Image: Chefs' Warehouse.
Food isn't just a necessity of life. It's also a huge business, and recently, the rise of gourmet cuisine has led to a huge explosion in specialty restaurants catering to the wishes of millions of patrons across the nation. To get the key ingredients they need, many of these restaurants turn to Chefs' Warehouse (CHEF +1.26%), which aims to serve up even the rarest and most luxurious ingredients as necessary for its clientele. Coming into Thursday morning's first-quarter financial report, investors in Chefs' Warehouse were expecting reasonable growth in sales and net income; although the company didn't meet the stretched expectations of some investors, it nevertheless did well enough to post a solid gain in its stock price. Let's look more closely at Chefs' Warehouse and what its latest report says about its future.
Chefs' Warehouse serves up tasty results
Chefs' Warehouse enjoyed growth on both the top and bottom lines. Net sales rose 6.3% to $198.9 million, although that growth pace was a couple percentage points slower than investors had hoped to see from Chefs' Warehouse. After modifying net income to reflect charges related to acquisition integration, adjusted earnings of $0.08 per share were a third higher than last year's first quarter and met expectations among investors.
Most of the company's growth came from building up its existing business, although the acquisition of Euro Gourmet last October was responsible for about half a percentage point of the company's overall sales increase. Despite seeing tough conditions due to bad weather in the Northeast, unique customer counts rose by 13%, and case-volume figures rose by more than 5% from the year-ago quarter. Chefs' Warehouse noted food-cost inflation of around 4%, with the biggest gains coming in meat and other proteins.
One slight concern came from rising expenses, which jumped more than 11% and pushed up operating expenses as a percentage of sales by more than a percentage point. Yet Chefs' Warehouse hopes that increased spending on information-technology infrastructure, as well as the acquisition of Del Monte Meat, will make any added expenses pay off in higher sales and earnings down the road.
Image: Chefs' Warehouse.
CEO Chris Pappas was happy with the results that Chefs' Warehouse posted. Pappas pointed to the Del Monte Meat acquisition as one that "significantly strengthens our protein category as well as our presence in the northern California market." In addition, the company is looking to begin distributing from its new facilities in major metropolitan areas including the Bronx borough of New York City, San Francisco, Chicago, and Las Vegas.
Will Chefs' Warehouse stay hungry?
Chefs' Warehouse's guidance also kept shareholders optimistic about the company's future. Sales of $1 billion-$1.1 billion for the year compare favorably to the $1.03 billion consensus among investors, and the range of adjusted earnings from $0.69-$0.78 per share is in line with the current $0.75 per share projection. Prospects for even faster growth have clearly impressed shareholders looking for accelerating performance in the months and years to come.
The big question investors have to answer is whether Chefs' Warehouse is using the right big-picture strategy. Some shareholders believe Chefs' Warehouse could do a better job of boosting margins by raising prices, especially with many high-priced restaurants being more than able to pass on any higher costs to customers. Instead, Pappas and his team have largely chosen not to try to maximize profit right now, instead building up its base of business first with the longer-term intention of expanding margins once the company has gotten customer counts as high as possible.
Chefs' Warehouse shareholders reacted favorably to the news, sending the stock up 4% by midday following the announcement. As Americans continue to get more familiar with the food they eat and seek to find ways to boost quality and get a high-quality fine-dining experience, Chefs' Warehouse should only see its opportunities grow. As long as it executes well on its strategies, Chefs' Warehouse has plenty of room to run higher in the long term.
