The Chefs' Warehouse, Inc. (CHEF) Q2 2016 Earnings Report, Transcript and Summary

Greetings, and welcome to The Chefs' Warehouse Second Quarter 2016 earnings conference call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alex Aldous, General Counsel and Corporate Secretary for The Chefs' Warehouse. Thank you. Mr. Aldous, you may begin.

Thank you, operator. Good afternoon everyone. With me on today's call are Chris Pappas, Founder, Chairman and CEO, and John Austin, CFO. By now you should have access to our second quarter 2016 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 both historical and estimated modified pro forma net income, and modified pro forma earnings per share. These measurements are not calculated in accordance with GAAP, and may be calculated differently in other companies similarly titled non-GAAP financial measures. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release. 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 at www.sec.gov. Today we are going to provide a business update, go over our second quarter results in detail, and review our 2016 guidance. Then we will open the call for questions. With that, I would like to turn the call over to Chris Pappas. Chris.

Thanks Alex, and welcome to all who are listening today. We are disappointed with our results for the second quarter, particularly in the time it has taken Del Monte to integrate into The Chefs' Warehouse. During the quarter we started to see some softening in the industry. Despite that, our customers are holding up fairly well, as we experienced 4.6% organic growth in net sales in our Specialty division, driven by unique customer growth of approximately 5.3%. Placement growth of approximately 5.4% growth and case growth of approximately 5.9% versus the prior year second quarter. These results continue to demonstrate that we are taking market share from our competitors in our space, which we believe is encouraging during this challenging consumer environment. During the quarter, on a consolidated basis, we is saw an 88 basis point decrease in gross margins, mostly driven by our protein business, which realized 175 basis point decrease in gross margins, as we completed the majority of our ERP conversion. Extraction and implementing of this system has proven to take longer and be more challenging than we expected. The good thing is that this conversion is substantially compete, and we are our focus to rebuilding sales around margin, as we deliver superior customer service. So while the system transition has been challenging, it does allow us to have the same transparency into sales and margin as our other facilities so that we can more easily implement all of the pricing and selling tools we are accustomed to. We still remain very excited about our protein position, which now makes up approximately 40% of total sales, and we believe we are well-positioned for long-term growth in that business. Moving on to facilities we are very pleased to have all of our state-of-the-art facilities up and running, and have started to leverage our infrastructure. We are starting to see the benefits of cost efficiencies, particularly in our New York facility as the team hits its stride in the new warehouse. We also recently closed on a fold-in acquisition in the Chicago market, which will help leverage that infrastructure, once we are able to move that operation into our new 109,000 square foot warehouse. So even with the increased warehouse labor and occupancy costs, we are improving our efficiency in running our business. Our offices at the Bronx facility are going to be completed in the third quarter, and we are looking forward to moving our sales and administrative team back into that facility. Chicago is also going very well. We believe we are in the first inning at that location. We now have about 30 sales and customer service people, plus another 12 from our recently announced acquisition of MT Food Service. We are very excited about MT, which is a wholesale distributor of dairy produce, specialty and grocery items in the metro Chicago area. We are currently building out the produce room in our Chicago facility, which should be completed by year end. We have already had our integration team on site, and have already started the planning process for the move. There hasn't been a great deal of cross-selling so far, but we are only at a month in, so expect that to ramp up towards the end of the year. We believe this acquisition is another building block to make the Chicago area a top five market for us in the future. In addition, we continue to develop our online E-commerce platform. We believe this will enable us to leverage our sales force, while also enhancing the shopping experience for our customers. In our pilot, we found that customers that purchased products online, usually purchased more and will purchase a larger variety of products, versus customers that submit orders over the phone. So in conclusion, 2016 has had a challenging start, but we are confident in our ability to grow in this difficult market environment. While it will take longer for protein margins to recover than we initially expected, we have a great business that we are very excited about, and a very solid infrastructure for continued growth. And with that, I will turn it over to Mr. John Austin to discuss more detailed financial information. John.

