The Chefs' Warehouse, Inc. (CHEF) Q3 2026 Earnings Report, Transcript and Summary

Greetings. And welcome to The Chef's Warehouse Third 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, Alexandros 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 Christopher 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. 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, 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 26 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 Christopher Pappas. Chris?

Thank you, Alexandros, and thank you all for joining our third quarter 2026 earnings call. Revenue trends display typical seasonal cadence through the third quarter of 2026, building from the summer months into September, which strong year over year growth. Our regional chef's 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 and 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 Chef's Warehouse teams from sales, procurement, and operations to all our 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 the 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 will 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 will 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 number 4. Our net sales for the quarter ended September 25, 2026, increased approximately 11.2% to $1.14 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 million for the third quarter of 2026 versus $247 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 percent to $233 million for the third quarter of 2026 from $208 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 and 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 number 5 and 6. At the end of the third quarter, we had total liquidity of $348 million comprised of $165 million in cash and $183 million of availability under our ABL facility. During the third quarter, we priced and allocated a new $75 million 7-year term loan and subsequently issued a redemption notice to the holders of our 2028 convertible notes. Subsequent to the third quarter close, on 10/15/2026, the new term loan closed and funded concurrent with the settlement of the convertible notes. Proceeds of the new term loan were used to prepay the term loan due in 2029 and settle the principal and a portion of the premium of the convertible notes. The remainder of the premium was settled via the issuance of approximately 2.7 million shares of common stock to note holders. Our objectives in executing this refinancing are as follows. To address the 2028 convertible maturity, and the related springing maturities on our then existing term loan and our ABL facility. To maintain net debt leverage in our target 1.5 to 2.5 times range, and to reduce our fully diluted share count. Aligning our capital structure with our previously announced 2030 financial targets. As of September 25, 2026, total net debt was approximately $449 million inclusive of all cash and cash equivalents and net debt to adjusted EBITDA was approximately 1.4 times. By year end 26, we expect net debt to be in the range of $550 million to $600 million and net debt to adjusted EBITDA to be in a range of 1.7 to 2.0x. For the fourth quarter of 26, we expect interest expense to be between $15.5 million and $17.5 million Approximately $2.7 million of estimated fourth quarter interest expense is related to onetime costs associated with the debt refinancing. We currently expect our fully diluted share count to be in the range of 43.0 million to 43.5 million shares for the fourth quarter of 26. For future modeling purposes, we currently expect the fully diluted share count for 2027 to be in the range of 42.0 million to 43 million shares. Please refer to Slide 7. We are raising our full-year 2026 guidance as follows. We estimate net sales for the full-year 2026 will be in the range of $4.56 billion to $4.61 billion, gross profit to be between $1.13 billion and $1.14 billion and adjusted EBITDA to be between $317 million and $321 million Thank you. And at this point, we will open it up to questions. Operator?

Thank you. We will now be conducting a question and answer session. Our first question is from Mark Carden with UBS. Please proceed with your question.

Good morning. Thanks so much for taking the questions. So to start, you continue to generate double digit organic sales growth with some pretty strong results across the business. Do you think this is being driven more by market share gains from your competitors? Or against your competitors or by continued underlying strength from your higher income consumers just overall? So any shifts in that front, that is first. And then second, are you seeing any pockets of what we will call relative weakness to the rest of your portfolio? Thank you.

Yeah, great question. I think it is Goldilocks. I think it is it is coming from a little bit from everywhere. it is a really good demand. We continue to take market share. And we could continue to grow new categories, new territories. I think just the team is executing to the plan that we laid out for the next few years. And you are just seeing good tailwind from the consumer. You know, a lot of new customers in all regions for all Chef's Warehouse businesses and I think it is just really good execution and it is what we are counting on To continue. Okay. Great.

And then as a follow-up, your implied guidance for 4Q suggests a noticeable slowdown on net sales and EBITDA growth. Have you seen anything quarter to date that is giving you more hesitancy on any parts of the business? Or is this just a case of being prudent given the macro? Yeah. Thanks, Mark. No. Actually, the top end of our guide for Q4 implies really consistent year over year revenue growth. it is pretty much all organic. In Q4, we lapped the Atalco acquisition. that is about 50 to 80 basis points of year over year that evaporates just from lapping that acquisition. We have a little bit of conservatism on The Middle East. December is a very powerful tourism month in The Middle East. And so even though they are operating a little bit above a 100% right now, We are putting in a little bit of conservatism. And then we have a tougher comparison, about 1% tougher comp to last year. So if you looked at our organic growth the first 3 quarters of the year was about 11%. The top end of our guide implies about 10%. And it is just very consistent throughout the year and what the guide really implies. Given what I just kind of went through. Makes sense. Thanks so much. Good luck, guys. Thank you.

