reconciliation of EBITDA, Adjusted EBITDA, adjusted net income and adjusted EPS to these measures’ most directly comparable GAAP measure.

Fourth Quarter 2019 Earnings Conference Call

The Company will host a conference call to discuss fourth quarter 2019 financial results today at 5:00 p.m. EST. Hosting the call will be Chris Pappas, chairman and chief executive officer, and Jim Leddy, chief financial officer. The conference call will be webcast live from the Company’s investor relations website at http://investors.chefswarehouse.com/. The call can also be accessed live over the phone by dialing (877) 407-4018, or for international callers (201) 689-8471. A replay will be available one hour after the call and can be accessed by dialing (844) 512-2921 or (412) 317-6671 for international callers; the conference ID is 13698025. The replay will be available until Wednesday, February 19, 2020, and an online archive of the webcast will be available on the Company’s investor relations website for 30 days.

Forward-Looking Statements

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding the Company’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. The risks and uncertainties which could impact these statements include, but are not limited to, the Company’s sensitivity to general economic conditions, including disposable income levels and changes in consumer discretionary spending; the Company’s ability to expand its operations in its existing markets and to penetrate new markets through acquisitions; the Company may not achieve the benefits expected from its acquisitions, which could adversely impact its business and operating results; the Company may have difficulty managing and facilitating its future growth; conditions beyond the Company’s control could materially affect the cost and/or availability of its specialty food products or center-of-the-plate products and/or interrupt its distribution network; the Company’s increased distribution of center-of-the-plate products, like meat, poultry and seafood, involves increased exposure to price volatility experienced by those products; the Company’s business is a low-margin business and its profit margins may be sensitive to inflationary and deflationary pressures; because the Company’s foodservice distribution operations are concentrated in certain culinary markets, the Company is susceptible to economic and other developments, including adverse weather conditions, in these areas; fuel cost volatility may have a material adverse effect on the Company’s business, financial condition or results of operations; the Company’s ability to raise capital in the future may be limited; the Company may be unable to obtain debt or other financing, including financing necessary to execute on our acquisition strategy, on favorable terms or at all; and the Company’s business operations and future development could be significantly disrupted if it loses key members of its management team. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. A more detailed description of these and other risk factors is contained in the Company’s most recent annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 1, 2019 and other reports filed by the Company with the SEC since that date. The Company is not undertaking to update any information in the foregoing report until the effective date of its future reports required by applicable laws. Any projections of future results of operations are based on a number of assumptions, many of which are outside the Company’s control and should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced projections, but it is not obligated to do so.

About The Chefs’ Warehouse

The Chefs’ Warehouse, Inc. (http://www.chefswarehouse.com) is a premier distributor of specialty food products in the United States and Canada focused on serving the specific needs of chefs who own and/or operate some of the nation’s leading menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolatiers, cruise lines, casinos and specialty food stores. The Chefs’ Warehouse, Inc. carries and distributes more than 55,000 products to more than 34,000 customer locations throughout the United States and Canada.

Contact:
Investor Relations
Jim Leddy, CFO, (718) 684-8415

THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share amounts and per share data)

 Thirteen Weeks Ended Fifty-Two Weeks Ended
 December 27,
2019
 December 28,
2018
 December 27,
2019
 December 28,
2018
Net Sales$426,507 $394,056 $1,591,834 $1,444,609
Cost of Sales318,811 291,764 1,185,481 1,077,562
Gross Profit107,696 102,292 406,353 367,047
        
Operating Expenses89,262 84,490 355,585 318,289
Operating Income18,434 17,802 50,768 48,758
        
Interest Expense4,351 5,709 18,264 20,745
Loss on Asset Disposal37 139 101 169
Income Before Income Taxes14,046 11,954 32,403 27,844
        
Provision for Income Tax Expense3,158 3,072 8,210 7,442
        
Net Income$10,888 $8,882 $24,193 $20,402
        
        
Net Income Per Share:       
Basic$0.37 $0.30 $0.82 $0.71
Diluted$0.36 $0.30 $0.81 $0.70
        
Weighted Average Common Shares
Outstanding:
       
Basic29,595,723 29,438,806 29,532,342 28,703,265
Diluted31,134,821 29,828,252 30,073,338 29,678,919


THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 27, 2019 AND DECEMBER 28, 2018
(in thousands)

