Q1 2020 Earnings Call
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Please standby.
Ladies and gentlemen, greetings and welcome to the chefs warehouse first quarter 2020 earnings conference call.
Reminder, this conference is being recorded.
I'd now like the churn.
Our conference over to your hosts Alex.
Yes.
Okay helpful.
Corporate Secretary and Chief Government Relations Officer. Please go ahead Sir.
Good afternoon, everyone with me on todays call or Chris topics, founder Chairman and CEO.
Linear CFO.
You should have access to our first quarter 2020 earnings press release.
You can also be found a couple of years Nobody's doubly chefs warehouse dot com under the Investor Relations section.
This conference call, we will be presenting non-GAAP financial measures, including among others historical an estimated EBITDA adjusted EBITDA as well as both historical and estimated adjusted net income and adjusted earnings per share.
These measurements are not calculated in accordance with cats, and maybe calculated differently.
Total 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.
Well, we get a 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 [laughter]. These statements are subject to numerous risks and uncertainties that could cause actual results could differ materially from what we expect.
Some of these risks are mentioned in today's release others are discussed in or annual report on form 10-K quarterly reports on form 10-Q, which are available if you actually see website.
Today, we are going to provide a business update can go over our first quarter results in detail then we'll open up the call for questions with that Phil will turn the call over to Chris Pappas Chris.
Thank you Alex and thank you all for joining our first quarter 2020 earnings call.
First let me begin by saying that all of us out the chefs warehouse hope that everyone on this call in the entire Investor Courier main safe and healthy during this time.
As a company our primary focus is the health and safety of our team members customers and supplier partners.
Our thoughts and prayers are with those impacted by this unprecedented health economic crisis. This is a tough time for our industry, but I'm confident we will get through this together.
First quarter started off with strong organic revenue and gross profit growth in both January and February in addition to solid growth from said winner in Cambridge packing both acquired in the period.
No cobot 19 pandemic started to impact our business slightly in late February in early March for most material impact began in the final two weeks from March following the government shutdown dining restaurant bars cafes any bad.
During the quarter organic net sales were 6.6% lower versus the prior year quarter.
Specialty sales were down 7% organically over the prior year, which was driven by a reduction in unique customers of approximately 1.9%.
Lower placements of approximately 9.6% and specialty case is lower by 5%.
Organic pounds in center of the plate was approximately 10% lower than the prior year quarter.
Although we do not typically disclose monthly metrics, we feel it's important to communicate the path. The company was on prior to the impact of covert 19.
Year over year volume metrics were particularly strong during the first two months of 2020.
Especially the cases grew 10.8% organically versus the same period in 2019 March specific rate cases declined 28.4% versus March 2019.
Center the plate pounds were down slightly at 0.7 in January and February combined versus the same two month period. The prior year and declined 22.6% in March two two significant impact of the shelter in place orders in our key markets.
Gross profit margins decreased approximately 105 basis points during the quarter gross margin in the specialty category decreased 311 basis points as compared to the first quarter of 2019, while gross margin in the center of the play category increased 156 basis points year over year.
Here.
Excluding the impact of onetime inventory reserve estimates due to covert 19 impact total gross profit margins decreased 17 basis points and specialty margins margins decreased 154 basis points, Jim will provide more detail our margins in a few moments.
Now to move onto our current priorities and actions.
Many of our customers have remained open for takeout service and delivery and we're committed to supplying it supporting them during this unprecedented times.
We have also partnered with multiple retail food outlets to supply both specialty and center of the play products. We have successfully launched shop like a shaft, our direct to consumer delivery site that we now operate alongside our Allen brothers, Great Steakhouse premiums they can seafood online platform.
Like so many of our partners and customers. We have made it difficult decision to temporarily furlough certain employees such that they can take advantage of the government support.
We are providing health benefits for the period of furlough and expect to allocate 10% of the profits from our new shop like a shop online store to our front line furloughed employees and others in the foodservice industry, who have been impacted.
We hope to bring back as many furloughed employees as possible as the macro environment improves over the coming months.
I would also like to express my deep thanks to the chefs warehouse team for their flexibility and dedication to their team members and our customers and suppliers during this challenging time.
Our team quickly pivoted to service food retail outlets and rapidly develop an executed a fast growing online platform direct to consumers. While we expect to continue to innovate and develop new business lines. We are focused on being ready to supply and support our chefs and all foodservice customers as they begin to fully.
Opened over the coming weeks and months.
And finally as mentioned in recent public announcements, we have taken steps to strengthen our liquidity.
Before I turn it over to Jim I'd like to express our deepest sadness for those impacted during this on the presses that time.
Our industry at its heart is about community in times of happiness and success in a more try in times like today, we're committed to being partners to chefs across the country and providing them with the highest quality ingredients and specialty food products, we're being diligent about finding creative solutions to support the restaurant industry in the coming weeks and months.
And though we will emerge from these trying times stronger than ever.
With that I'll turn it over to Jim to discuss more detailed financial information for the quarter, and an update or our liquidity and costs related actions Jim.