Thanks, Chris. And good afternoon, everyone. Our net sales for the quarter ended June 24, 2016 increased approximately 3.7% to $291.2 million, from the $280.9 million for the second quarter ended June 26, 2015. The increase in net sales was the result of organic growth of approximately 2.3%, as well as one additional week of sales from the acquisition of Del Monte that we closed in April of 2015, which added approximately 1.4% to sales growth for the quarter. Inflation deceased approximately 188 basis point sequentially, as we experienced deflation of approximately 1.2% for the quarter. While we expect the deflation in proteins for the year, our core specialty division turned modestly deflationary in the second quarter. Our overall outlook for commodities for the balance of 2016 is that protein deflation will moderate somewhat, and specialty products will likely stay relatively flat with mixed inflation and deflation by product category. Gross profit increased approximately 0.1% to $71.8 million for the second quarter of 2016, versus $71.7 million for the second quarter of 2015. Gross profit margin decreased approximately 88 basis points to 24.7% from 25.5%. Total gross profit margins were negatively impacted by margins in our protein division, which decreased 175 basis points, as well a 44 basis point decline in our specialty division. Total operating expense decreased approximately 2.8% to $60.6 million for the second quarter of 2016, from $62.4 million for the second quarter of 2015. As a percentage of net sales, operating expenses were 20.8% for the second quarter of 2016, compared to 22.2% for the prior year quarter. The decrease in the Company's operating expense ratio is largely attributable to the lower transaction costs of $3.3 million related to the company's acquisition of Del Monte in 2015. And a net year-over-year reduction in the estimated fair value of earn-out obligations of approximately $1.7 million, offset in part by approximately $1.7 million of higher warehouse labor and occupancy related costs associated with accompanying new warehouses. More specifically G&A expenses decreased to approximately $17.9 million for the second quarter of 2016, compared to $22.5 million for the prior year quarter, due mostly to the lower transaction related costs related to the Del Monte deal, as well as a change in the estimated fair value of earn-out liabilities I just mentioned. Operating income for the second quarter of 2016 was $11.2 million, compared to $9.3 million for the second quarter of the prior year. As a percentage of net sales, operating income was 3.8% for the second quarter of 2016, compared to 3.3% for the prior year second quarter. Interest expense increased to $25.7 million versus $3.6 million for the prior year second quarter, due to the refinancing we completed in June. That transaction included a $22.3 million loss related to the early extinguishment of debt, which consisted primarily of prepayment penalties to repay our senior secured notes, and also the write off of deferred financing fees on our revolving credit facility. We believe this new capital structure gives us incremental capacity for acquisitions, as well as flexibility as we grow. Income tax provided a benefit of $6.0 million for the second quarter of 2016, compared to income tax expense of $2.4 million in the second quarter of 2015. Our effective tax rate remained flat at approximately 41.6%. Our GAAP net loss was $8.5 million, or $0.33 per diluted share for the second quarter of 2016, compared to $3.4 million, or $0.13 per diluted share for the second quarter of 2015. Again, this was driven primarily by the one-time loss on the early extinguishment of debt related to refinancing of our capital structure. On a non-GAAP basis, adjusted EBITDA was $15.3 million for the second quarter of 2016, compared to $18.7 million for the prior year second quarter. Modified pro forma net income was $3.9 million, and modified pro forma EPS was $0.15 for the second quarter of 2016, compared to modified pro forma net income of $5.7 million, or $0.21 per share for the second quarter of the prior year. As I just mentioned, we entered into a new $305 million term loan facility, and a $50 million delayed draw term loan facility due in 2022. In addition, we entered into a five year $75 million asset-backed revolving credit facility. Proceeds from the new term loan were used to refinance our existing revolving credit facility, and to retire our outstanding senior secured notes. The proceeds of the delayed draw term loan will be used for permitted acquisitions, and for general corporate purposes. The interest rate on the new term loan is LIBOR plus 4.75%, with a LIBOR floor of 1.0%, the new term loans with a 1% percent original issue discount. Based on our second quarter results, we are updating guidance for fiscal year 2016. This guidance contemplates a significantly slower recovery than we previously expected in our protein division, and also incorporates a softer restaurant industry that we previously discussed. We estimate that net sales for the full year of 2016 to be in the range of $1.18 billion to $1.20 billion, which includes the benefits of the M&T acquisition, offset by the slower expected sales growth I just mentioned. Adjusted EBITDA between $53.0 million and $58.5 million, which contemplates the lower top line growth as well as lower protein margins. The GAAP net loss between $1.0 million and $3.0 million, which reflects the loss on extinguishment of debt that I earlier talked about. GAAP net loss per diluted share will be between $0.01 and $0.09 per share, and modified pro forma net income per diluted share between $0.38 and $0.46. This guidance is based on an effective tax rate of approximately 41% to 41.5% for 2016, and an estimated diluted share count of approximately 27.25 million shares. Note that for purposes of calculating the modified pro forma diluted EPS, the company has assumed the convertible debt will be diluted for the full year, and as such has added back $537,000 of interest after tax to net loss, and assumed conversion into 1.2 million shares related to that convertible note, and we have included those in the diluted weighted average shares. With that, Operator, we will turn it over for questions.

