The Chefs' Warehouse, Inc. (CHEF) Q1 2026 Earnings Call Transcript
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Overview
The company reported strong financial performance with increased net income and EBITDA. Despite challenges in the Middle East, the guidance remains unchanged, indicating resilience. The Q&A reveals positive expectations for the summer and domestic travel trends, strong North American growth, and effective inflation management. The company's strategic flexibility for acquisitions and share repurchases, along with potential tailwinds from events like the World Cup, suggest a positive outlook. The market cap suggests a moderate reaction, leading to a prediction of a 2% to 8% stock price increase.
Key Financial Performance
Organic Net Sales Grew 10.4% year-over-year, driven by unique placement growth of 6.2%, specialty case growth of 5.7%, and price inflation.
Organic Specialty Sales Increased 6.8% year-over-year, primarily due to unique placement growth of 6.2%, specialty case growth of 5.7%, and price inflation.
Unique Customers Grew 1.9% year-over-year. Excluding the impact of transitioning out of noncore customer business in Texas, growth was approximately 4.3%.
Gross Profit Margins Increased approximately 53 basis points year-over-year to 24.3%. Specialty category margins increased 43 basis points, and center-of-the-plate category margins increased 110 basis points.
Net Sales Increased 11.4% year-over-year to $1.059 billion from $950.7 million in Q1 2025. Growth was driven by a 10.4% increase in organic sales and a 1% contribution from acquisitions.
Net Inflation Was 4.1% in Q1 2026, with 1.5% inflation in the specialty category and 8.2% inflation in the center-of-the-plate category.
Gross Profit Increased 13.9% year-over-year to $257.4 million from $226 million in Q1 2025.
Selling, General, and Administrative Expenses Increased 10.5% year-over-year to $224.1 million from $202.8 million in Q1 2025, primarily due to higher compensation and benefits, depreciation, and self-insurance-related costs.
Operating Income Increased to $33.1 million in Q1 2026 from $22.7 million in Q1 2025, driven by higher gross profit, partially offset by higher expenses.
GAAP Net Income Increased to $17.4 million ($0.40 per diluted share) in Q1 2026 from $10.3 million ($0.25 per diluted share) in Q1 2025.
Adjusted EBITDA Increased to $60.1 million in Q1 2026 from $47.5 million in Q1 2025.
Adjusted Net Income Increased to $17.2 million ($0.40 per diluted share) in Q1 2026 from $10.2 million ($0.25 per diluted share) in Q1 2025.
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Operating Highlights
Market Share Growth: Despite challenges such as extreme weather and the Middle East conflict, the company achieved strong year-over-year growth in volume, product penetration, unique customer growth, revenue growth, and profitability growth. North American operations, which represent over 90% of the business, continue to grow above guidance.
Middle East Operations: The Middle East business grew approximately 11% in January and February compared to the prior year. However, the conflict in the region reduced overall organic growth by approximately 50 basis points. Operations in Qatar and Oman performed closer to plan, while Dubai and Abu Dhabi faced challenges due to low occupancy in hotels and resorts.
Revenue and Profitability: Net sales increased by 11.4% to $1.059 billion, driven by a 10.4% increase in organic sales and 1% from acquisitions. Gross profit increased by 13.9% to $257.4 million, with gross profit margins improving by 53 basis points to 24.3%.
Cost Management: Selling, general, and administrative expenses rose by 10.5%, primarily due to higher compensation and benefits, depreciation, and self-insurance costs. Adjusted operating expenses as a percentage of net sales were 18.6%.
Liquidity and Debt: Total liquidity stood at $278.3 million, including $122.7 million in cash. Net debt was approximately $522 million, with a net debt to adjusted EBITDA ratio of 1.9x.
Strategic Focus on Talent and Technology: The company is investing in training the next generation of sales and operational talent, combining technology with industry expertise to strengthen its position as a trusted advisor to top chefs.
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Risk or Challenges
Conflict in the Middle East: The ongoing conflict in the Middle East has created volatility in supply chains and customer demand, particularly impacting operations in Dubai and Abu Dhabi due to low occupancy in hotels and resorts. This has reduced business performance in the region to approximately 75% of prior year levels.
Extreme Weather Events: Extreme weather events have caused volatility in business operations, potentially disrupting revenue trends and operational stability.
Attrition in Texas Non-Core Customer Business: The transition out of non-core customer business in Texas has impacted unique customer growth, though this effect is expected to normalize starting in the second quarter.
Inflation in Specialty and Center-of-the-Plate Categories: Net inflation of 4.1% in the first quarter, with 1.5% inflation in specialty categories and 8.2% in center-of-the-plate categories, could pressure margins and affect cost management.
Higher Operating Expenses: Increased costs associated with compensation, benefits, facility and fleet investments, and self-insurance have raised operating expenses, potentially impacting profitability.
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Guidance & Outlook
Revenue Growth: Momentum continued into April 2026, with expectations of double-digit top-line growth to start the second quarter.
Middle East Operations: Operations in the Middle East are currently operating at approximately 75% of prior year levels due to low occupancy in hotels and resorts. Qatar and Oman are performing closer to plan than Dubai and Abu Dhabi. Full-year guidance remains unchanged, with potential for upward revision if the situation normalizes.
Full-Year 2026 Guidance: Net sales are estimated to range between $4.35 billion and $4.45 billion. Gross profit is expected to be between $1.053 billion and $1.076 billion. Adjusted EBITDA is projected to range from $276 million to $286 million.
