Chefs' Warehouse, Inc. (CHEF)

The Chefs' Warehouse, Inc. operates as a premier distributor of specialty food and center-of-the-plate products in the United States, the Middle East, and Canada, focused on serving chefs who own or operate menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos, and specialty food stores. The foodservice distribution industry is highly fragmented and competitive, with competition based on the quality and price of products distributed and the distributor's ability to completely and accurately fill orders and deliver them in a timely manner. The company competes with numerous smaller distributors on a local level, as well as with a limited number of national broadline foodservice distributors, some of which have greater financial and other resources. The industry is consolidating, and the company believes consolidation trends will continue to present acquisition opportunities.

The company believes it holds a distinct competitive advantage in serving its core customers due to its extensive selection of distinctive and hard-to-find specialty and center-of-the-plate food products, its product knowledge, and its customer service. Based on management's industry knowledge and experience, the company believes it is among the largest distributors of specialty food products, as measured by net sales, in the New York, Washington, D.C., San Francisco, and Los Angeles metropolitan markets. The company's product portfolio includes over 90,000 stock-keeping units from more than 4,000 different suppliers. The company maintains collaborative relationships with thousands of chefs and leverages an experienced and sophisticated sales force of approximately 1,100 sales and customer service professionals. The company believes it is the primary distributor of specialty food products to the majority of its core customers.

The company generates revenue primarily through the distribution of specialty food products, center-of-the-plate products, produce, and broadline food products to foodservice customers. Revenue is recognized at the point at which control of each product is transferred to the customer, with most customer orders fulfilled within a day and payment terms typically 14 to 60 days from delivery. The company also markets certain center-of-the-plate products directly to consumers through its Allen Brothers mail and e-commerce platform. The company's business model is characterized by a high volume of sales with relatively low profit margins, though its profit margins are typically higher than more traditional broadline foodservice distributors.

The company's product portfolio is divided into two principal categories: center-of-the-plate and specialty. For the fiscal year ended December 26, 2025, center-of-the-plate net sales were $1,608,808 thousand ¹, representing 38.8% ² of total net sales. Specialty product net sales were $2,540,729 thousand ³, representing 61.2% ⁴ of total net sales. The specialty category is further disaggregated into dry goods with net sales of $656,793 thousand ⁵ (15.8% ⁶ of total), pastry with $562,301 thousand ⁷ (13.6% ⁸), cheeses and charcuterie with $292,680 thousand ⁹ (7.1% ¹⁰), produce with $516,605 thousand ¹¹ (12.4% ¹²), dairy and eggs with $296,839 thousand ¹³ (7.2% ¹⁴), oils and vinegars with $135,553 thousand ¹⁵ (3.3% ¹⁶), and kitchen supplies with $79,958 thousand ¹⁷ (1.8% ¹⁸). The company carries more than 90,000 SKUs ¹⁹ and offers numerous gourmet brands alongside proprietary brands in staple products like bulk olive oil, Italian grating cheeses, and butter.

The company's center-of-the-plate product line includes custom cut beef, seafood, and hormone-free poultry. The company also offers produce and broadline food products such as cooking oils, butter, eggs, milk, and flour. The specialty food products are defined as gourmet foods and ingredients of the highest grade, quality, or style, including artisan charcuterie, specialty cheeses, unique oils and vinegars, truffles, caviar, chocolate, and pastry products. The company's importing division provides access to exclusive items, including regional olive oils, truffles, and charcuterie from Italy, Spain, France, and other Mediterranean countries. The company's Allen Brothers subsidiary markets certain center-of-the-plate proteins directly to consumers through a mail and e-commerce platform.

On October 1, 2025, the company entered into an asset purchase agreement to acquire substantially all of the assets of Italco Food Products, a specialty food distributor based in Denver, Colorado, for a purchase price of $16.5 million ²⁰, subject to customary working capital true-ups. In connection with this acquisition, the company issued an $11.0 million ²¹ unsecured note at an original issue discount of $0.3 million ²² and paid $5.5 million ²³ cash at closing. In August 2025, the company entered into an amendment to its asset-based loan credit agreement, extending the maturity date to August 20, 2030, eliminating the credit spread adjustment, and increasing the aggregate letters of credit, with no changes to the aggregate commitments of $300 million ²⁴. During fiscal 2025, the company made voluntary principal prepayments of $5.0 million ²⁵ towards the senior secured term loan. The company repurchased and retired 241,198 ²⁶ shares of its common stock at an average purchase price of $62.19 ²⁷ per share under a two-year share repurchase program that ended in December 2025, with a total of 667,433 ²⁸ shares repurchased for $32.4 million ²⁹.