Thank you. We will now be conducting a question and answer session. [Operator Instructions] Our first question comes from the line of Kelly Bania with BMO Capital Markets. Please proceed with your question.

Good evening. I was wondering if you could just elaborate on some of the integration challenges at Del Monte, how that played out during the quarter, where you see that now. And then as you look at these kind of lower protein margins do you think these are structurally lower for any reason, or do you still have confidence that longer term you can get those back to where you thought you could?

Great question, Kelly. We went through an enterprise transition eight years ago at Chef, and forgot how hard they are. Basically Del Monte's business is intact. The beauty of Del Monte is similar to Chef, is they have thousands of small customers that depend on their high service model. And we knew it would be difficult because of their multiple locations, but it is always more difficult than you think, unfortunately. And the margin it is really we lost the ability to do business the way Del Monte did business, when that last, at the end when you are doing the transition, and you are off the other system and you are teaching everybody, and you kind of it is really hard because you are going blind for a little bit. There is nothing wrong with the business, and there is nothing really that is pressing the margins down. It is just now really inching them back up to where they should be. There is no competitive pressures, there is no very large customers that are compressing it. It is really just, you can't just move them back up overnight, you got to just go with the market, and inch by inch take it back up. The same way we did at Chef eight years ago. The worse is behind us. All of the meat companies have transitioned, and now we are moving forward.

And just a question on the broader backdrop for your customers. Anything you can discuss how broad-based that was, was there any regional trends, any specific things to call out in what you are seeing your customers order in terms of consumer behavior?

Are we talking just on Del Monte or talking for the whole Chef Warehouse organization?

For both. The whole organization and Del Monte?

For both. Again, I think it was a little soft Del Monte again, their business is intact. I think they are going to get back to growing their business, in the next, especially as we get through this and going into 2017. Overall, I think we thought business was, June was good. We saw organic growth. Case growth was pretty healthy in the core business, over 5%. So I think our customers are doing well. We had anticipated a little more organic growth, but overall pretty healthy.

Kelly, I would think, we anticipated probably another percent or two in case growth. The one thing that probably also reached a little bit of an inflection point is specialty turned deflationary in the quarter. Where we had been, we anticipated modest inflation, but probably a percent or two off in inflation versus deflation, and then probably a percent or two off in case growth. There was some softening, and I think just given the trends we are seeing and outlook for the rest of the year, we were a little more conservative on that front, and kind of anticipate that probably staying.

Can you reconcile that with the comments about the softening restaurant backdrop? It sounds like you were pretty pleased maybe despite, aside from deflation, but it sounds like trends may be slowed for your core customers a little bit more?

They did and that is why I say we are probably a percent or two behind case growth, and then a percent or two behind in inflation, we expected modest inflation, we had modest deflation.

We had deflation. Right. So when you look at our total estimates, top line, we missed a little bit because of deflation, and we missed a little bit because of overall we think there was a little softness, when you look at 30,000 customers, you are budgeting, it is a science to try to get it I think we said our original forecast was about 7%.

Between 7% and 8% organic growth.

Right.

And here we were at 5.9% case growth, and almost a percent of deflation, so really organic growth in specialty was about 4.6.

Okay, thank you.

Thank you. Our next question comes from the line of Mark Wiltamuth with Jefferies. Please proceed with your question.

Clarify just how much of the estimate reduction is from Del Monte issues, and how much you think is just the core being a little softer than you thought?

Yes, there was a little softness in Del Monte. We spoke in the first quarter, we cycled out a piece of a big customer, but up and down the street, that was a customer the Del Monte business, I think they fared pretty well. This was really like I said it was self-inflicted during our ERP transition. It is really a margin-based miss. I think their overall business is pretty strong. Could it be a point or two of softness, I think so, possibly. But overall, I think the business was pretty strong.

