The Chef's Warehouse Inc 2026 Q3 Earnings Call

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 third 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 third 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, 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 third 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 Third 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 third quarter 2026 earnings call.

Revenue trends displayed typical seasonal cadence through the third quarter of 2026, building from the summer months into September with strong year-over-year growth. Our regional Chefs' Warehouse teams delivered excellent execution across markets and product categories, driving strong growth in revenue and gross profit dollars, as well as continued progress, increasing relevance with our customer base, with solid year-over-year growth in unique item placements and unique customers. Momentum continued into October, and as we head into the busy holiday season, I would like to thank all our Chefs' Warehouse teams, from sales, procurement, and operations to all the supporting functions, for their dedication and commitment to delivering a diverse, high-quality product and service in partnership with our suppliers and customers and the communities we serve.

Our Middle East operations continue to operate effectively in a challenging environment. Revenue trends in recent weeks have been approximately 100% of prior year, as food away from home activity is supported by local residents and expatriates returning from the summer off-season. Our teams in the UAE, Qatar, and Oman are doing an exceptional job of executing for our customers in the region and delivering high EBITDA margin results. We remain committed to our business and customers and to the region long term. With that, please refer to slide 3 of the presentation. A few highlights from the third quarter include organic net sales grew 10.3%. Organic specialty sales were up 8.4% over the prior year, which was driven primarily by unique placement growth of 7.2%, specialty case growth of 6.1%, and price inflation. Unique customers grew 4.4% year over year.

Reported unique customer growth was impacted partially by the conflict in the Middle East. Excluding this impact, third quarter unique customer growth was approximately 5.7%. Pounds in center-of-the-plate were approximately 6.6% higher than the prior year third quarter. Gross profit margins increased approximately 84 basis points. Gross margin in the specialty category increased approximately 63 basis points as compared to the third quarter of 2025, while gross margin in the center-of-the-plate category increased approximately 137 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 improvements in year-over-year gross profit per route and adjusted EBITDA per employee, please refer to the slides provided in the appendix of our third 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 September 25, 2026 increased approximately 11.2% to $1.135 billion from $1.021 billion in the third quarter of 2025. The growth in net sales was a result of an increase in organic sales of approximately 10.3%, as well as the contribution of sales from acquisitions, which added approximately 0.9% to sales growth for the quarter. Net inflation was 4.1% in the third quarter, consisting of 2.6% inflation in our specialty category and 6.6% inflation in our center-of-the-plate category versus the prior year quarter. Gross profit increased 15% to $284.3 million for the third quarter of 2026, versus $247.2 million for the third quarter of 2025. Gross profit margins increased approximately 84 basis points to 25%.

Selling, general, and administrative expenses increased approximately 12.1% to $233.4 million for the third quarter of 2026 from $208.1 million for the third quarter of 2025. The increase was primarily due to higher costs associated with compensation and benefits, facilities and distribution to support sales growth, fuel prices, as well as higher depreciation driven by facility and fleet investments. Adjusted operating expenses increased 11% versus the prior year third quarter, and as a percentage of net sales, adjusted operating expenses were 17.8% for the third quarter of 2026. Operating income for the third quarter of 2026 was $51.5 million, compared to $38.9 million for the third 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 $29.6 million, or $0.67 per diluted share for the third quarter of 2026, compared to net income of $19.1 million, or $0.44 per diluted share for the third quarter of 2025. On a non-GAAP basis, we had adjusted EBITDA of $82.2 million for the third quarter of 2026, compared to $65.1 million for the prior year third quarter. Adjusted net income was $29.5 million, or $0.66 per diluted share for the third quarter of 2026, compared to $21.5 million, or $0.50 per diluted share for the prior year third quarter. Turning to the balance sheet and an update on our liquidity, please refer to slide 5 and 6. At the end of the third quarter, we had total liquidity of $348.1 million, comprised of $164.7 million in cash and $183.4 million of availability under our ABL facility.