People have to eat no matter what the weather's like, and Chefs' Warehouse (CHEF -0.92%) delivers many of the top-notch foodstuffs that demanding consumers want through a variety of different weather conditions. Yet not all restaurants are fortunate enough to have such dedicated customers, and bad weather can cut down on their traffic and have a corresponding downward impact on their need for supplies from distributors like Chefs' Warehouse.
Coming into Wednesday's first-quarter financial report, Chefs' Warehouse investors were looking for good revenue growth but only modest bottom-line performance. The specialty food distributor outpaced those downbeat expectations, producing a solid profit and showing its resiliency. Chefs' Warehouse's results effectively signaled that the consumer economy is faring better than some had feared, and that could be good news going forward for a variety of related businesses.
Image source: Chefs' Warehouse.
The secret sauce of Chefs' Warehouse success
Chefs' Warehouse's first-quarter results were encouraging. Net sales climbed 11% to $318.6 million, matching expectations among those following the stock. Adjusted net income came in at $800,000, reversing a year-ago loss and working out to $0.03 per share in adjusted earnings, nicely above the breakeven results that represented investors' consensus forecast for Chefs' Warehouse.
Chefs' Warehouse got an almost even split of growth from organic sources and acquisitions. The purchase of Fells Point Wholesale Meats in August once again added about 5 percentage points of growth, leaving organic sales gains of 5.5% during the period. Case counts in the specialty category rose by 4.5% from year-ago levels, and counts of both unique customers and placements were higher by 3% to 4%. Pounds of proteins, which Chefs' Warehouse now refers to as its "center-of-the-plate" category, rose just a fraction of a percent during the quarter, but inflation of nearly 4% in specialty and 1.5% in the center-of-the-plate business showed how rising price trends in foodstuffs continued. That also affected gross margin, which dropped almost three-quarters of a percentage point to 25%.
Profitability measures looked stronger. Operating income nearly doubled from year-ago levels to $5.7 million, as expenses were higher by just 4% over the period. Lower management compensation, better utilization of warehouse assets, and improved salesforce efficiency cut costs as a percentage of sales by nearly a percentage point and a half.
Can Chefs' Warehouse keep things sunny?
CEO Chris Pappas explained how Chefs' Warehouse managed to do so well. "Despite some challenging winter weather across our network, especially in the Midwest early in the quarter and the four named winter storms that hit the Northeast and mid-Atlantic in February and March," Pappas said, "we continued to see solid organic growth amid a supportive economic backdrop and continued strength in independent restaurants."
Chefs' Warehouse updated its guidance to reflect what it sees as the current trends in the food business, both with its distribution to specialty food stores and to restaurants and other eating establishments. The company kept its sales guidance unchanged in a range of $1.4 billion to $1.44 billion, but net income projections saw a rise of $500,000 at the low end, producing a new range of $19.5 million to $22 million. That should lead to adjusted net income of $0.69 to $0.78 per share, with that range seeing a $0.01 boost on the bottom end.
Investors were happy with the outperformance, and Chefs' Warehouse stock was higher by 4% in after-hours trading Wednesday following the announcement. Shareholders will look forward to more normal conditions for the company, because a return to business as usual could spur even faster growth from the specialty food distributor during the key spring and summer months for the industry as a whole.