Thank you, Chris and good afternoon, everyone.
Our net sales for the quarter ended March 27.
2020 increased approximately 5.2% to 375.4 million from 350 57 million in the first quarter of 29 team.
The increase in net sales with as result of a decline in organic sales approximately 6.6% as well as the contribution of sales from acquisitions, which added approximately 11.8% to sales growth for the quarter.
Net inflation was 0.2% in the first quarter, consisting of 2.1% deflation in our specialty category.
Inflation of 3.1% in our center of the played category versus the prior year quarter.
Gross profit increased 0.8% to 90.9 million for the first quarter 2020 versus 90.2 million for the first quarter of 29 team gross profit margins decreased approximately 105 basis points to 24.2%.
Specialty deflation was driven by above average decreases in dairy and specialty ingredient categories, partially offset by inflation in the cheese category.
First quarter inflation incentive to play category was primarily driven by a higher percentage of overall sales attributed to our prime and other premium cut sales in our Allen Brothers Division.
Gross profit dollar growth and margin was significantly impacted by onetime reserve for inventory obsolescence of approximately 3.3 million due to the estimated impact for shutdown due to cope with 19.
Total operating expense increased approximately 28.4% to 107.9 million for the first quarter of 2020 from 84 million in the first quarter of 2019.
Increasing reserves related to bad debt of approximately 15.8 million due to the Colgate 19 shutdown was the primary driver of operating expenses in the quarter.
On an adjusted basis and as a percentage of net sales operating expenses were 27.9% for the first quarter 2020 compared to 21.6% for the first quarter 2019.
Excluding the estimated impact of the shutdown on the on first quarter revenue and bad debt Reserve, we estimate adjusted adjusted operating expenses as a percentage of net sales would have been relatively unchanged versus the prior year quarter.
Operating loss for the first quarter 2020 was 17 million compared to operating income of $6.2 million for the first quarter 2019. The decrease in operating income was driven primarily by increased operating expenses offset in part by higher gross profit.
Income tax benefit was 8.1 million for the first quarter 2000, 2000 compared to expense of 0.4 million for the first quarter 2019.
Our GAAP net loss was 14.1 million or negative 48 cents.
Loss per diluted share for the first quarter of 2020 compared to net income of 1.1 million or four cents per diluted share for the first quarter 2019.
On a non-GAAP basis, adjusted EBITDA was a loss of 13.8 million for the first quarter 2020 compared to income of 13.2 million for the first.
Quarter of.
Prior year.
Adjusted net loss was 17.7 million horse 60 cents loss per diluted share for the first quarter 2020, compared to adjusted net income of $1.4 million or five cents per diluted share for the prior year first quarter.
Turning to our liquidity and cost related actions taken to manage working capital focused on twitch unprecedented period.
As mentioned in our March press release, we borrowed 100 million on our asset based loan facility and as of April Thirtyth 2020, we have approximately 200 million in cash on the balance sheet and approximately 33 million in availability on our asset backed loan facility.
We are working closely with both our customers and supplier partners on actively managing receivables payables and inventory as we navigate this challenging near term period for all involved.
Going forward, we expect to manage working capital PMD flexible arrangements health insurance success for all stakeholders as we returned to a more normal business environment.
We have reduced cost considerably through multiple actions, including but not limited to temporary furloughs certain employees layoffs and the reduction of volume driven operational hours and costs.
Temporary salary reductions across multiple work groups, including a 50% reduction in salaries of the executive leadership team.
Renegotiation and termination of certain lease contracts and general reductions in Gionee spend.
We feel the actions we have taken to date on cost and liquidity will allow us to manage the business for an extended period. During this unprecedented time.
We may take additional actions, depending on how the business environment environment develops over the coming weeks and months and we continue to evaluate potential additional sources of capital that we may deem appropriate at some point in the future.
As mentioned in our press release stated Martine teams 20, Tony we have suspended our 2020 full year guidance due to the uncertain economic environment created by the cobot 19 for shutdown.
Hope to provide more color as we gain more clarity on the length of economic downturn.
Thank you and at this point, we will open it up to questions operator.
Thanks.
Thank you, ladies and gentlemen, if you'd like to ask a question today. It is star one on your telephone keypad again, if you'd like to ask a question. It is star one on your telephone keypad.
We'll take our first question from Chris Mannville from Jefferies.
Hey, good afternoon guys.
Good morning.
With the color on.
Mini originate reduced costs in the near term it was an immediate term for that matter, but.
Let's step back in time, reviewing your cost structure.
About a sample really were split between fixed versus variable and one of the last time was made up I'm.
Comfortable with your liquidity over an extended period of time.
The serious finer point on that.
Provides for what you're really expecting from what is an extended period of time really translate into them.
I'll start there.
Sure So Chris the first part of your question.
I think similar to what you heard and came from the other distributors that are public we have a similar cost structure basically two thirds variable and a third fixed so not materially different from from other other people are our competitors et cetera.