For the fiscal year ended December 26, 2025, the company reported net sales of $4,149,537 thousand ³⁰, an increase of 9.4% ³¹ compared to $3,794,212 thousand ³² in the prior fiscal year. Gross profit was $1,004,090 thousand ³³, compared to $914,147 thousand ³⁴ in the prior year, with gross profit margin increasing approximately 10 basis points to 24.2% ³⁵. Net income was $72,361 thousand ³⁶, compared to $55,479 thousand ³⁷ in the prior year. Diluted earnings per share were $1.68 ³⁸, compared to $1.32 ³⁹ in the prior year. Net cash provided by operating activities was $129,219 thousand ⁴⁰, compared to $153,061 thousand ⁴¹ in the prior year.

The company's growth strategy includes increasing penetration with existing customers by selling more products and increasing the efficiency of its sales professionals. The company also plans to expand its customer base within existing markets by cultivating new customer relationships in the fragmented specialty food distribution industry, targeting menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos, and specialty food stores. The company believes substantial organic growth opportunities exist in its current markets through increased penetration and the addition of new customers, and it has identified new markets that present opportunities for future expansion.

The company's growth strategy also includes pursuing selective acquisitions to increase penetration in existing markets, expand its footprint into new markets, and enhance product capabilities. Since its initial public offering, the company has completed thirty-eight acquisitions. The company believes it can improve the operations and overall profitability of each acquired company by leveraging its sourcing relationships, implementing its sales force training techniques and metrics, and installing improved warehouse management and information systems. The company also continues to invest in its people, facilities, and technology to support sales and service territory expansion, operational excellence, expanded purchasing programs, product innovation, operational efficiencies, and operating expense reduction.

The company aims to improve its operating margins by leveraging investments in facilities and information technology platforms, along with improved efficiencies in general and administrative functions. The company intends to maintain its focus on realizing efficiencies and economies of scale in purchasing, warehousing, distribution, and general and administrative functions, which, when combined with incremental fixed-cost leverage, the company believes will lead to continued improvements in its operating margin over time. The company's profit margins are sensitive to inflationary and deflationary pressures, and volatile food costs may have a direct impact upon profitability. Some products, particularly certain center-of-the-plate protein items, are priced on a cost-plus markup, which helps mitigate the negative impact of deflation.

The company operates 44 distribution centers ⁴² totaling approximately 3.1 million square feet ⁴³ and provides service six days a week in many service areas, utilizing its fleet of delivery trucks to fill customer orders, usually within 12-24 hours of order placement. The company is implementing wearable inventory scanning devices as its selection technology and has deployed truck scanning across most of its fleet. The company is in the process of implementing a supply chain planning system and is utilizing advancements in search and artificial intelligence to better predict customer needs. The company believes its current systems are scalable and can be leveraged together with targeted investments in new technology like artificial intelligence, robotics, drones, and low-code development to drive profitable growth.

Capital expenditures, excluding cash paid for acquisitions, were approximately $41.4 million ⁴⁴ for fiscal 2025. The company believes capital expenditures, excluding cash paid for acquisitions, for fiscal 2026 will be approximately $45.0 million to $55.0 million ⁴⁵. In November 2023, the company announced a two-year share repurchase program in an amount up to $100.0 million ⁴⁶, which ended in December 2025. The company has never paid, and has no immediate plans to pay, cash dividends on its common stock, and its ability to pay dividends is limited by the terms and conditions of its senior secured credit agreements.

The company's business is exposed to reductions in consumer discretionary spending because its target customers operate in the food-away-from-home industry, and consumer discretionary spending may be affected by factors including general economic conditions, inflation, disposable income levels, consumer confidence, and supply chain disruptions. Prolonged periods of product cost inflation may negatively impact profit margins if the company is unable to pass on cost increases to customers, and product cost inflation may negatively impact consumer discretionary spending decisions. The company's financial condition and results of operations are highly dependent upon the local economies of the culinary markets in which it distributes products, with sales in the New York market accounting for approximately 16% ⁴⁷ of net sales for fiscal 2025, making the company particularly exposed to downturns in that regional economy.