 December 27, 2019 December 28, 2018
 (unaudited)  
Cash$140,233  $42,410 
Accounts receivable, net175,044  161,758 
Inventories, net124,056  112,614 
Prepaid expenses and other current assets13,823  11,953 
Total current assets453,156  328,735 
    
Equipment, leasehold improvements and software, net92,846  85,276 
Operating lease right-of-use assets (1)127,649   
Goodwill197,743  184,280 
Intangible assets, net138,751  130,033 
Other assets3,534  4,074 
Total assets$1,013,679  $732,398 
    
    
Accounts payable$94,097  $87,799 
Accrued liabilities29,847  24,810 
Short-term operating lease liabilities (1)17,453   
Accrued compensation8,033  12,872 
Current portion of long-term debt721  61 
Total current liabilities150,151  125,542 
    
Long-term debt, net of current portion386,106  278,169 
Operating lease liabilities (1)120,572   
Deferred taxes, net10,883  9,601 
Other liabilities10,034  10,410 
Total liabilities677,746  423,722 
    
Preferred stock   
Common stock304  300 
Additional paid in capital212,240  207,326 
Cumulative foreign currency translation adjustment(2,048) (2,221)
Retained earnings125,437  103,271 
Stockholders’ equity335,933  308,676 
    
Total liabilities and stockholders’ equity$1,013,679  $732,398 

(1) Fiscal 2019 includes new balance sheet captions due to the adoption of the new lease accounting standard, effective on the first day of fiscal 2019


THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 27, 2019 AND DECEMBER 28, 2018
(unaudited, in thousands)

 December 27,
2019
 December 28,
2018
Cash flows from operating activities:   
Net income$24,193  $20,402 
    
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization13,328  10,296 
Amortization of intangible assets12,663  11,910 
Provision for allowance for doubtful accounts4,981  3,790 
Non-cash operating lease expense2,043  770 
Deferred taxes2,063  2,554 
Amortization of deferred financing fees2,168  3,155 
Stock compensation4,399  4,094 
Change in fair value of contingent earn-out liabilities5,879  1,448 
Loss on asset disposal101  169 
Changes in assets and liabilities, net of acquisitions:   
Accounts receivable(13,213) (19,466)
Inventories(9,439) (6,330)
Prepaid expenses and other current assets(1,813) 120 
Accounts payable, accrued liabilities and accrued compensation3,775  13,677 
Other assets and liabilities(6,121) (1,507)
Net cash provided by operating activities45,007  45,082 
    
Cash flows from investing activities:   
Capital expenditures(16,077) (19,817)
Cash paid for acquisitions, net of cash received(28,077) (13,901)
Proceeds from asset disposals  30 
Net cash used in investing activities(44,154) (33,688)
    
Cash flows from financing activities:   
Payment of debt, finance lease and other financing obligations(1,894) (49,360)
Proceeds from debt issuance150,000   
Payment of deferred financing fees(5,082) (1,502)
Proceeds from exercise of stock options1,541   
Surrender of shares to pay withholding taxes(1,022) (764)
Cash paid for contingent earn-out liability(2,412) (3,000)
Borrowings under asset based loan facility  47,100 
Payments under asset based loan facility(44,184) (2,916)
Net cash provided by (used in) financing activities96,947  (10,442)
    
Effect of foreign currency translation on cash and cash equivalents23  (46)
    
Net increase in cash and cash equivalents97,823  906 
Cash and cash equivalents at beginning of period42,410  41,504 
Cash and cash equivalents at end of period$140,233  $42,410 


 

THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF GAAP NET INCOME PER COMMON SHARE
(unaudited; in thousands except share amounts and per share data)

 Thirteen Weeks Ended Fifty-Two Weeks Ended
 December 27, 2019 December 28, 2018 December 27, 2019 December 28, 2018
Numerator:       
Net Income$10,888  $8,882  $24,193  $20,402 
Add effect of dilutive securities:       
Interest on convertible notes, net of tax215    207  362 
Net Income available to common shareholders$11,103  $8,882  $24,400  $20,764 
Denominator:       
Weighted average basic common shares
outstanding
29,595,723  29,438,806  29,532,342  28,703,265 
Dilutive effect of unvested common shares204,483  389,446  211,050  270,520 
Dilutive effect of convertible notes1,334,615    329,946  705,134 
Weighted average diluted common shares
outstanding
31,134,821  29,828,252  30,073,338  29,678,919 
        