Our next question is from Brian Harbour with Morgan Stanley. Please proceed with your question.

Hi. This is Hilary Lee on for Brian Harbour. Great quarter, guys. Another quarter of strong margin. So just wanted to know if you guys could provide some color on what drove the expansion? And do you think this sort of expansion is sustainable in the 4Q in 2027?

Hill, are you referring to gross margin or it is EBITDA. In adjusted EBITDA. Yeah. No. I think, you know, our guidance implies a very consistent kind of above 7% type of EBITDA margin in Q4 Our full year guidance implies getting to 7%, which was our 2028 target. And we have been seeing pretty consistent growth there. As I just mentioned, there is a little bit of conservatism in the guide, but that is just mostly driven by what I kind of just discussed. Great. Thanks. And just as a follow-up, I guess, what are you guys really seeing in terms of inflation Anything that you can provide on diesel prices rising rapidly? Yeah. I think 1 thing to point out, you know, obviously, fuel prices have risen egregiously really since March. And so if you look at if you look at our operating leverage this quarter and last quarter, as a percent of revenue, you see that most of it is coming from the gross profit margin line. And the adjusted OpEx line is relatively flat versus prior year. And the main driver of that is fuel. And then you are seeing the offset in the gross profit margin line. So I would say you know, we are we are we are passing most of it on, not all of it. You are never really going to be able to pass all of it on. But that is been the real driver of, you know, that operating leverage gap dynamic. Alright. Great. Thank you guys so much. Thank you.

Our next question is from Alex Slagle with Jefferies. Please proceed with your question.

Hey. Thanks. Good morning. Yes. Following up on the fuel 1. I know if inbound freights become any more of a challenge or sort of how you are looking at that passing through? And then just looking out, 2027, I do not know if there is any initial comments at the high level just to start thinking about. I mean, should we think about that overall view for you know, 2027 to 2030 on gross profit, EBITDA. Is that sort of linear or is there something different in 2027 to think about?

Thanks, Alex. No. You know, look. I would say on the inbound freight, I think our teams have done a really good job of you know, kind of managing procurement and pricing very effectively. In this environment of higher fuel and higher freight costs. Obviously, you see it in our gross profit dollar growth at 15% year over year. And strong gross profit margins. So as our as smaller markets and high growth markets start to get scale and generate the benefits of that scale on the procurement side that flows into pricing. We are leveraging our digital platform. And as I just mentioned, we are, you know, we are able to pass on a good portion of that fuel cost. So I think as Christina mentioned, our teams are executing at a very high level, and it is showing through in the results.

Yeah. And Alex, we are running the business with the outlook of if something great you know, happens and the world's at peace and oil comes down and there is a better logistics out there and all the other things that, you know, we. We have kinda built into the model that, you know, the world has inflated. it is moderate at this point. I mean, it is it is up and down, you know, protein, you know, can always be a little tricky. It can, you know, be really high 1 year and down the next. We are kind of seeing. You know, I think we only reported, you know, in specialty, only about 2%. 2, 2.5 percent of inflation. So we are we are just. We are trying to keep costs down. Obviously, we have to be competitive, and we want our customers to be able to get the best value. Of what we can provide. But, I just think the new world is higher cost. And you have to fight it with technology. You have to fight it with you know, a team operating kind of like a symphony. And being able to, you know, take out some costs as much as possible as we do start to leverage our new facilities. And I think you are seeing that, and it is built into our forecast, you know, to 2030. You know, I do not I do not think we are gonna see much different. If it does, it is a plus. If we have a little headwind, I think we have we have built that in. So I like where we sit, and I like where the team is taking us. Great. Thanks for the color. Thank you.

Our next question is from Peter Saleh with BTIG. Please proceed with your question.

Great. Thanks and congrats on another great quarter. I did want to ask, I guess, first, if you guys can give us a little bit more color on the gross margin gains. That you are seeing, really some healthy gains here for the past several quarters. Just trying to understand maybe what is driving that and how much of that is sustainable as we head into 2027.

