The Chefs' Warehouse(US:CHEF)2021-10-27 17:06Financial Data and Key Metrics Changes - Net sales for Q3 2021 increased approximately 90.7% to $484.3 million from $254 million in Q3 2020, driven by an organic sales increase of approximately 84.2% and acquisitions contributing approximately 6.5% to sales growth [14][20] - Gross profit increased 82.2% to $110 million, with gross profit margins decreasing approximately 105 basis points to 22.7% [16] - Adjusted EBITDA was positive at $23.4 million for Q3 2021 compared to negative adjusted EBITDA of $4.9 million for the prior year [21] Business Line Data and Key Metrics Changes - Specialty sales increased approximately 18.1% sequentially versus Q2 2021, with average unique customers increasing 7.1% and higher placements of approximately 8% [8] - Specialty cases increased 12.8% versus Q2 2021, while center-of-the-plate pounds sold were approximately 2.8% higher sequentially [9] Market Data and Key Metrics Changes - Sales trends remained strong, exiting the quarter at approximately 103% of 2019 sales, with limited growth in return to offices and hospitality-related activity contributing to a moderate increase in sales trends [7][12] - Net inflation was 18.7% in Q3 2021, with 10.9% inflation in the specialty category and 28% in the center-of-the-plate category compared to the prior year [15] Company Strategy and Development Direction - The company completed two acquisitions in October 2021 to enhance growth in high-end center-of-the-plate product lines, including Silver State Meats in Las Vegas and certain assets of Martin Preferred Foods in Texas [10][12] - The company aims to expand its Southern California specialty protein sales and enhance its Allen Brothers brand in Texas [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the future growth of the culinary industry and the company's investments in market and category expansion despite ongoing labor and supply chain challenges [13] - The company is cautiously optimistic about the return of business and travel, modeling a gradual build back through the end of 2021 and into 2022 [26][28] Other Important Information - Total operating expenses increased approximately 37.7% to $99.5 million, driven by higher compensation and transportation costs [18] - The company had total liquidity of $243.7 million at the end of Q3 2021, with net debt of approximately $266.4 million [22] Q&A Session Summary Question: Impact of Delta Variant on Business - Management noted that there was minimal impact from the Delta variant, with consistent revenue trends throughout July and August, and a gradual build in September as college markets opened [24][25] Question: Staffing Challenges - Staffing remains a challenge, but the company has become more strategic and efficient in operations, prioritizing existing customers and seeing an increase in applicants [29][30] Question: Inflationary Cost Pressures - Management indicated that they have been able to pass along higher costs to customers, maintaining gross profit dollars despite inflationary pressures [35][39] Question: Industry Outlook for Independence - Management observed that while some small businesses closed, many are now looking for new locations and planning new restaurant openings, indicating a potential surge in development [61][62] Question: Recent Acquisitions Impact on Margins - The recent acquisitions are seen as growth investments with no significant immediate impact on margins, but expected to contribute positively over the next few years [64][65]