Net Income Per Share:       
Basic$0.37  $0.30  $0.82  $0.71 
Diluted$0.36  $0.30  $0.81  $0.70 


THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA TO NET INCOME
(unaudited; in thousands)

 Thirteen Weeks Ended Fifty-Two Weeks Ended
 December 27,
2019
 December 28,
2018
 December 27,
2019
 December 28,
2018
Net Income$10,888  $8,882  $24,193  $20,402 
Interest expense4,351  5,709  18,264  20,745 
Depreciation3,789  3,062  13,328  10,296 
Amortization3,178  2,961  12,663  11,910 
Provision for income tax expense3,158  3,072  8,210  7,442 
EBITDA (1)25,364  23,686  76,658  70,795 
        
Adjustments:       
Stock compensation (2)1,488  1,095  4,399  4,094 
Duplicate rent (3)698    1,503  14 
Integration and deal costs/third party
transaction costs (4)
93  277  379  608 
Change in fair value of earn-out obligations (5)548  (578) 5,879  1,448 
Loss on asset disposal (6)37  139  101  169 
Moving expenses (7)  28  61  49 
        
Adjusted EBITDA (1)$28,228  $24,647  $88,980  $77,177 
  1. We are presenting EBITDA and Adjusted EBITDA, which are not measurements determined in accordance with the U.S. generally accepted accounting principles, or GAAP, because we believe these measures provide additional metrics to evaluate our operations and which we believe, when considered with both our GAAP results and the reconciliation to net income, provide a more complete understanding of our business than could be obtained absent this disclosure.  We use EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. The use of EBITDA and Adjusted EBITDA as performance measures permits a comparative assessment of our operating performance relative to our performance based upon GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.

  2. Represents non-cash stock compensation expense associated with awards of restricted shares of our common stock and stock options to our key employees and our independent directors.

  3. Represents duplicate rent and occupancy costs for our Los Angeles, CA and Toronto, Canada facilities.

  4. Represents transaction related costs incurred to complete and integrate acquisitions, including due diligence, legal and integration.

  5. Represents the non-cash change in fair value of contingent earn-out liabilities related to our acquisitions.

  6. Represents the non-cash charge related to the disposal of certain equipment.

  7. Represents moving expenses for the consolidation and expansion of our Ridgefield, CT and Toronto, Canada facilities.


THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF ADJUSTED NET INCOME TO NET INCOME
(unaudited; in thousands except share amounts and per share data)

 Thirteen Weeks Ended Fifty-Two Weeks Ended
 December 27,
2019
 December 28,
2018
 December 27,
2019
 December 28,
2018
Net Income$10,888  $8,882  $24,193  $20,402 
        
Adjustments to Reconcile Net Income to Adjusted Net Income (1):       
Duplicate rent (2)698    1,503  14 
Integration and deal costs/third party transaction costs (3)93  277  379  608 
Moving expenses (4)  28  61  49 
Change in fair value of earn-out obligations (5)548  (578) 5,879  1,448 
Loss on asset disposal (6)37  139  101  169 
Write-off of unamortized deferred financing fees (7)  1,081    1,081 
Tax effect of adjustments (8)(205) (253) (2,007) (900)
Total Adjustments1,171  694  5,916  2,469 
Adjusted Net Income$12,059  $9,576  $30,109  $22,871 
        
Diluted Earnings per Share - Adjusted$0.39  $0.32  $1.01  $0.78 
        
Diluted Shares Outstanding - Adjusted31,225,875  29,828,252  30,073,338  29,678,919 
  1. We are presenting adjusted net income and adjusted earnings per share (EPS), which are not measurements determined in accordance with U.S. generally accepted accounting principles, or GAAP, because we believe these measures provide additional metrics to evaluate our operations and which we believe, when considered with both our GAAP results and the reconciliation to net income available to common stockholders, provide a more complete understanding of our business than could be obtained absent this disclosure. We use adjusted net income available to common stockholders and adjusted EPS, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance.  The use of adjusted net income available to common stockholders and adjusted EPS as performance measures permits a comparative assessment of our operating performance relative to our performance based upon our GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
     
  2. Represents duplicate rent and occupancy costs for our Los Angeles, CA and Toronto, Canada facilities.
     
  3. Represents transaction related costs incurred to complete and integrate acquisitions, including due diligence, legal and integration.
     