I was trying to get at the forward-looking cut, because even if you include the miss on this quarter, you are still taking $12 million off of the EBITDA for the year after this miss is included. So that implies that there are still problems in the second half. So maybe you can discuss why the second half is coming down so much? I understand the issues with Del Monte digestion in the first quarter and second quarter, but the estimate cuts are still pretty pronounced in the second half?

Yes, the overall split, think if I understood your original question, which was how much was kind of coming from core specialty business softness, and how much is from kind of the protein margin issues, and it is about 70% to 75% protein. We took an off a little bit on the specialty side, just given the trends that we saw some softening in cases. Not sure we see that necessarily recovering at this point. And then, I think the Del Monte transition which that management team is responsible obviously for all of the protein business, so Allen Brothers did not perform as well as we expected, Michael's actually did reasonably well, but the whole protein business we think we will improve margins gradually. It will take until 2017 we think to get back to historical.

Yes. I think at this point we have to take a conservative outlook. Obviously, we are cautiously optimistic that we can get there sooner than later. I think you see us taking down the second half of the year, to be cautious, because obviously we have gone through it is al margin at this point. Obviously we get a tailwind and we could pick up volume it temperature helps. But really it is getting those $0.02 on the dollar. It comes down to about two cents on the dollar. So through all of the thousands and thousands of transactions, it is really working the sales force, the commission structure. And getting everybody back playing offense, now that the transition is done, and they got their new computer systems, and they are looking at the new green screens, it is getting them to focus on, and we have the whole management team laser focused at this point trying to get that two cents on the dollar back.

First and second quarter sounds like the systems were pushing you down faster than you would like, given price back to the consumer during this deflationary environment?

Yes, I think you go back to it is really self-inflicted. It is when you are managing so many transactions, and you are used to a certain system, I think you underestimate the difficulty of again, it is thousands of transactions, and we are talking about two cents. So it is really again self-inflicted, and the management team we know we can bring it back because we are the dominant player. We have all of our accounts, we have the sales force, and it is just again motivating management and everyone to focus on getting those two pennies over the period of time.

You are saying that you can't snap back price immediately, just have to ease it back up as the market moves over time?

We told management to be intelligent about it. We are in it for the long haul. We have relationships and just to be intelligent about moving it wherever they can during the ups and downs of price volatility.

All right. That was a big swing in the estimates for the protein division. So is the whole division EBITDA profitable? I mean Del Monte in total was $225 million in revenues or so. So we just took $12 million in EBITDA off. Is Del Monte still EBITDA profitable right now?

Del Monte is. Allen Brothers is not at this point.

Okay. And just to clarify, since people are going to be nervous about this deflation point. We are hearing deflation data points across most of the companies who are reporting. Are you having any trouble managing through that? The tone previously was that it is like a margin neutral event for you as the deflation rolls through protein. So maybe talk about the big picture on how you feel about the deflation, and how it impacts your business?

Yes, I think we managed our overall core business we managed really well. I think again Del Monte was more of the transition. Really our issue at Allen Brothers was really inflation in the prime market. It kind of snuck up on us, where you have a lot of everyone is focused on deflation, and for many reasons the prime markets, which is only 2% to 4% of the total beef production, actually shot up like crazy, and kind of blindsided us. So deflation was not our problem.

At Allen Brothers and Prime.

Deflation was not our problem in the overall business.

In prime, right.

Allen Brothers the challenge was the deflation.

Correct. That's what I'm saying.

That gets to the comment in the press release saying you were having trouble passing pricing through. Is that where the issue was, on Allen Brothers?

Correct.

Okay. Thank you very much.

Yes.

Thank you. Our next question comes from the line of John Ivankoe with JPMorgan. Please proceed with your question.

A few if I may. Visiting the websites of Allen Brothers, Michaels and Del Monte, it almost likes like they are all still independent companies that don't necessarily have an association with Chefs' Warehouse at least not that I obviously.. So when do you or might you like to start to integrate the brands within The Chefs' Warehouse, and since all three of the websites and the consumer presentation are so different from one another, are there best practices that you can begin to share across the protein companies, that maybe help both your sales and your margins?

A great question, John. So we left them independent. They have their own stronghold in the markets that they operate. What we have really done is taken the brand of Allen Brothers, and we have taken that national, right, because of their national presence. They have always shipped around the whole country supplying steakhouses in their B-to-C presence. We are letting them operate independently. They all roll up to the same leadership, and obviously we are sharing best practices. We are trying to buy together, right to consolidate the purchasing power. And I think over time they are cutting and supplying our Chef op cos in their area. But they really have their own personalities. Michael's has some national business, but really they are an Ohio-valley based leader, and the same with Del Monte really is a northern California-based company. The only one that really crosses borders, and we are having great success, is taking the Allen Brothers product and taking the brand nationally.

