Chefs' Warehouse, Inc. Q1 FY2026 Earnings Call

Greetings, and welcome to the Chefs' Warehouse First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman, and CEO; and Jim Leddy, our CFO. By now, you should have access to our first quarter 2026 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial measures, including, among others, historical and estimated EBITDA and adjusted EBITDA as well as historical adjusted net income, adjusted earnings per share, adjusted operating expenses, adjusted operating expenses as a percentage of net sales and as a percentage of gross profit, net debt, net debt leverage and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release and first quarter 2026 earnings presentation. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website. Today, we are going to provide a business update and go over our first quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on the Chefs' Warehouse website under the Investor Relations section titled First Quarter 2026 Earnings Presentation. Please note that these slides are disclosed at this time for illustration purposes only. Then we will open up the call for questions. With that, I will turn the call over to Chris Pappas. Chris?

Thank you, Alex, and thank you all for joining our first quarter 2026 earnings call. First quarter 2026 business activity displayed typical seasonal cadence as revenue trends coming out of January increased steadily into February and March. Despite some volatility in business due to extreme weather events and the start of the conflict in the Middle East later in the quarter, our team's exceptional execution and the strength of our North American business allowed us to continue to grow market share, delivering strong year-over-year growth in volume, product penetration, unique customer growth, revenue growth and profitability growth. Momentum continued into April, and we currently expect double-digit top line growth to start the second quarter. Regarding the current situation in the Middle East, our teams and operations in the region, the immediate focus has been the safety and security of our people. We have followed safety protocols instituted by governing bodies and are effectively navigating volatility in supply chains and customer demand. Our leadership and team members have done an amazing job managing both personally and professionally through the volatility and uncertainty and we hope for a resolution to the conflict soon. Jim will provide more color on the financial impact in a few moments. I would like to thank all of the Chefs' Warehouse from sales and operations to all the supporting functions for delivering a great start to 2026. Our regional leadership and their teams continue to execute our strategy to leverage our investments and train the next generation of sales and operational talent. They are accelerating our long-term plan as they grow deeper understanding of our customer base and become the ultimate specialty ingredient professionals, marrying technology with industry know-how to become trusted advisers to the best chefs in the world. With that, please refer to Slide 3 of the presentation. A few highlights from the first quarter include organic net sales grew 10.4%. Organic specialty sales were up 6.8% over the prior year, which was driven primarily by unique placement growth of 6.2%, specialty case growth of 5.7% and price inflation. Unique customers grew 1.9% year-over-year. Reported unique customer growth was impacted by the attrition related to our transition out of noncore customer business in Texas. We fully lapped this impact starting in the second quarter this year. Excluding this impact, first quarter year-over-year unique customer growth was approximately 4.3%. Pounds in center-of-the-plate were approximately 6.2% higher than the prior year first quarter. Gross profit margins increased approximately 53 basis points. Gross margin in the specialty category increased approximately 43 basis points as compared to the first quarter of 2025, while gross margin in the center-of-the-plate category increased approximately 110 basis points year-over-year. Jim will provide more detail on gross profit and margins in a few moments. For an update on certain of our operating metrics, including continued improvement in year-over-year gross profit per route and adjusted EBITDA per employee, please refer to the slide provided in the appendix of our first quarter 2026 earnings presentation. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?