  4. Represents moving expenses for the consolidation and expansion of our Ridgefield, CT and Toronto, Canada facilities.
     
  5. Represents the non-cash change in fair value of contingent earn-out liabilities related to our acquisitions.
     
  6. Represents the non-cash charge related to the disposal of certain equipment.
     
  7. Represents the write-off of unamortized deferred financing fees as a result of the repricing of our term loan during the fourth quarter of 2018.
     
  8. Represents the tax effect of items 2 through 7 above.


THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF ADJUSTED NET INCOME PER COMMON SHARE
(unaudited; in thousands except share amounts and per share data)

 Thirteen Weeks Ended Fifty-Two Weeks Ended
 December 27,
2019
 December 28,
2018
 December 27,
2019
 December 28,
2018
Numerator:       
Adjusted Net Income$12,059  $9,576  $30,109  $22,871 
Add effect of dilutive securities:       
Interest on convertible notes, net of tax250    207  362 
Adjusted Net Income available to common

shareholders
$12,309  $9,576  $30,316  $23,233 
Denominator:       
Weighted average basic common shares

outstanding
29,595,723  29,438,806  29,532,342  28,703,265 
Dilutive effect of unvested common shares204,483  389,446  211,050  270,520 
Dilutive effect of convertible notes1,425,669    329,946  705,134 
Weighted average diluted common shares

outstanding
31,225,875  29,828,252  30,073,338  29,678,919 
        
Adjusted Net Income per share:       
Diluted$0.39  $0.32  $1.01  $0.78 


THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF ADJUSTED EBITDA GUIDANCE FOR FISCAL 2020
(unaudited; in thousands)

 Low-End Guidance High-End Guidance
Net Income:$26,850  $29,800 
Provision for income tax expense10,450  11,500 
Depreciation & amortization35,500  35,500 
Interest expense20,000  20,000 
EBITDA (1)92,800  96,800 
    
Adjustments:   
Stock compensation (2)6,800  6,800 
Duplicate rent (3)2,000  2,000 
Change in fair value of earn-out obligations (4)300  300 
Moving expenses (5)100  100 
    
Adjusted EBITDA (1)$102,000  $106,000 
  1. We are presenting estimated EBITDA and Adjusted EBITDA, which are not measurements determined in accordance with the U.S. generally accepted accounting principles, or GAAP, because we believe these measures provide additional metrics to evaluate our currently estimated results  and which we believe, when considered with both our estimated GAAP results and the reconciliation to our estimated net income, provide a more complete understanding of our business than could be obtained absent this disclosure. We use EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our performance relative to our performance based upon GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
     
  2. Represents non-cash stock compensation expense associated with awards of restricted shares of our common stock and stock options to our key employees and our independent directors.
     
  3. Represents rent and occupancy costs expected to be incurred in connection with our facility consolidations while we are unable to use those facilities.
     
  4. Represents the non-cash change in fair value of contingent earn-out liabilities related to our acquisitions.
     
  5. Represents moving expenses for the consolidation and expansion of our facilities.


THE CHEFS’ WAREHOUSE, INC.
2020 FULLY DILUTED EPS GUIDANCE RECONCILIATION TO 2020 ADJUSTED EPS GUIDANCE (1)(2)

 Low-End High-End
 Guidance Guidance
    
Net income per diluted share$0.86 $0.95
    
Duplicate rent (3)0.04 0.04
Change in fair value of earn-out obligations (4)0.01 0.01
    
Adjusted net income per diluted share$0.91 $1.00
  1. We are presenting estimated adjusted EPS, which is not a measurement determined in accordance with U.S. generally accepted accounting principles, or GAAP, because we believe this measure provides an additional metric to evaluate our currently estimated results and which we believe, when considered with both our estimated GAAP results and the reconciliation to estimated net income per diluted share, provides a more complete understanding of our expectations for our business than could be obtained absent this disclosure. We use adjusted EPS, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. The use of adjusted EPS as a performance measure permits a comparative assessment of our expectations regarding our estimated operating performance relative to our estimated operating performance based on our GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
     
  2. Guidance is based upon an estimated effective tax rate of 28.0% and an estimated fully diluted share count of approximately 34 million shares.
     
  3. Represents rent and occupancy costs expected to be incurred in connection with our facility consolidations while we are unable to use those facilities.
     
  4. Represents the non-cash change in fair value of contingent earn-out liabilities related to our acquisitions.