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Chefs' Warehouse Sizzles With Strong Growth

By Dan Caplinger - Feb 20, 2016 at 8:27AM

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The top and bottom lines for the specialty-food distributor were solid to finish 2015.

Distributor Chefs' Warehouse (CHEF 1.55%) has found a key niche in the food-services industry, providing the gourmet and specialty food products that have suddenly found strong demand in the North American market. Between professional chefs looking for key ingredients, and ordinary shoppers seeking a special treat, Chefs' Warehouse aims to provide things you can't get elsewhere.

Coming into Thursday's fourth-quarter financial report, Chefs' Warehouse investors were hoping that the company would continue to grow at a strong pace. The specialty food distributor gave investors even more than they bargained for, posting results that topped expectations. Let's take a closer look at how Chefs' Warehouse did to finish 2015, and what's ahead for the future.

Chefs' Warehouse makes investors' mouths water
Chefs' Warehouse's fourth-quarter results once again topped the high expectations that investors had set for the company. Revenue climbed 31%, to $299.7 million, outpacing the consensus forecast for roughly $297 million. Net income jumped 28%, to $6.7 million, and that produced adjusted earnings of $0.26 per share, topping expectations by $0.01 per share.

Looking more closely at the numbers, Chefs' Warehouse's growth came largely from acquisitions. The purchase of Del Monte in April 2015 had an especially large impact, and all told, acquisitions added about 25 percentage points to the company's top line. That left organic growth of more than 6%, and Chefs' Warehouse reported higher case counts, unique customer counts, and placements in its core specialty business. Food-cost inflation remained in check, rising just 1.6% during the quarter, as rising meat prices offset declines in seafood costs.

Margin performance at Chefs' Warehouse was mixed. Gross margins climbed about three-quarters of a percentage point, to 25.7%, and the performance of the Allen Brothers and Del Monte businesses were the biggest contributors to those gains. However, operating expenses rose at a faster rate than sales, and that led to a drop in operating margins of a tenth of a percentage point, to 5%. Chefs' Warehouse cited higher health insurance costs and occupancy expenses for the hit to profits.

CEO Chris Pappas had good things to say about the progress that Chefs' Warehouse has made. According to Pappas, "2015 was a momentum-building year for the Company as we continue to create the industry-leading, dynamic food market and distribution company we envisioned when we went public four years ago." With acquisitions, as well as a new distribution facility in Chicago, and expanded capacity in key areas like New York and Las Vegas, Chefs' Warehouse has moved forward aggressively.

What's next for Chefs' Warehouse?
Chefs' Warehouse doesn't see things slowing down anytime soon. For the full 2016 year, the company expects revenue in a range between $1.15 billion and $1.20 billion, with adjusted earnings of $0.81 to $0.88 per share. Both figures are consistent with what investors were already expecting from Chefs' Warehouse.

Interestingly, Chefs' Warehouse has managed to do well where less-specialized rivals have slowed down. United Natural Foods (UNFI -1.28%) is well-known for being a key distributor in the natural-foods category, which has enjoyed the same popularity as gourmet items over recent years. Yet United Natural Foods has seen its stock price slump considerably over the past year.

Rising competition in the space has had an impact on United Natural's ability to dominate the industry, but another factor might simply be that United Natural Foods has grown to be a big enough player that it's harder for it to find incremental gains. By contrast, Chefs' Warehouse has more growth runway remaining, and that should help it produce better returns.

Chefs' Warehouse investors were pleased with the company's results, pushing the stock up 13% after the announcement. As long as conditions remain favorable, Chefs' Warehouse looks to be on track to produce solid results in 2016 and beyond.

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Stocks Mentioned

United Natural Foods, Inc. Stock Quote
United Natural Foods, Inc.
UNFI
$40.72 (-1.28%) $0.53
The Chefs' Warehouse, Inc. Stock Quote
The Chefs' Warehouse, Inc.
CHEF
$41.21 (1.55%) $0.63

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