Image source: The Motley Fool.
Date
Wednesday, Oct. 29, 2025 at 8:30 a.m. ET
Call participants
Chief Executive Officer — Christopher Pappas
Chief Financial Officer — James Leddy
Need a quote from a Motley Fool analyst? Email [email protected]
Takeaways
Protein inflation -- Noting that "protein prices have been pretty firm the entire year."
Protein margins -- CFO Leddy stated, "Our year-over-year protein margins were down versus the prior year."
Unique customer growth -- He noted mid to high mid-single-digit unique customer growth year over year. It was impacted by Texas customer attrition and temporary Middle East shutdowns in the summer.
Middle East operations -- The Oman site is "close to finishing," according to James Leddy, and the region is "seeing really nice double-digit growth" year over year in the quarter.
Texas market -- CEO Pappas said, "we are just really new," describing the company as being "in the first inning" of growth opportunities in Texas after an acquisition.
Digital penetration -- James Leddy stated adoption on the specialty side is "a little bit over 60%" for the quarter.
Natural account attrition -- CEO Pappas cited expected customer attrition at "7% to 10%," underscoring the importance of growing both the account base and product categories.
Atalco acquisition -- CEO Pappas described the deal as a "really super high-quality company," calling it one of the "last small boutique companies" with a narrow but complementary high-end product catalog.
Holiday bookings -- CEO Pappas reported "hearing good holiday bookings," expressing a cautiously optimistic outlook for the holiday quarter.
Organic market expansion -- CEO Pappas pointed to facility and team investments in Florida, California, and Richmond, VA, resulting in "great ROI" and "great growth."
Summary
The Chefs' Warehouse (CHEF +4.22%) highlighted continued category and geographic expansion, while directly addressing protein inflation and customer base resilience. Steps to expand operating capacity in the Middle East and recent market entry in Texas reflect multi-year growth strategies. The company is seeing robust digital adoption among specialty product customers. Atalco positions the company to gain future market share in new regions.
CEO Pappas stated, "there are a few exceptions, and they're minor in the total volume. But we're accelerating growth in so many different categories and in smaller markets."
CFO Leddy confirmed, "a good amount of our elevated protein volume growth year over year was driven by our nascent but really well-growing protein program" in the Middle East.
Management indicated that major competitor consolidations may offer opportunity, with CEO Pappas stating, "If this big deal goes through, we are cautiously optimistic that it could be really, really good for CW just from the fact that customers are going to want to hedge their bet and will pick up a lot of new business."
CEO Pappas cited ongoing organizational focus on customer service, stating, "You have to have the service, and you have to be likable. And I think our laser focus on our customer base and who we are and not trying to be someone else, think that's what I see."
Industry glossary
Protein margins: Profitability related to the sale of center-of-the-plate proteins, such as beef or poultry, after accounting for input costs and pricing.
Digital penetration: The share of customers using digital ordering platforms or tools in the company's sales mix.
Unique customer growth: The year-over-year increase in the number of distinct accounts purchasing from the company.
Full Conference Call Transcript
Christopher Pappas: When you really look at who The Chefs' Warehouse, Inc. is, we are servicing, obviously, there's overlap. We always have competition. Our motto is anybody that has a truck is a competitor. So we have that competitive nature, but we really do beat to a different drum. It's a much more complicated logistical business that we've put together over forty years. And the way we go to market and the customer base, it's very diverse. It's purposely that way because I've lived through all the past recessions and things that can go wrong, obviously, like COVID. So it's pretty diverse and it was strategically created that way.
So we do have a balance, and no one is immune to a big headwind. But we like the position where we're positioned in the market, and we're cautiously optimistic that our customer base is more resilient than the overall food away from home market.
Brian Harbour: Does that answer your questions?
Brian Harbour: Yes. Thank you.
Christopher Pappas: Thank you.
Operator: We take the next question from the line of Peter Saleh from BTIG. Please go ahead.
Peter Saleh: Great. Good morning. Congrats on a great quarter. Maybe just wanted to ask on inflation and beef costs. There's been a lot of discussion. There's been a lot of inflation in that and beef. What are you guys seeing as it doesn't seem like it's impacting your margins, at least not in the third quarter. Any thoughts on the go forward and the overall beef market and the impact on financials?
