The Chefs' Warehouse Reports First Quarter 2018 Financial Results

Net Sales Growth of 10.7%

RIDGEFIELD, Conn., May 09, 2018 (GLOBE NEWSWIRE) -- The Chefs' Warehouse, Inc. CHEF, a premier distributor of specialty food products in the United States and Canada, today reported financial results for its first quarter ended March 30, 2018.

Financial highlights for the first quarter of 2018 compared to the first quarter of 2017:

• Net sales increased 10.7% to $318.6 million for the first quarter of 2018 from $287.7 million for the first quarter of 2017.
• GAAP net income was $0.5 million, or $0.02 per diluted share, for the first quarter of 2018 compared to net loss of $1.6 million, or $(0.06) per diluted share, in the first quarter of 2017.
• Adjusted net income per diluted share was $0.03 for the first quarter of 2018 compared to adjusted earnings per diluted share of $(0.05) for the first quarter of 2017.
• Adjusted EBITDA¹ was $12.1 million for the first quarter of 2018 compared to $9.3 million for the first quarter of 2017.

"Despite some challenging winter weather across our network, especially in the mid-west early in the quarter and the four named winter storms that hit the Northeast and mid-Atlantic in February and March, we continued to see solid organic growth amid a supportive economic backdrop and continued strength in independent restaurants," said Chris Pappas, chairman and chief executive officer of The Chefs' Warehouse, Inc.

First Quarter Fiscal 2018 Results

Net sales for the quarter ended March 30, 2018 increased 10.7% to $318.6 million from $287.7 million for the quarter ended March 31, 2017. Organic growth contributed $15.9 million, or 5.5% to sales growth in the quarter. The remaining sales growth of $15.0 million, or 5.2% resulted from the acquisition of Fells Point Wholesale Meats Inc. on August 25, 2017. Organic case count grew approximately 4.5% in the Company's specialty category, which net of the expected attrition from the Chicago fold-in acquisition was 5.5%. In addition, growth in unique customers and placements grew 3.5% and 3.1%, respectively, compared to the prior year quarter. Excluding the impact of the Fells Point acquisition, pounds sold in the Company's center-of-the-plate category increased 0.3% compared to the prior year quarter. Estimated inflation was 3.8% and 1.5% in the Company's specialty and center-of-the-plate categories, respectively, compared to the prior year quarter.

Gross profit increased approximately 7.6% to $79.5 million for the first quarter of 2018 from $73.9 million for the first quarter of 2017. Gross profit margin decreased approximately 73 basis points to 25.0% from 25.7%, due in large part to the impact of inflation in certain center-of-the-plate categories. Gross margins in the Company's specialty category decreased 2 basis points and decreased 146 basis points in the Company's center-of-the-plate category compared to the prior year quarter.

Total operating expenses increased by approximately 4.2% to $73.8 million for the first quarter of 2018 from $70.8 million for the first quarter of 2017. As a percentage of net sales, operating expenses were 23.2% in the first quarter of 2018 compared to 24.6% in the first quarter of 2017. The decrease in the Company's operating expense ratio is due largely to better utilization of the Company's warehouse facilities and selling organization, lower year-on-year compensation and benefit costs related to the Company's management infrastructure and depreciation and amortization expense.

Operating income for the first quarter of 2018 was $5.7 million compared to $3.1 million for the first quarter of 2017. 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 1.8% in the first quarter of 2018 compared to 1.1% in the first quarter of 2017.

Total interest expense decreased to $5.0 million for the first quarter of 2018 compared to $5.9 million for the first quarter of 2017 due to a reduction in interest rates charged on the Company's outstanding debt.

Net income for the first quarter of 2018 was $0.5 million, or $0.02 per diluted share, compared to net loss of $1.6 million, or $(0.06) per diluted share, for the first quarter of 2017. 

Adjusted EBITDA¹ was $12.1 million for the first quarter of 2018 compared to $9.3 million for the first quarter of 2017. For the first quarter of 2018, adjusted net income¹ was $0.8 million and adjusted EPS¹ was $0.03 compared to adjusted net loss of $1.4 million and adjusted EPS of $(0.05) for the first quarter of 2017.

¹ Please see the Consolidated Statements of Operations at the end of this earnings release for a reconciliation of EBITDA, Adjusted EBITDA, adjusted net income and adjusted EPS to these measures' most directly comparable GAAP measure.