Thank you, Chris, and good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity. Please refer to Slide 4. Our net sales for the quarter ended March 27, 2026, increased approximately 11.4% to $1.059 billion from $950.7 million in the first quarter of 2025. The growth in net sales was a result of an increase in organic sales of approximately 10.4% as well as the contribution of sales from acquisitions, which added approximately 1% to sales growth for the quarter. Given the start of the conflict in Iran occurred in the last month of the first quarter, the impact to our first quarter aggregate year-over-year revenue growth was not material. We estimate it reduced overall organic growth by approximately 50 basis points. Prior to the start of the conflict, our Middle East business grew approximately 11% in January and February versus the prior year. While there remains variability in demand and customer buying patterns week-to-week, these past few weeks, our business located in the region has been operating at approximately 75% of prior year. The primary impact has come from low occupancy in hotels and resorts. Our operations in Qatar and Oman are performing much closer to plan than prior year as they are less reliant on tourism than Dubai and Abu Dhabi. As I just discussed, our North American operations, which represent over 90% of the Chefs' Warehouse continues to grow well above our guidance while generating operating leverage and compelling year-over-year adjusted EBITDA growth. As the situation in the Middle East currently remains uncertain, we have run multiple scenarios of performance and factored in a range of possibilities as it relates to our forward guidance. At this time, we are keeping our full year guidance unchanged with the potential for upward revision should the situation in the region normalize. Net inflation was 4.1% in the first quarter, consisting of 1.5% inflation in our specialty category and 8.2% inflation in our center-of-the-plate category versus the prior year quarter. Center-of-the-plate inflation when adjusted for the impact of the Texas attrition was approximately 4.5% versus the prior year quarter. Gross profit increased 13.9% to $257.4 million for the first quarter of 2026 versus $226 million for the first quarter of 2025. Gross profit margins increased approximately 53 basis points to 24.3%. Selling, general and administrative expenses increased approximately 10.5% to $224.1 million for the first quarter of 2026 from $202.8 million for the first quarter of 2025. The increase was primarily due to higher costs associated with compensation and benefits to support sales growth, higher depreciation driven by facility and fleet investments and higher self-insurance-related costs. Adjusted operating expenses increased 10.5% versus the prior year first quarter. And as a percentage of net sales, adjusted operating expenses were 18.6% for the first quarter of 2026. Operating income for the first quarter of 2026 was $33.1 million compared to $22.7 million for the first quarter of 2025. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general and administrative expenses. Our GAAP net income was $17.4 million or $0.40 per diluted share for the first quarter of 2026 compared to net income of $10.3 million or $0.25 per diluted share for the first quarter of 2025. On a non-GAAP basis, we had adjusted EBITDA of $60.1 million for the first quarter of 2026 compared to $47.5 million for the prior year first quarter. Adjusted net income was $17.2 million or $0.40 per diluted share for the first quarter of 2026 compared to $10.2 million or $0.25 per diluted share for the prior year first quarter. Turning to the balance sheet and an update on our liquidity. Please refer to Slide 5. At the end of the first quarter, we had total liquidity of $278.3 million, comprised of $122.7 million in cash and $155.6 million of availability under our ABL facility. During the first quarter, we made prepayments of $5 million on our term loan maturing in 2029 and purchased $10 million equivalent shares under our share repurchase program. As of March 27, 2026, total net debt was approximately $522 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 1.9x. As noted earlier, we maintain our previously provided full year guidance for 2026 as follows: we estimate that net sales for the full year 2026 will be in the range of $4.35 billion to $4.45 billion, gross profit to be between $1.053 billion and $1.076 billion and adjusted EBITDA to be between $276 million and $286 million. Please note, for the full year 2026, we expect the convertible notes maturing in 2028 to be dilutive, and therefore, we expect the fully diluted share count to be between approximately 46 million and 46.7 million shares. Thank you. And at this point, we'll open it up to questions. Operator?

The first question is from Alex Slagle from Jefferies.

Yes. I know the Middle East is always hard for us to figure out everything that's going on, so I appreciate everything you provided. I guess I'm curious, you gave some color on the top line. What else can you tell us about the profitability implications for the Middle East business specifically and what's baked into the outlook? Also, it sounds like the top line is less than 10% of total, and I'm not sure on the EBITDA side. If you could provide some color.

We don't necessarily disclose the percent of EBITDA that they contribute. But just to go back to what we said, it's less than 10% of our overall business. It's a very profitable business. We've made some significant investments, and we feel really good about the medium- to long-term prospects of the market and our business there. Obviously, there's a little bit of a short-term bump in the road right now. But as I mentioned in our prepared remarks, we haven't adjusted our top line or our adjusted EBITDA guidance as a result. So we've modeled in a bunch of different scenarios. We generally don't change guidance after the first quarter, but the first quarter was so strong and the trends are continuing that, if the Middle East situation wasn't happening, I believe we would have adjusted our guidance this quarter. Given the uncertainty, we're going to wait a little longer and see how things play out.

Okay. In terms of the scenario, does it assume recent trends continue through the rest of the year or several months? What's the rough time frame?

I'm sorry. Basically, we would adjust guidance as things materialize. The key point is that over 90% of our business is more than making up for the minimal impact that we're seeing so far from the Middle East.

Okay. And just a second question on expectations for the summer and potential for more domestic travel. Could that be a positive tailwind for Chefs', and how are you looking at that important time period with celebrations and travel?

It looks really strong. We didn't see the war coming, but if things settle down in the Middle East, I think all our investments over the last 15 years are starting to bear fruit, and we're getting that acceleration of sales and leverage with the investments we've made. A little up or down with travel or more people going out, but we just see a very strong field ahead of us. We're taking market share and continuing to mature as the specialty company in foodservice, dominating the good, better, best part of it. So we don't see a slowdown.