The company faces risks related to its substantial indebtedness, which as of December 26, 2025, totaled approximately $759.0 million ⁴⁸, consisting of $252.0 million ⁴⁹ of loans outstanding on its senior secured term loan facility, $287.5 million ⁵⁰ of convertible debt, $100.0 million ⁵¹ of borrowings outstanding under its asset-based loan facility, and $119.5 million ⁵² of finance leases and other financing obligations. This indebtedness requires the company to utilize a substantial portion of its cash flows from operations to make payments, increases its vulnerability to adverse economic conditions, limits its flexibility, and makes it more vulnerable to increases in interest rates as borrowings under its credit facilities are at variable rates. The company's ability to comply with fixed charge coverage ratios and leverage ratios in the future may be affected by events beyond its control.

Management's discussion emphasizes the company's position as a premier distributor of specialty foods in leading culinary markets, highlighting its portfolio of over 90,000 SKUs and service to more than 55,000 core customer locations. The forward-looking statements in the filing discuss the company's growth strategies, including increasing penetration with existing customers, expanding the customer base within existing markets, improving operating margins, and pursuing selective acquisitions. Management states that the company believes substantial organic growth opportunities exist in current markets and that it has identified new markets for future expansion. The company's strategic priorities for the period ahead include investing in people, facilities, and technology to achieve sales and service territory expansion, operational excellence, expanded purchasing programs, product innovation, operational efficiencies through system enhancements and consolidation, and operating expense reduction through centralization of general and administrative functions.

For the fiscal year ended December 26, 2025, total net sales were $4,149,537 thousand ⁵⁵, compared to $3,794,212 thousand ⁵⁶ in the prior fiscal year. Net income was $72,361 thousand ⁵⁷, compared to $55,479 thousand ⁵⁸ in the prior year. Diluted earnings per share were $1.68 ⁵⁹, compared to $1.32 ⁶⁰ in the prior year. Gross profit was $1,004,090 thousand ⁶¹, compared to $914,147 thousand ⁶² in the prior year, with gross profit margin of 24.2% ⁶³ compared to 24.1% ⁶⁴. Operating income was $145,106 thousand ⁶⁵, compared to $128,207 thousand ⁶⁶ in the prior year. Interest expense was $41,564 thousand ⁶⁷, compared to $48,675 thousand ⁶⁸ in the prior year. Net cash provided by operating activities was $129,219 thousand ⁶⁹, compared to $153,061 thousand ⁷⁰ in the prior year. As of December 26, 2025, cash and cash equivalents were $120,982 thousand ⁷¹, compared to $114,655 thousand ⁷² in the prior year. Total indebtedness was approximately $759.0 million ⁷³, consisting of $252.0 million ⁷⁴ in senior secured term loans, $287.5 million ⁷⁵ in convertible senior notes, $100.0 million ⁷⁶ in borrowings under the asset-based loan facility, and $119.5 million ⁷⁷ in finance leases and other financing obligations. The company recognized a customer relationships intangible asset impairment charge of $8,023 thousand ⁷⁸ in fiscal 2025 related to the loss of non-core customers, post acquisition. The effective tax rate was 30.1% ⁷⁹ for fiscal 2025, compared to 30.2% ⁸⁰ in the prior year.

The company's success depends significantly on general economic conditions and consumer discretionary spending, as its target customers operate in the food-away-from-home industry, and a downturn could reduce the frequency of dining out. The business is a low-margin operation sensitive to inflationary and deflationary pressures, and volatile food costs may directly impact profitability if cost increases cannot be passed on to customers. The company has substantial indebtedness of approximately $759.0 million ⁵³, which requires a significant portion of cash flows for debt service, increases vulnerability to adverse economic conditions, and limits operational flexibility. The company's financial condition is highly dependent on the local economies of its key culinary markets, with the New York market alone accounting for approximately 16% ⁵⁴ of net sales in fiscal 2025, making it particularly exposed to a downturn in that region. The company faces risks from information technology system failures, cybersecurity incidents, or other disruptions to its use of technology and networks, which could interrupt operations and adversely affect the business.