The Chefs' Warehouse(US:CHEF)2021-07-28 16:27Financial Data and Key Metrics Changes - Net sales for Q2 2021 increased approximately 111% to $423 million from $200.5 million in Q2 2020, driven by a 106.1% increase in organic sales and a 4.9% contribution from acquisitions [16][21] - Gross profit increased 120.8% to $95.9 million for Q2 2021 compared to $43.4 million for Q2 2020, with gross profit margins improving approximately 101 basis points to 22.7% [17][18] - Adjusted EBITDA was positive at $17.2 million for Q2 2021, compared to a negative adjusted EBITDA of $13.7 million for the prior year [22] Business Line Data and Key Metrics Changes - Specialty sales increased approximately 48.1% sequentially versus Q1 2021, with average unique customers increasing by 22% and placements rising by approximately 36% [7] - Specialty gross margin increased 316 basis points compared to Q1 2021, while center-of-the-plate gross margin increased 31 basis points [10] Market Data and Key Metrics Changes - Recent sales have been trending in line with 2019 sales, inclusive of acquisitions completed in 2020 and 2021 [13] - Net inflation was reported at 11.5% in Q2 2021, with specialty category inflation at 10.6% and center-of-the-plate inflation at 12.1% compared to the prior year [17] Company Strategy and Development Direction - The company completed the acquisition of Nicola Imports to expand its presence in Arizona and enter the Denver market, indicating a focus on geographic expansion [11] - The company is implementing system and process improvements to enhance efficiency and has nearly 100% of specialty locations utilizing mobile truck scanning [12] Management's Comments on Operating Environment and Future Outlook - Management noted that the return of indoor and outdoor dining capacity has strengthened consumer demand, and they are optimistic about future growth as travel and hospitality sectors recover [6][30] - The company is cautious about providing guidance for 2021 due to uncertainties regarding economic recovery and travel-related business activity [24] Other Important Information - Total operating expenses increased approximately 32.5% to $91.2 million for Q2 2021, driven by higher compensation and transportation costs [19] - The company had total liquidity of $247.7 million as of June 25, 2021, comprised of $146.9 million in cash and $100.8 million available under its ABL facility [23] Q&A Session Summary Question: Can you provide more color on the ramp in demand and how you captured it? - Management noted that major cities began to open in mid to late May, leading to a significant ramp in demand, particularly in June [26] Question: How much of the recent sales level is due to openings and celebrations? - Management indicated that recent business activity is similar to June levels, and they have not seen significant changes as they enter the quieter season [28] Question: What does the sales force look like compared to 2019? - Management reported that they are approaching 2019 levels in terms of average weekly customers actively buying [35] Question: Can you discuss the factors affecting gross margin? - Management explained that gross margins are approximately 300 basis points below 2019 levels, primarily due to inflation and volume recovery [36] Question: How is inflation being absorbed throughout the supply chain? - Management confirmed that there is pricing power throughout the value chain, and while inflation is pronounced compared to Q2 2020, it is less so compared to 2019 [42][44] Question: What is the status of inventory levels? - Management stated that they have a strong cash position and are effectively managing working capital, with additional investments expected [46] Question: Can you elaborate on the Texas ramp-up? - Management expressed satisfaction with the Texas business moving towards breakeven faster than expected, with ongoing investments in hiring and market opportunities [48] Question: What are the expectations for the exit rate for fiscal '21? - Management remains conservative, expecting to come out of the year at a run rate similar to pre-pandemic levels, but is cautious about making bold predictions [60]