The next question is from Mark Carden from UBS.

To start, just another follow-up on the Middle East. Glad to hear your team is holding up okay out there. For the 75% number, it sounds like that's stabilized over the course of the past few weeks. Is that correct? And then as you think about the course of March, would that build in a meaningful acceleration post-ceasefire?

I think the best way to put it is yes — the last few weeks our business has been trending at about 75% of prior year. We've factored that into multiple scenarios going forward, including different levels should the bombing re-escalate or there be other disruptions. There could also be an upward impact if things settle down. We've modeled that in and decided to leave the guidance unchanged. That's probably the best way to think about it.

Got it. That's helpful. And then any shifts to how you're thinking about inflation over the course of the next few quarters given recent commodity price fluctuations and changes in the price of oil?

No material shift. Our teams have done an incredible job the last couple of years, especially with increased maturity and collaboration between sales, operations, procurement and pricing, and the work we've done with our diverse supplier base. With about 90,000 products flowing through our distribution centers and a customer base that demands quality and diversity, we've become very good at managing through inflationary and deflationary environments. Dairy has been deflationary year-over-year, while sequentially prices in dairy and eggs have been within a manageable range. We can provide customers high-quality products at a good value and still manage gross profit dollars to meet targets. The investments we've made in talent, systems, technology and infrastructure are paying off and allowing us to manage these price environments effectively.

The next question is from Kelly Bania from BMO Capital Markets.

Just to follow up on the CME business, if I'm doing the math right, you said it was a 50 basis point drag on top line for Q1. If I extrapolate, it looks like around a 200 to 300 basis point drag into April so far. For your sales to be tracking at double digit, I'm not sure if they've accelerated or stayed steady. Can you clarify that math so far?

Thanks, Kelly. We're growing well above our guidance and actually double digits with the impact in the first quarter from two storm events and the one-month impact of the Middle East. Those three things combined cost us about 150 basis points on the quarter. So if you look at our organic growth at 10.5%, you have the 1% ramp of mainly Italco, and you could add 150 basis points to that if we didn't have those three events. If the Middle East business continues to operate at 75% as mentioned in April, we're still growing double digits with that impact. We didn't have storms hit us in April, so our North American business is very strong and the team is executing at a high level. High-end consumer spending remains solid, and what's happening in the Middle East we're overcoming, though we hope the conflict is resolved soon.

Okay. Very helpful, Jim. Can you elaborate a bit more on your different markets — more mature markets versus earlier stage growth markets? Anything changing in how they're contributing to the strong North America top line? I mean Florida, Texas, New York, California — how are those splits contributing?

We've been consistent in observing that all our markets are growing. Some are growing even faster — Florida has been over 20% growth and we expect that to continue as we add salespeople and expand throughout the state to become more of a specialty broadliner, which will start to mimic our classic New York business. The West Coast continues to mature toward that New York model. Texas is becoming a top three market with strong growth, and New England is similar. Smaller markets can grow faster percentage-wise but are still smaller in absolute dollars. The major markets — Texas, California, New York, New England, Florida — will drive our march toward our next goal of $10 billion, and we see a lot of growth coming from those major markets.

Very helpful. One more on gross margin: center-of-the-plate margin seemed quite strong despite inflation. Help us understand what drove that, how you're thinking about it going forward, and how customers are handling inflation. It sounds like the sales force is managing it well, but any color you're getting from customers?

I'll go back to what I said earlier: the diversity of our product portfolio and the maturity of our teams collaborating to manage through inflation. They have done an amazing job. Center-of-the-plate had some year-over-year inflation, but sequentially during the first quarter, prices were actually deflationary coming out of December into January, February and March, which is a seasonal impact. That played out and was a little more pronounced, so the improvement in margin reflects our teams managing effectively through that sequential pricing environment. It's a testament to how they've been managing the business.

It's a little confusing to look at margin because when prices move, we focus on gross profit dollars more than margin, since overhead is relatively fixed. Gross profit dollars are what matter. Mix changes a lot when you have inflation — consumers may shift between proteins — but demand for premium products remains strong among our customer base. In my experience, that hasn't changed: higher-end consumers continue to pay for quality. Gas prices going up a few dimes doesn't change that behavior much. So we consistently see that demand remain resilient.

The next question is from Peter Saleh from BTIG.

Great. Congrats on a great quarter. I wanted to come back to margin. Your EBITDA margin this quarter was exceptionally high and much higher than what we were modeling — highest on record. You have discussed about 20 basis points of EBITDA margin expansion annually. But if you flow through these numbers to the year, you get there without any more expansion. Do you think the 20 basis point number is still the right assumption going forward? Or have we hit an inflection point where we should expect more EBITDA margin flow-through?