Yeah. Peter, I will just revert to kind of my previous comment about sorry, Peter. You know, that the operating leverage as expressed as a percent of revenue could shift around quarter to quarter year over year based on market dynamics. This quarter, it happens to be that you know, fuel prices are causing. You know, normally with 11% or 10% type of growth, in revenue, you are going to see your adjusted OpEx line be lower year over year, but it is relatively flat really because of fuel prices and the impact on the OpEx line. And then you are seeing that offset and that is juicing up the gross profit margin line a little bit. But I would say what we are really seeing is product mix as our operating companies in many of our markets are becoming more of a true chef's warehouse over time as we grow categories, as our sales teams become more mature and more experts and, continue to drive market share. Selling a higher mix of higher margin products both on the specialty side and on protein side. I mentioned before that we are we are starting to get to really leverage our scale. On the procurement and pricing side. And then behind that, we have continued improvements in digital with integrating AI type technology. that is flowing through to our pricing and to our sales teams. And so it is all of those things coming together. it is not 2 home runs. it is, you know, like we like to say, it is, you know, 20 base hits and doubles. And that is really contributing to a lot of that gross profit margin improvement.

And, Peter, cautiously optimistic. You know, we like to think there is lots of buffers going forward into 2 30 and beyond. With just the growth into the capacity we have built, you know, we are still running many midsized small businesses. We only have 1 or 2 really sizable businesses. And as our new facilities, you know, keep coming online where we do have the space to buy direct, buy in volume, not have LTLs, all those will contribute to better top line GP which should result in better bottom line. You know, GP and EBITDA margins. So you know, we kind of look at it that you know, we could take a few hits that could be tailwinds. But there is a lot of I mean, headwinds, but there is a lot of tailwinds coming. You know, with the growth of CW family of businesses as we do grow into all these new investments and we start to get the synergies and the leverage on the enormous investments we have made the last 12 years. So very cautiously optimistic about that.

Understood. And then just can you guys give us an update on the organic growth has been double digit all year. Where are we on the Salesforce? Has that been growing at the same rate, maybe slower? And how are you seeing hiring trends right now?

Yeah. I think no change. Really, you know, the team is executing to--you know, it is always been very hard to find, you know, great people. And, you know, to do what we do because you have to have a lot of knowledge. You have to be able to absorb all that knowledge and talk like an adviser to the best chefs in the world. So we find good people. We hire them. You know, we are always unfortunately, there is some turnover at the bottom. it is not for everybody. it is a very expensive investment to invest, you know, 2 to 3 years into somebody who does not make it or stay. So you know, we do take a lot of time and care, you know, and spend the time in the hiring process. But we are hiring still as fast as possible where we find really good people because we still cannot meet the demand that is coming at us. A lot of our regions that the salespeople still have way too many accounts. So we see it that, you know, we cannot. We just cannot hire fast enough to meet the demand that we have. For our businesses. Thank you very much. Thanks, Peter.

Our next question is from Kelly Bania with BMO Capital Markets. Please proceed with your question.

Just wanted to follow-up on the top line. You have obviously had an incredibly strong year. And not to nitpick at all, but I guess, some might do the. Some math and say if CME really accelerated and the top line did moderate just a little bit, Looks like the domestic business maybe slowed a little bit. Is there is there anything to note from a seasonality standpoint or customer behavior standpoint And as well, can you talk about the visibility you have into just the holiday season and the bookings that your customers are seeing at this stage, I think you normally have some visibility into what that looks like for the fourth quarter.

Yes. I will start, I will let Chris comment. More if you would like. I will I will really just go back to kind of my comments earlier. While we always build a little bit of conservatism, into our guidance, we did raise it fairly significantly. And it does imply you know, the top end of the guidance comp. Implies very consistent year over year organic growth with the prior year when you factor in a tougher comp to last year, about 1%. And some conservatism around, December for The Middle East. Just given that there is still a lot of unknowns there. So I there is nothing in the guidance change that we really need to call out. We are not. I would say that revenue trends as we said in our prepared remarks, continued into October. We saw a really good October. Double digit growth consistent with you know, what we have been seeing all year. So I will just. I will let Chris comment on the what we expect for the fourth quarter, but that is really what we have.

Yeah. I mean, basically, Kelly, and what we are hearing, you know, from all our sales meetings, obviously, looking at the numbers. there is a lot of demand in the fourth quarter of private events, you know, corporate events, celebrations. So it. it is really healthy at the top. You know? Anything negative that I could hear is, you know, certain conferences have 10, 12% less people attending. Do not think that is a surprise. To anybody. And, you know, from a lot of our private club businesses, you know, what I might be hearing is you know, the summer was a little up and down. A lot of people were traveling. But a la carte could be a little soft. But private events are more than making up, you know, their top line bottom line for their budget. So it seems like you know, a little bit goes down and then a little bit goes up. And from our. From our seat, you know, we see. In our forecast, obviously, we would like to be conservative but we do not see anything You know, we have taken up guidance So you know, there is a little. I think they are. You know, the black box will tell you there is a little, you know, slowness here and there in some customer bases, and I am I am sure that is true. But you know, our investment really to grow the Salesforce, grow territory, and categories It was always designed to make up any downturn in the typical customer base. And make it up by having more and more customers You know, we look at it again as how many dollars, how many GP dollars can we get on trucks? And fill those routes. And that is the way we run the business, and it is working pretty well.

Okay. Thank you. Just had 1 more follow-up. Some in the industry are calling for some sizable savings from AI. Obviously, Chefs has been at the forefront, and you have outlined many areas, you know, from pricing to sourcing, logistics, inventory that you, are working on projects there. Just any just curious if there is any update on the size of the potential savings as you continue to work through that. And feedback from the Salesforce as they continue to get more tools on that front.

Yeah. I mean, great question. We are all in. On the investment. it is part of our budget to continue to invest in digital and have the best eye. AI tools for our team. You know, my. You know, my 2020 vision still thinks that it is it is gonna continue to make, you know, the Salesforce at every department, you know, more effective I am not ready to give up on people. I think people play a really important part of what we do, and how we do it. But we have always been on the mindset that you are gonna have to do more with less. Know, just from the point that there is just not enough people. You know? You know, the birth rates are not what they used to be, you know, across the world, so you are going to have to use AI in every piece of technology. To drive your bottom line. And I think it is you know, an upside for us. I mean, we are gonna be conservative and say that, you know, what our forecast that we gave you know, is not built with any big a-has. But would we love to see an--absolutely. You know? If we get another point, you know, or 2 points, to the bottom line because we are able to be that much more efficient, That would be you know, truly incredible. But I think we are satisfied really with what our forecast looks like going into 2030 and just hitting that, I think, it would be a tremendous reward for shareholders. Thank you. Thank you.

Our next question is from Todd Brooks with Stonex. Please proceed with your question.

Hey, good morning, guys. Congrats on the continued momentum in the quarter as well. Thank you. 2 quick questions.

1, Jim, if you look at kind of where we stand in the year and the full year guidance, what inflation outlook is embedded in the Q4 guidance for specialty and center of the plate. Nothing really out of the ordinary from what we have been seeing, Todd. You know, price inflation throughout the year has been pretty consistently you know, kind of at the upper end of what we would consider the normal range of 2 to 4%. You know, if you exclude you know, kind of extreme price inflation that we are seeing in The Middle East, our aggregate price inflation in the quarter was closer to 3.5%. As Chris mentioned earlier, specialty was really 2.5 percent. So we are we are we are just assuming consistent kind of inflation through the remainder of the year. We do not expect anything other than, you know, you have a few categories that are always a little higher, a little lower. But that is normal. Okay. Great.

And then my second and final question. If we are looking out now 2027, 2028, how has the new facility plan shaped up? What facilities are on the docket? And have you had any success? I know it is kind of a holy grail, but finding any sort of opportunity for a second facility in the New York Metro market? Thanks.

Yes. Thanks, Todd. We kind of laid out at our--when we laid out our 2030 guidance, kind of the markets that we will be adding distribution capacity and consolidating facilities You know, the. We are in. Many of them are in process. Right now, and they will come online over the next, you know, 2 to 3 years. And that is, you know, Texas to consolidate facilities in Dallas and build a state of the art distribution center New England, is underway to do consolidations. and add capacity. We are in the process of expanding Las Vegas, our protein processing And then there is a couple of markets in the Midwest that are underway as well. Those are really our focus right now. And then we are working on New York. there is multiple scenarios. Nothing to announce right now. Okay. Great. Thank you both. Thank you.

We have reached the end of the question and answer session. I would like to turn the floor back over to Christopher Pappas for closing comments.

Yes. Well, thank you all for joining our third quarter earnings call. It was a very strong quarter. The team continues to execute. We could not be more proud of how the team continues to drive forward the Chef's Warehouse and the passion they have for selling the world's finest ingredients to the best chefs in the world. We look forward to for you joining us again in our fourth quarter call. Thank you very much.

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