James Leddy: Yes. I think what you saw in the third quarter, Pete, was an elevated level of inflation year over year. I think protein prices have been pretty firm the entire year, so some of it is the year over year comparisons. But when you exclude the Texas transition, it's around 5% year over year. So definitely elevated.
Our year over year protein margins were down versus prior year, but we got really good gross profit dollar growth because when you have that level of inflation, you're not going to pass all of it on to your customer and you're going to get it back over time as you hold prices a little bit and drag them down a little slower when the market comes down. So I think our team has done a good job of managing through this inflationary environment. In terms of securing the supply chain, we sell the highest quality proteins in the industry to the best restaurants and steakhouses. So I think they've done a good job of navigating this inflationary environment.
Peter Saleh: Great. And then just on the Chef Middle East business, I think you mentioned there was maybe a little bit of a step back, which makes sense. Has that started to recover again as we head into the fourth quarter here? Just curious as to the trajectory on that business.
James Leddy: Yeah. We just highlighted that our unique customer growth, which is usually in the kind of mid to high mid single digit kind of year over year type of growth consistent with our placement growth and volume growth. It was impacted by the attrition in Texas and the Texas transition of those low margin customers. And then in The Middle East, during the summer when you had the Qatar conflict, we had some customers shut down for a couple of months, but they've started to come back online. Those two things impacted our unique customer growth. We really just highlighted the Chefs Middle East just for that kind of temporary impact. Overall, the business continues to grow really nicely.
As you know, we've expanded not only our Dubai facility but we've also recently expanded our facility in Qatar, and we're pretty close to finishing our facility in Oman. So we're expanding our capacity in all three of those markets. And we're seeing really nice double-digit growth, and they continue to improve a good amount of our elevated protein volume growth in the quarter year over year was driven by our nascent but really well-growing protein program that we've kind of started to enhance in the region.
Peter Saleh: Thank you.
Operator: We take the next question from the line of Kelly Bania from BMO Capital Markets. Please go ahead.
Kelly Bania: Thanks. Good morning, Chris and Jim. I wanted to just go back a little bit to the acceleration in the past couple of months. Just curious if that you can talk about that a little bit more in terms of how that played out between your mature markets and maybe your higher growth markets. Is it more broad-based? If there's any particular categories or regions that are standing out in terms of how that played out through the quarter in terms of the growth rates.
Christopher Pappas: Yeah. I think you got to look at it, Kelly, that obviously the bigger markets have more impact on our numbers. And they're doing great. The smaller markets, obviously, their percentage growth is higher, but it's, you know, from a for a smaller number. So I think that, I know it's hard to look at from your seat. It's so diverse now, Chef's Warehouse. We're pretty much, I mean, there are a few exceptions, and they're minor in the total volume. But we're accelerating growth in so many different categories and in smaller markets.
That it's hard to really give you a total picture, but from my desk, obviously, I look at categories, I look at subcategories, I look at the major territories, out of territories, I just think the team has done such a great job executing the vision. That we want to be the partner of the chef and that mid to high casual all the way up to super fine dining, and I just think they're really executing. And they're taking, obviously, they're taking market share, and they're also winning on a lot of what's opening, right, which is really important for us because just our natural attrition is, say, 7% to 10%.
So it's so important for us to keep growing. The account base and the category base. Especially when you have negative news all over the news that some customer accounts are done, I just think our customer base, again, we're small compared to if you're gonna put us in the distribution world. We're really boutique, and we like being boutique, and we like where we are. And I just think it's hard to compare us to everything else and all the noise that's out there.
Kelly Bania: Just to follow up on that, and then I wanted to ask about the acquisition. How much do you, Chris, attribute this to just the training that you've been investing in with the sales force and some of the education and tools that you're giving to the sales force?
Christopher Pappas: Yeah. I think a lot. You know, again, you know, we're celebrating our fortieth year. And I've been looking at these numbers for probably forty-two years, even while we were trying to get going. So it takes so much to train the team to sell the premium products that we sell. It's not an overnight. You've got to invest way ahead of time. I just think the team is doing such a fabulous job executing, and you have to be at this level. And our digital team, our IT team, we're giving them all the tools that you need today. Everyone talks about AI. Of course, we're using AI and investing in AI.