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Shareholder Return Plan
Share Repurchase Program: During the first quarter, the company purchased $10 million equivalent shares under its share repurchase program.
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Key Q&A
Q:What are the profitability implications for the Middle East business and its contribution to the overall business?
A:The Middle East business contributes less than 10% to the overall business and is very profitable. Despite short-term challenges, the company has not adjusted its top-line or adjusted EBITDA guidance. Over 90% of the business is compensating for the minimal impact from the Middle East.
Q:What is the company's outlook for the summer and domestic travel trends?
A:The company expects strong performance during the summer, with investments over the past 15 years starting to bear fruit. They anticipate continued market share growth and no slowdown in business.
Q:Has the Middle East business stabilized, and what are the expectations for its performance?
A:The Middle East business has been trending at about 75% of the prior year. The company has modeled multiple scenarios and decided to leave guidance unchanged, factoring in potential impacts from the conflict.
Q:How is the company managing inflation and commodity price fluctuations?
A:The company has effectively managed inflation and deflation through a diverse product portfolio, collaboration between teams, and investments in talent, systems, and infrastructure. Sequential price changes in dairy and other products have been manageable, and gross profit targets are being met.
Q:What is the impact of the CME business on the company's performance?
A:The CME business caused a 50 basis point drag on the top line in Q1 and a 200-300 basis point drag in April. Despite this, the company is growing double digits, with strong performance in North America offsetting the impact.
Q:How are different markets contributing to North America's strong top-line growth?
A:All markets are growing, with newer markets like Florida experiencing over 20% growth. Major markets like Texas, California, and New York are driving growth, with expectations for continued expansion and market share gains.
Q:What drove the strong gross margin performance, and how are customers handling inflation?
A:Strong gross margin performance was driven by effective management of sequential pricing changes and a diverse product portfolio. Customers are handling inflation well, with demand for premium products remaining strong.
Q:What is the company's outlook on EBITDA margin expansion?
A:The company expects 20 basis points of EBITDA margin expansion annually but acknowledges the potential for more due to operating leverage from investments. Uncertainty in the Middle East prevents immediate guidance adjustments.
Q:What is the company's approach to capital structure and share repurchase?
A:The company plans to maintain flexibility for strategic acquisitions, continue opportunistic share repurchases, and gradually pay down debt.
Q:Are there any other potential tailwinds for the consumer outside of the Middle East improving?
A:The company sees potential tailwinds from events like the World Cup in the U.S., which could benefit restaurants and hotels in major markets.
Q:Has the company seen any impact from major events like the Olympics?
A:The company does not quantify impacts from major events but acknowledges temporary bumps in business during such events.
Q:What is the outlook for Q2 and customer sentiment?
A:The company is cautiously optimistic, expecting strong performance driven by graduations, Mother's Day, outdoor dining, and the World Cup. Customers remain optimistic with consistent investment in restaurants and hotels.
Q:What is driving EBITDA margin gains?
A:EBITDA margin gains are attributed to investments in training, technology, infrastructure, and the maturity of teams managing pricing, procurement, and operations.
Q:What is contributing to placement growth?
A:Placement growth is driven by leveraging new facilities, technology, and expanding into new territories.
Q:What is the current M&A environment and the company's approach?
A:The M&A pipeline is active, but the company is patient and selective, focusing on strategic and accretive opportunities.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the percent of EBITDA contributed by the Middle East business, the exact impact of major events like the World Cup, and precise quantification of EBITDA margin gains attributed to specific factors. Additionally, they did not provide a clear breakdown of the impact of inflation on customer behavior or detailed projections for the Middle East business performance.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CFO presentation
East strength
East team
Momentum digit
Pappas Founder
Texas customer
adviser chef
attrition transition
base specialty
body volatility
chain customer
color moment
conflict color
customer attrition
customer demand
customer profitability
demand member
digit line
employee slide
event start
focus safety
generation sale
improvement route
industry know
ingredient professional
investment generation
job volatility
know adviser
line situation
member job
moment Chefs
moment update
penetration customer
people safety
plan understanding
plate basis
presentation information
product penetration
website
CHEF Transcript
The Chefs' Warehouse, Inc. (CHEF) Q1 2026 Earnings Call Transcript
Positive4-29
The company reported strong financial performance with increased net income and EBITDA. Despite challenges in the Middle East, the guidance remains unchanged, indicating resilience. The Q&A reveals positive expectations for the summer and domestic travel trends, strong North American growth, and effective inflation management. The company's strategic flexibility for acquisitions and share repurchases, along with potential tailwinds from events like the World Cup, suggest a positive outlook. The market cap suggests a moderate reaction, leading to a prediction of a 2% to 8% stock price increase.
The Chefs' Warehouse, Inc. (CHEF) Presents at UBS Global Consumer and Retail Conference Transcript
Neutral3-11
The Chefs' Warehouse, Inc. (CHEF) Q4 2025 Earnings Call Transcript
Unknown2-11
The earnings call highlights mixed signals: while adjusted EBITDA and net income have improved, gross profit margins and operating income have declined. Management's cautious optimism and focus on acquisitions and shareholder returns are positives, but unclear responses in the Q&A, particularly regarding buybacks and AI, create uncertainty. The company's market cap suggests moderate volatility, leading to a neutral prediction.
The Chefs' Warehouse, Inc. (CHEF) Presents at Morgan Stanley Global Consumer & Retail Conference 2025 Transcript
Neutral12-2
CHEF Report
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