If we didn't have the uncertainty in the Middle East right now, I think we would be updating guidance. We usually don't this early in the year, but we might have. It's less than 10% of our business, and we don't know how it could play out the rest of the year. In 2025 over 2024, we delivered more than 20 or 25 basis points of EBITDA margin improvement, and we're starting to see operating leverage from our investments. There's a strong possibility we can deliver more, but the Middle East uncertainty prevents us from adjusting upward at this time.

Can I ask on capital structure and share repurchase? You repurchased $10 million in Q1. Your leverage is delevering. Should we expect more share repurchase through the year? How should we think about that for the balance of 2026?

We want to remain with dry powder to take advantage of potential strategic and accretive acquisitions. We'll continue to repurchase shares opportunistically and may continue to pay down some debt gradually. I don't see a major change in our approach; we could allocate more to repurchases if the opportunity presents itself.

The next question is from Brian Harbour from Morgan Stanley.

This is Hilary Lee on for Brian Harbour. Congrats on the quarter. Outside of the Middle East improving, do you see any other potential tailwinds for the consumer?

We're very happy with what we're seeing. A real potential uptick is the World Cup being in the United States and the number of people coming into our major cities — that should be good for our customers. Restaurants and hotels that we supply show strong spending and optimism. Bookings are strong and customers are optimistic, so we like the setup for the year aside from the Middle East.

Got it. As a follow-up, have you ever seen or are you able to quantify any impact you've seen from other major events like the Olympics a couple of years ago?

We don't really quantify it. When there are events like F1, the World Cup, Olympics, we do see a temporary bump, but it's not something we model in for the long term.

The next question is from Todd Brooks from Benchmark Company.

Strong results in Q1 in the U.S. Chris, you talked about typical seasonal acceleration. Jim, you mentioned normalizing maybe around 12% organic growth if you take out weather and the Middle East. You talked about double digits in April. Are we still accelerating as we go into Q2? And Chris, when you're talking to clients, what's their outlook for the next couple of quarters?

Cautiously optimistic. The Middle East was not in our plans, but the business is really strong. Nobody has a crystal ball, but we don't see change in consumer behavior. We've invested to take more market share and be the premier high-end partner for top chefs. More consumers are choosing experiences like travel and dining out. I don't see that changing. Our customers are benefiting, and we see consistent investment in more restaurants, hotels, catering and travel, which plays into our favor.

That's great. Jim, how much of the EBITDA improvement is from existing facilities absorbing more volume versus investments in technology, processes and people you highlighted at Investor Day? How would you parse the gains between the two?

We don't allocate a dollar amount to a specific bucket. It's the combination of investments: training salespeople, infrastructure in nascent markets, folding in acquisitions, and regional leadership with experience across sales, operations and procurement. Marrying technology with customer knowledge plus infrastructure and an experienced team managing pricing and procurement is all coming together. There's not one single driver; it's the combination.

When you build something like Chefs' Warehouse, it doesn't happen overnight. It takes buildings, technology, maturity and years to develop a team. Every new territory and category takes time to master. What we're seeing is the assembly of all those pieces — talent, infrastructure, systems — and the customer base that continues to spend on premium dining. It's like an orchestra learning to play together: it takes time, but the results are showing.

The next question is from Margaret-May Binshtok from Wolfe Research.

I wanted to ask on placement growth. The 6.2% placement growth seems to be accelerating. Which lever is doing the most work here from your sales force and new hires or digital penetration?

It's a bit of everything: leveraging new facilities, the more profitable volume we pump through distribution, technology adding placements, expanding into new territories, and the leverage from all parts of the business. Multiple levers are contributing to that improvement.

Super helpful. On the M&A environment: given the macro and volatility, has that changed valuations you're seeing, the pipeline, or sellers' motivation?

The pipeline is frothy, but years ago we relied more on M&A to get into markets quickly. We're not in need of a lot of M&A now, so we're being patient. We've seen some multiples come down on deals that have hit our table. At the right point, we'll have good strategic M&A to add to what we're building, but we'll remain very patient.

There are no further questions at this time. I would like to turn the floor back over to Chris Pappas for closing comments.

We'd like to thank everybody who joined the call today and took time to learn a little bit more about Chefs' Warehouse. We're really proud of the last quarter and what the team accomplished, and we remain very optimistic about the future. We hope this conflict in the Middle East settles down soon. We look forward to everybody joining our next earnings call. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time.