I think everybody is gonna have good AI. I don't think that's going to be the differentiator at the end of the day. You have to have it. But the customer needs to want to do business with you. You know, we always say Chef's not for everyone. And, of course, we wanna sell, you know, more and more products. But we're really disciplined on who we are, and we're not for everyone. So I think the AI tools are making us better. I think right there, world-class with everybody else and where we're investing, and we're getting a great return on those tools.
But at the end of the day, you still have to satisfy the customer in every way. You have to have the service, and you have to be likable. And I think our laser focus on our customer base and who we are and not trying to be someone else, think that's what I see. I think you're seeing the results from that.
Kelly Bania: Thank you. That's helpful. Can I just ask one more about the acquisition? I think Atalco just maybe what stood out about that acquisition. It's been a while. I'm sure there's a lot of potential targets on your desk. What stood out? Why does this make sense for Chef now? And can you just talk a little bit about the margin structure and the quality of their book of business? And how much it aligns with Chef's philosophy on the quality of the customer.
Christopher Pappas: Sure. Great question. And, again, it is a small acquisition. It's a really super high-quality company, great people. We've known them for years and years and years. We just were so busy with so many other markets and all these all the facilities we were putting up, getting going, and all categories we've invested in that thank God they were very patient and waited for us because it's one of the last, I would say, really pure specialty businesses. You know, we bought a bunch of these early on when we went public, and we were getting our foot into all the states, right? We said we're gonna be in just about every NFL city. Except maybe Green Bay.
And they were really one of the last small boutique companies that for us, it was like a no-brainer. You know, they have a similar category catalog of high-end products. Service a ton of customers. Their offerings are much more narrow than us. So that's why we're really excited about this because with Chefs Warehouse catalogs and all our teams going in there, doing training, hiring, we're going to hire a lot of salespeople. Throughout Colorado and obviously boutique places like New Mexico, and they're going to all the mountains and resorts. And we're just really excited that this is going to be a great Chef's Warehouse over the next ten years.
Kelly Bania: Thank you.
Operator: We take the next question from the line of Margaret May Bienstock from Wolfe Research. Please go ahead.
Margaret May Bienstock: Hey, guys. Thanks for taking my question. I just wanted to ask if you guys continue to see progress with digital penetration to get towards your long-term goal through the quarter. And is there anything to call in terms of how digital penetration is helping you guys gain relevance with your existing customers? Thank you.
Christopher Pappas: Yeah. The digital team has done a great job. It is making the sales force more and more efficient. I think the whole goal of this is to be able to do more with less. And I think we're having great success. But we continue to really rely on our tremendous sales force really to push penetration. I think the digital tools are great support, and it's giving us that last extra, I always say it gives you that last extra yard getting into square touchdown. So we continue to invest in it. It continues to give us a great ROI. And it's just part of what I call the go-to sales strategy of Chef's Warehouse.
James Leddy: And Margaret, on adoption, we didn't have it in the presentation this quarter, but we're a little bit over 60% adoption on the specialty side. We continue to drive adoption.
Margaret May Bienstock: Awesome. Thank you. And then just one more. Anything to call out in terms of business-related travel? Are you seeing any weakness there?
Christopher Pappas: I mean, we hear a lot of complaints. We hear especially like in Las Vegas, Canadians aren't coming. We hear that in Florida as well. But in so many of our major cities, there's someone eating all this food. So I think there's lots of domestic tourism still, and in The Middle East, continue to have great tourism. We hear noise, but we look at our results, and we're really happy with them. So it'd be great if there was a big boom again with our friendly neighbors. I think that would obviously juice the returns even more. But we hear a lot, but we see the numbers, and we say someone's traveling.
Margaret May Bienstock: Thanks, Chris. Thanks, Jim.
Christopher Pappas: Thank you.
Operator: We take the next question from the line of Todd Brooks from The Benchmark Company. Please go ahead.
Todd Brooks: Hey, good morning to you both. Couple of questions. First, Jim, you talked about when you were thinking about the updated guidance and being comfortable with the mid to upper end of the revenue guidance. And Chris, you've been doing this a long time. When you're through October and you're talking to your customers now, what's the sense of kind of trend being locked in for a good holiday season based on the momentum that you've seen build across September and October?