And that certainly brings up the question. II understand about Allen Brothers, but is Michael's and Del Monte currently being sold through the operating companies to the extent they could be? In other words, are The Chefs' sales people selling those products at a maximum level at this point?

Yes, so we are having great success in the Ohio Valley with Michael's, okay. Allen Brothers is still in the infant stage. We just move inside our new building, and they will be supplying The Chefs' Warehouse, okay, which now with the acquisition of MT, now has over 35 trucks in the greater Chicago area. Del Monte really now that the enterprise system is done, okay, will start supplying The Chefs' Warehouse and that is where we think that we are going to get that big uplift in 2017 and 2018, as they start to cross out with the sales organization, absolutely correct.

Okay, understood. And you mentioned acquisitions, a couple of times in your new capital structure kind of allows you to pursue some. I think John you maybe used a phrase called allowable acquisitions. I don't know that I have heard that before. What kind of acquisitions may be possible, would you want to do and philosophically would be in a place now, where you kind of optimize what you have, as opposed to putting some more assets on the balance sheet?

Yes, well obviously right now the laser focus is to get the two cents on the dollar back that we gave up in this transition. So the focus is, get Del Monte back to where it should be, and get Allen Brothers onboard where it should be, and continue the organic growth. MT was a must, it was a very strategic fold-in into our facility. We haven't folded them in yet, so we have a lot of focus on that. We are really in no rush to do anymore acquisitions at this time. We have a very frothy pipeline. Right now it is really just getting back to where we should be in our strategy, and that is really where the management team is focused.

Yes, yes. The permitted acquisition concept John that I referred to, that is just a defined term in the credit agreement as far as what is allowable, there are leverage limits, and all of those kind of things, so that is all I was referring to.

Okay. And final one. It sounds like there was some extra CapEx in the first half of the year, year-to-date you are around $8 million of CapEx. Can you remind us what you are thinking for full year 2016, and what an initial outlook on fiscal 2017 CapEx may be?

We haven't given any '17 outlook yet. The '16 guidance that we had given was $13 million to $15 million. And so that number - I think we're on track with where we expected to be. We did expect to incur, if you remember, there was about $4 million in that number that was related to finishing the Bronx offices, which we are significantly through that. We are not quite finished yet. But that is driving some of that CapEx. But we are right on track with where we expected to be.

Not to totally put numbers in to your, into the call, but like could 2017 be something like $9 million to $11 million since you don't have that $4 million expense for the Bronx, and maybe some systems integration from Del Monte for example. In other words, without giving a specific number should '17 CapEx be down relative to '16?

We did comment, on a number of occasions have commented publicly, based upon the business right now, when you back out that $4 million of new warehouse costs or office costs for the Bronx facility, yes, we think somewhere in that $8 million to $12 million range is the right run rate for the business. We haven't commented on 2017. So new facility projects or things like that, would be the only departure from that. I think that $8 million to $12 million is kind of a good run rate target.

Thank you.

Thank you. Our next question comes from the line of Adrienne Dale with Credit Suisse. Please proceed with your question.

Thanks. Can you give us some color on when exactly you started to see the deflation in specialty? You were expecting inflation and then it turned to deflation?

Yes, so we had guided at the beginning of the year to modest inflation, which we kind of characterized as maybe 1% to 2% inflation. We ended up having net deflation in the quarter. It was really a mixed bag. I would say of our top 10 categories there were probably three or four that were deflationary, three or four that were inflationary, and a couple were flat. So it was I think dairy was…

Inflationary.

Was particularly inflationary. We had a little bit of inflation in meat. Some of our specialty products, some of the pastry products were deflationary. So it was really a mixed bag across categories.

All right. And then on your term loan, can you just tell us what is now outstanding? I see a draw for the M&T acquisition, correct?

That's correct. So we closed with $305 million, and then we drew another $14 million to finance the M&T acquisition.

So subject to your pro forma leverage covenant, are you able to do another acquisition right now by your calculations, based on the EBITDA of the M&T acquisition?