Full Year 2018 Guidance

Based on current trends in the business, the Company is providing the following updated financial guidance for fiscal year 2018: 

• Net sales between $1.40 billion and $1.44 billion
• Gross profit between $355.0 million and $365.0 million
• Net income between $19.5 million and $22.0 million
• Net income per diluted share between $0.68 and $0.77
• Adjusted EBITDA between $74.5 million and $78.0 million
• Adjusted net income per diluted share between $0.69 and $0.78

This guidance is based on an effective tax rate of approximately 28.5% and fully diluted shares of approximately 29.5 million shares. The outstanding convertible notes were anti-dilutive for the first quarter of 2018, however the Company expects them to be dilutive for the full year 2018, and accordingly, those convertible shares are included in the fully diluted share count.

Changes to Certain Reporting Metrics

Beginning in the first quarter of 2018, the Company will slightly alter the way it reports certain performance related metrics related to organic growth, inflation and changes in gross profit margins. These metrics were previously reported on a legal entity basis as "Protein", referring to the four Protein entities the Company acquired since 2013, and "Specialty", referring to its Specialty distribution entities. Going forward the Company will report these metrics using a product category basis as "Center-of-the-Plate" and "Specialty". Center-of-the-Plate will encompass all sales of Protein products across Chefs' Warehouse, while Specialty will encompass all remaining sales not considered Center-of-the-Plate.

Please refer to the table in Exhibit A for a comparison of these metrics for each quarter of 2017 as reported previously by legal entity grouping and as currently reported by product category.

First Quarter 2018 Earnings Conference Call

The Company will host a conference call to discuss first quarter 2018 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 13678578. The replay will be available until Wednesday, May 16, 2018, 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 ability to successfully deploy its operational initiatives to achieve synergies from its acquisitions; the Company's sensitivity to general economic conditions, changes in disposable income levels and consumer discretionary spending on food-away-from-home purchases; the Company's vulnerability to economic and other developments in the geographic markets in which it operates; the risks of supply chain interruptions due to a lack of long-term contracts, severe weather or more prolonged climate change, work stoppages or otherwise; the risks of loss of revenue or reductions in operating margins in the Company's center-of-the-plate category as a result of competitive pressures within this segment of the Company's business; changes in the availability or cost of the Company's specialty food products; the ability to effectively price the Company's specialty food products and reduce the Company's expenses; the relatively low margins of the foodservice distribution industry and the Company's and its customers' sensitivity to inflationary and deflationary pressures; the Company's ability to successfully identify, obtain financing for and complete acquisitions of other foodservice distributors and to integrate and realize expected synergies from those acquisitions; increased fuel cost volatility and expectations regarding the use of fuel surcharges; fluctuations in the wholesale prices of beef, poultry and seafood, including increases in these prices as a result of increases in the cost of feeding and caring for livestock; the loss of key members of the Company's management team and the Company's ability to replace such personnel; and the strain on the Company's infrastructure and resources caused by its growth. 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 9, 2018 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 48,000 products to more than 30,000 customer locations throughout the United States and Canada.

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

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 expense for our Chicago, IL and Bronx, NY 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 moving expenses for the consolidation of our Chicago, IL and Bronx, NY facilities.

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 expense for our Chicago, IL and Bronx, NY 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 of our Chicago, IL and Bronx, NY facilities.
    
5. Represents the non-cash change in fair value of contingent earn-out liabilities related to our acquisitions.
    
6. Represents the tax effect of items 2 through 5 above.

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 expected to be associated with awards of restricted shares of our common stock to our key employees and our independent directors.
   
   
3. Represents the non-cash change in fair value of contingent earn-out liabilities related to our acquisitions.

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 28.5% and an estimated fully diluted share count of approximately 29.5 million shares.
    
3. Represents the non-cash change in fair value of contingent earn-out liabilities related to our acquisitions.

EXHIBIT A

The quarterly sales mix of our revised principal product categories during fiscal year 2017 is as follows:

The quarterly sales mix of our principal product categories during fiscal year 2017 as previously reported is as follows:

The pro-rated 13-week quarterly performance metrics of our specialty and center-of-the-plate categories during fiscal 2017 are as follows: