Executive Summary / Key Takeaways

• The Chefs' Warehouse (CHEF) is a premier specialty and center-of-the-plate food distributor focused on high-end culinary customers, differentiating itself through curated product offerings, high-touch service, and strategic investments in infrastructure and technology.
• Recent performance, including 8.7% net sales growth and a significant increase in operating cash flow in Q1 2025, demonstrates the effectiveness of its strategy in gaining market share and improving operational efficiency despite a challenging industry backdrop.
• Investments in digital platforms are driving increased online ordering adoption (58% of domestic specialty customers in Q1 2025), enhancing sales force efficiency and contributing to profitability improvements.
• The company is actively leveraging substantial infrastructure investments made since 2019, expecting continued operating leverage and adjusted EBITDA margin expansion of 20-25 basis points annually towards its 2028 target of 6.5%-7%.
• While facing risks like potential tariffs, commodity volatility, and shifts in consumer behavior, CHEF's focus on a less price-sensitive, upscale customer base and disciplined operational execution position it for continued growth and margin improvement, as reflected in its 2025 guidance of $3.96B-$4.04B in net sales and $234M-$246M in adjusted EBITDA.

A Culinary Niche with a Side of Strategy

The Chefs' Warehouse, Inc. operates as a distinctive player in the vast foodservice distribution landscape. For approximately 40 years, the company has cultivated a reputation as a premier distributor of specialty food and center-of-the-plate products, primarily catering to the exacting demands of chefs in upscale restaurants, hotels, country clubs, and other fine dining establishments across the United States, the Middle East, and Canada. This focus on a high-end, culinary-driven customer base sets CHEF apart from the broadline distributors who serve a wider array of foodservice operators.

CHEF's strategic journey has been marked by a consistent effort to build a "complete solution company" in its target markets. This involves not only offering a curated portfolio of over 88,000 high-quality SKUs, ranging from artisan cheeses and specialty oils to premium proteins and fresh produce, but also integrating capabilities across specialty, protein, and fresh categories. Acquisitions have played a crucial role in this expansion, providing entry into new geographies and product lines, such as the 2023 acquisition of GreenLeaf, which bolstered its fresh produce offerings and market presence, particularly in Texas and California.

Central to CHEF's competitive positioning is its high-touch service model and logistical nimbleness. Unlike larger, volume-focused competitors, CHEF emphasizes just-in-time delivery and personalized service tailored to the specific needs of chefs. This differentiation is supported by strategic investments in its distribution network and technology. Since 2019, the company has significantly expanded its distribution capacity, adding roughly 1 million square feet, a 60% increase from its 2019 baseline. These investments in facilities in high-growth markets like Florida, Southern California, Seattle, and Dubai, as well as consolidation projects like the Northern California protein processing facility, are designed to enhance operational efficiency, create synergies, and provide ample room for future growth.

The company's technological advancements, particularly its digital platform, are increasingly becoming a key differentiator. This platform, which includes mobile and web-based ordering, is seeing growing adoption among domestic specialty customers, reaching 58% in Q1 2025, up from 48% at the end of 2023. This technology is not merely a convenience; it enhances customer-facing functionality, provides real-time data analytics to support the sales team, and contributes to improved profitability over time by streamlining the ordering process and making salespeople more efficient "consultants" rather than order takers. The expansion of this digital footprint to international markets like the Middle East and integrated acquisitions like Hardie's further underscores its strategic importance.

In the competitive landscape, CHEF operates alongside much larger broadline distributors like Sysco (SYY), US Foods (USFD), and Performance Food Group (PFGC). While these competitors possess significant scale advantages, leading to potentially lower operating costs per unit and broader market share, CHEF carves out its niche by focusing on product curation, quality, and specialized service. CHEF's gross margins (24.05% TTM) tend to be higher than those of broadline peers (SYY ~19%, USFD ~17%, PFGC ~11%), reflecting the premium nature of its products and customer base. However, its smaller scale and higher debt levels (Debt/Equity 1.68x TTM vs. SYY 6.96x, USFD 1.20x, PFGC 1.21x) can result in lower net and EBITDA margins compared to the largest players, although CHEF is actively working to improve these through operational leverage. CHEF's ability to offer a diverse, high-quality product mix and provide tailored service creates a competitive "moat" in the upscale segment, fostering strong customer loyalty that helps offset the scale advantages of its rivals.

Performance Reflecting Strategic Execution

CHEF's recent financial performance provides tangible evidence of its strategy in action. For the first quarter ended March 28, 2025, the company reported net sales of $950.7 million, an 8.7% increase compared to $874.5 million in the prior year period. This growth was entirely organic, highlighting the company's ability to gain market share. The specialty category was a significant driver, with sales up 10.7%, fueled by a 4.5% increase in unique customers, 7.7% placement growth, and 5.7% specialty case growth. While center-of-the-plate pounds saw a slight decrease of 1.3%, this was impacted by the planned attrition of certain low-margin, non-core commodity business. Excluding this, center-of-the-plate pounds grew by 3%.

Gross profit increased by 7.9% to $226.0 million in Q1 2025, reflecting the higher sales volume and price inflation. Gross profit margin saw a modest decrease of 18 basis points to 23.8%, primarily due to a decrease in center-of-the-plate margins (down 83 basis points), partially offset by an increase in specialty margins (up 6 basis points). Management noted that center-of-the-plate margins were impacted by higher year-over-year prices and product mix changes, while sequential pricing remained relatively stable. Estimated inflation in Q1 2025 was 4.8% in specialty and 5.9% in center-of-the-plate, influenced by elevated prices in categories like chocolate and eggs, as well as the cross-sell of specialty products within the Hardie's produce operation in Texas. Excluding the Texas cross-sell impact, overall inflation was approximately 3%.

Operating income saw a substantial increase, rising to $22.7 million in Q1 2025 from $16.0 million in Q1 2024. This improvement was driven by the higher gross profit and a more favorable selling, general, and administrative expense profile. SG&A expenses increased by 6.5% to $202.8 million, primarily due to higher compensation, benefits, facilities, and distribution costs supporting sales growth and increased depreciation from facility investments. However, as a percentage of net sales, SG&A decreased by 50 basis points, demonstrating improved operating leverage. Other operating expenses, net, also decreased significantly due to lower severance charges. Interest expense decreased by 22.6% to $10.3 million, benefiting from lower aggregate principal debt and reduced interest rates compared to the prior year.

Liquidity remains solid. As of March 28, 2025, total liquidity stood at $278.9 million, comprising $116.5 million in cash and cash equivalents and $162.4 million in availability under its asset-based loan facility. Net debt was approximately $535.2 million, resulting in a net debt to adjusted EBITDA ratio of approximately 2.4x, an improvement from 2.5x at year-end 2024 and significantly down from 3.4x at year-end 2023. This deleveraging reflects strong cash flow generation and disciplined capital allocation, including debt repayments and modest share repurchases under its authorized program ($82.6 million remaining authorization as of March 28, 2025). Net cash provided by operating activities in Q1 2025 was $49.6 million, a notable increase from $30.9 million in Q1 2024, driven by sales growth, lower interest payments, reduced operating expenses, and better working capital management.

Capital expenditures in Q1 2025 were $12.3 million, contributing to the estimated full-year 2025 CapEx of $40 million to $50 million, primarily focused on facility investments.

Outlook and the Path to 2028

Looking ahead, CHEF's management has provided guidance that underscores its confidence in continued growth and profitability improvement, aligned with its long-term targets. For the full year 2025, the company estimates net sales will be in the range of $3.96 billion to $4.04 billion, gross profit between $954 million and $976 million, and adjusted EBITDA between $234 million and $246 million. This guidance implies continued growth, albeit at a potentially moderated pace compared to Q1, primarily due to tougher year-over-year comparisons in the latter half of 2024. Management noted that the guidance range incorporates a degree of conservatism and factors in potential gains and losses, such as the planned attrition of low-margin business.

The 2025 outlook is a step towards the company's stated 2028 financial targets of approximately $4.6 billion to $5 billion in revenue and $300 million to $350 million in adjusted EBITDA. Achieving these targets hinges on several strategic pillars: continued market share gains through new customer acquisition and increased item penetration with existing customers, leveraging the expanded infrastructure to drive operational efficiencies and capture operating leverage, further integrating acquisitions to realize synergies and improve profitability, and enhancing the digital platform to support sales and operations. Management specifically targets incremental adjusted EBITDA margin improvement of 20-25 basis points annually over the next four years, building on the momentum seen in late 2024 as facility investments begin to yield benefits.

Underpinning this outlook are assumptions of continued demand within the upscale culinary market, which management believes is relatively more resilient to economic fluctuations. They anticipate manageable commodity inflation, generally within the 2-3% range excluding specific volatile categories, and a stable labor environment. The ongoing integration of specialty, produce, and protein operations, particularly in key markets like Texas, is expected to drive cross-sell opportunities and improve profitability, as evidenced by the 110 basis point EBITDA margin improvement in combined Texas operations year-to-date 2024.

However, the path forward is not without risks. The potential imposition of tariffs on imports from key regions like Mexico, Canada, and Europe could impact product costs, although CHEF believes its diversified supply chain and ability to pass on costs provide mitigation. Volatility in commodity prices, particularly for items like chocolate and eggs, can affect margins. Shifts in consumer behavior, such as changes in tourism patterns or the long-term impact of hybrid work on dining habits, could influence demand in specific markets. Intense competition from larger broadline distributors remains a constant factor, requiring CHEF to continuously execute on its differentiation strategy. While the labor market has stabilized, rising labor costs remain a potential pressure point, though investments in processing automation and warehouse efficiency aim to counter this.

Conclusion

The Chefs' Warehouse presents a compelling investment narrative centered on its disciplined approach to serving the high-end culinary market. By strategically investing in infrastructure, technology, and its sales force, CHEF is building a robust platform to capture market share and drive profitability. The recent financial performance, marked by strong sales growth and improved operating cash flow, underscores the effectiveness of this strategy. While operating in a competitive and sometimes volatile industry, CHEF's focus on product quality, specialized service, and operational efficiency provides a durable competitive advantage. The company's clear guidance and long-term targets, supported by tangible progress in leveraging its investments and integrating acquisitions, suggest a clear path towards continued growth and margin expansion. For investors seeking exposure to a differentiated player in the foodservice distribution sector, CHEF's focus on culinary excellence and operational discipline offers an appetizing prospect.