We are able to do incremental acquisitions. We just can't go above the pro forma leverage at close. So whatever amount is, it depends on how much, a function of how much EBITDA gets added, and all of those kind of things.

Yes, so we have dry powder, obviously right now we are focused on the day-to-day.

And we have so much cash on the books, that's correct.

All right. So it sounds like this quarter you are not planning on tapping the delayed draw again, right?

We don't have anything to comment on, as it relates to future acquisitions so at this point we are focused on -

And what is the current ABL balance and availability?

Zero outstanding on the ABL.

And is it fully available?

Yes.

You have full access to the LOC?

Actually I will take that back. There are actually a few letters of credit that support the current programs that are outstanding, right. But there is nothing drawn on the revolver but we have probably consumed about $8 million of capacity on that facility with letters of credit.

Okay. Great. So, now I mean you are saying that on a protein side it could take until 2017 to see margins get back to what normalized levels?

Yes. Right now we are inching forward. We are only talking again, about two cents. When you think about two cents a pound. So, I think at this point it is very prudent to be cautious in our optimism. But the team is back, it was extremely distracted. So they are back to the day-to-day functions of managing, and we have reinstituted a new commission structure which incentivizes our sales staff. So I think we have put everything into place to get the business back to its normal run rate.

So on the systems side with respect to the ERP conversion and all of that, that should be completely behind you and things are running smoothly now?

Yes, we still have to integrate one of the small companies about $20 million, a fish company. All of the meat companies are done at this point.

Right. And now it is a matter of making sure the team learns to operate in that new…

Environment.

Environment and can maximize margins.

So you anticipate training to take a while and for kind of the --?

Well, training is ongoing. It is constantly ongoing. But I would say, that the big headwind is behind us. And now it is j, it is moving forward again. It is like building a house we have moved in, and now it is just tweaking the things that need minor fixing. We have hired. We have brought in people that are familiar with the system, that bring expertise, and can help us improve. So we are very optimistic, but right now we want to be cautiously optimistic.

Okay. So, I mean obviously it sounds like the fish company is small, $20 million or so, but are we now going to expect to see, should we expect to see some hiccups in that division?

No, well never say never.

Or distracted?

Yes. Obviously we have learned a lot. Hindsight is 20/20. We have talked to many people who have done one meat company conversion. We did six in a short period of time. So it really was a Herculean effort. We ripped a Band-aid off and we got it done. We have taken a few lashes to the backs, but we actually delayed this last one to make sure that we got everything up and running correctly, and now we have got the whole team devoted to just a very small integration of a $20 million business. So we don't see any major obstacles, and obviously we have got all hands on deck to make sure this goes smoothly.

Thank you. Our next question from the line of Brian Gillian with Barclays. Please proceed with your question.

Hi. Thanks for taking the questions. Did you guys mention how sales are trending into the third quarter yet?

We didn't mention specifically third quarter, but obviously what we are seeing is baked into our guidance for the balance of the year.

Got it. And I guess could you elaborate a little bit more on the new commission structure?

Yes, well, we are always tweaking commission structure, but when we, it really specifically goes to Del Monte when we bought them, they had a different compensation theory of how they went to market than Chefs' Warehouse. So really now we think we put in a much more motivating incentivizing commission plan for the sales staff, that aligns us more with the rest of our CWs. And it is something that we have had consultants, and many years of really tweaking, so we think it is going to work out great for Del Monte, and get sales trending and margins trending back to where we were expecting them to be.

That's helpful, thanks. I guess just last question. I don't know, do you guys think maybe there could be an impact from an election year on sales, or more people possibly staying home to watch the debates?

Great question. Yes, I wish I had that kind of insight. Again, I have been watching the debates so it could be hurting. In May the weather was horrible overall. So that really impacted our outdoor cafe, our clubs opening. It is again, business is, I hate to say business is good, but a 2% or 3% swing for most people is not a big deal, and for us, it really impacts us because we have to give guidance to a certain point. So I think it is really hard to read. I think it is still to be told, if the election or there is any hesitance in consumer spending at our level, with our customers' customer.

Got it, thanks.

This concludes our question and answer session. I would like to turn the floor over to Mr. Pappas for closing comments.

Thank you all who joined us today, and thank you for the questions. We have had a pretty challenging quarter, but we are very optimistic on our business platform. We still have great organic growth, and lots of great stuff happening with the platform that we have built for many years to come. We think it's going to be very successful, and look forward to talking to you again on our next call. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.