Christopher Pappas: Always cautiously optimistic. We just had a bunch of big shows in a lot of our markets. I was fortunate enough to get out and attend and speak to a lot of customers, and, you know, it can always change. We live in really interesting times; a few tweets, and sentiment changes, but we're hearing good holiday bookings. So I was really enthused to hear that a lot of the holiday bookings are pretty strong. So we're really cautiously optimistic it's going to be a good quarter.
Todd Brooks: Okay, great. And then my last question: you've seen a lot, Chris. You've been doing this for over forty years, like you said. So I get a lot of incoming calls about, well, if Performance and US Foods get together, isn't that bad for Chef? Can you talk about just historically when you've seen big consolidations in the industry, what it's meant for the Chefs' Warehouse as far as maybe customers to be had, Salesforce talent to be had? I think that might clear up some of the maybe trepidation that some people think about the combination potentially happening.
Christopher Pappas: Sure. Great question. I could just go by historically, what we've seen. And even when we do an acquisition, I mean, we look at an acquisition, we're looking at it for long term. Obviously, fold-ins are very synergistic, right? You may usually just take in the sales force, and you're getting the efficiency on trucks, customer service, and the back office. All that wonderful stuff. But we always model going backwards. In most acquisitions, not all, Colorado, we think it's really small, but we think because it's so small, once we get everything squared out, it's just gonna be an explosive market for us.
But historically, we go backwards when we do an acquisition because customers usually want to hedge their bet. They're not sure and all that wonderful stuff. And when we've seen big acquisitions from in territories, we usually get a nice uptick. And again, a lot of it is customers want to hedge their bet, or there are salespeople are nervous, and a lot of integration and a lot going on. If this big deal goes through, we are cautiously optimistic that it could be really, really good for CW just from the fact that customers are going to want to hedge their bet and will pick up a lot of new business.
Todd Brooks: That's great. Thank you. Thanks, Chris.
Christopher Pappas: Thank you.
Todd Brooks: Thank you.
Operator: We take the next question from the line of Ben Klee from Lake Street Capital Markets. Please go ahead.
Ben Klee: Alright. Thanks for taking my questions, and congratulations on a really good quarter here. I've got a question about your organic growth initiatives over the last year or two. They're really starting to fill in. And I'm wondering if there's anything to call out operationally out of Texas, Florida, California, that has maybe been a surprise or an operational challenge as you go into the holiday season? Have those organic investments continued to progress as expected? Or has there been any issues to call out?
Christopher Pappas: Yeah. I don't think I've woken up one day in forty-two years where there isn't an issue. So it's the nature of a service company. But yes, I mean, we have such a great team. At this point, we're never satisfied. We're cautious and always striving to get better. Most markets, we're really cautiously optimistic that they're going to have a great fourth quarter and a great 2026. The biggest opportunities for us are in places like Texas, where we are just really new. We bought a company that's historically been in the market, but as Chefs Warehouse, we're still in the first inning. So we're just so excited about the opportunity for that growth over the next ten years.
Florida, we made the big investments. We're getting a great ROI. We have an incredible team, and we still think that we're in the first inning there, but we're really excited. LA's got a new facility, and they're having great growth. So we're really excited about that. We got our new protein facility up and running in Richmond, and they're having a great year, and we have great hopes for '26 and beyond. So I don't think there's a market that I'm not really I have any complaints about and couldn't be more proud of what they're doing. But the big opportunity in a market that we're just really new in like Texas, I think, is really exciting.
Ben Klee: Great. Great. Very helpful. Well, congratulations again to both of you and the whole team on a good quarter and a good outlook here for the fourth quarter. Thanks for taking my questions. I'll get back in queue.
Christopher Pappas: Thanks, Ben.
James Leddy: Thank you.
Operator: Ladies and gentlemen, as there are no further questions, I would now hand the conference over to Chris Pappas for his closing comments.
Christopher Pappas: Yes. Well, once again, I want to thank the team at CW. They've done a phenomenal job and really excited about what they're going to do in 2026 and beyond. And we thank all our investors and analysts for joining our call. And we look forward to the next call, and thank you again for joining.
Operator: Thank you. Ladies and gentlemen, the conference of The Chefs' Warehouse, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.