In terms of the near term cost actions.
We have.
Considerably ramped down the variable cost structure.
To the extent about 60% reduction in our variable costs, which translates to about 40% reduction in our overall operating spend.
No.
The way me.
Look at the rest of the year, we don't obviously, we don't know, but we would expect to layer in.
Additional variable costs that are volume related as.
As the business environment starts to to open up but once again, we're not predicting anything.
That's just how we're modeling it in terms of liquidity you can see from all our prepared remarks in the release.
Between a cash on the balance sheet.
The remaining availability on our HDL.
We're at about 14% of prior year revenue, which I think.
Is a.
Fairly strong liquidity position.
And we expect to be able to manage through this crisis.
We've noted in our 10-Q that.
We expect to be able to manage the business for the for the.
12 month period kind of our standard disclosure and still were.
We're staying with that disclosure I think we can manage beyond that and thats based on a number of different models that we'd run.
So I'll leave it there.
Okay. That's helpful.
Okay, that's it sounds like that.
Now going back on.
Your your variable costs.
At a greater something about 40% reduction to hop back I mean, how much of that will actually captured within Q1 versus what we should be anticipating in Q2, and then I guess just.
Thinking about generally trying to find ourselves a bottom here are you expecting based on what you're seeing today that back in queue is done on sitting here in terms of sales and EBITDA decline.
Yes, virtually none of it was captured in in Q1.
No the.
The ramp down in costs, you know, we probably had a little bit in terms of volume based.
I always any operations, but.
The significant.
Actions that we took primarily started to impact in April.
So I wouldn't put too much of that in in Q1 at all.
And then I think.
Look we can't.
Sleep predict the future but.
We've seen incremental.
Increases in you know in volume.
Weekly revenue on a weekly basis, so I.
I think you could you could extrapolate as things start to open up that we would expect Q2 would it be the.
The low point.
Okay, and just lastly, two main I'll hop back can you just in terms of adding found that in 18 months and year on sale bottoms in a lot of portion of March.
I mean, its upside that up for us on really where are you guys trough.
Relative to where we might come sitting today in early Matt.
Yeah, well, obviously, you know when everything shut down Chris.
[laughter] it really wasn't no business.
It hit US you know.
Like a a like a nuclear bomb so.
You know every week.
He gets better.
I think.
You know if I have to act this year or are you know.
I'm looking for the Sunshine at this point, you know where a business that we specialize in the in front of restaurants and in a major cities you know, California, New York Chicago.
But he was ordered to shelter home.
And you know here, we are with our clients really you know none that locally serving you know.
Let's take out and though we made a tremendous pivot.
Two.
Create a business that you'd I've always wanted to create really you know.
Yes.
What we said that chef warehouse is not your typical distributor or more of a food marketing company that always distribute sooner we represent almost 2000 to these incredible.
Artisan producers from around the World I've always wanted to.
Create more of a hybrid model you know where were so much different than your typical large broad line or is everything from the size of our trucks to how do we go to the market to our shops at salespeople and.
It was only really unbelievable opportunities are kinda launched shop like a shop.
So you know incredible how our IP department and our leadership team.
I was able to pivot really within a week and we we went out we created a up a whole new business. During this a pandemic that continues to grow and Oh, you know were getting better at it every day and we're really optimistic for the future of that business the being a sister business.
To see W. I mean.
This week, we've actually had a day of a.
50% of last year's volume, which when you think about it I find that incredible with.
Our customers basically all close.
Our.
Just incredibly talented team was able to go out and.
New business and creating business are helping our customers do take out.
You know haven't you know get up to 50% day so.
You know obviously, we're all anxious to get our regular business up and going and hopefully a you know our incredible medical society comes up with.
A cure that a you know we're starting to see cities open you know, we're starting to a you know waiting for southern Florida to start to get going at least 25%, Obviously, New York is close, California still close Chicago still close.
So we can't help would be optimistic about a you know how much more business. We can do even in a even in an environment that is gonna be challenges.
[laughter] married to create one Latin America. Upon my comments there now we are reaffirming the country arent packet broker.
Let me remind us what about in terms on what your sales exposure by region regardless.
One of the top two equity markets and given some perspective on diversification today versus what we saw back in you know eight or nine timeframe.
Yeah, well back you know weighed on nine and obviously, New York will say a much larger part of our business and today it's a.
It's still a oh, you know so our biggest business but.
Its footwear is much more diversified you know.
Throughout new England throughout the whole west post throughout the middle of the country. So I'm waiting for much more balance portfolio customers.
And and business volume.
Okay I'll leave that thanks, guys.
Thanks, Chris.
And our next question comes from Joshua long from Piper Sandler.
Great. Thanks for taking my question wanted to.
You might be able to first or provide some context or around what we're hearing in terms of b.
The digital disruption here on protein side, I mean, you guys, having your own house brands. There I can give a unique perspective on that and I wanted to see if that was something that is starting to work its way through to your system now given that you're at the higher end in the lumpy commentary has been focused maybe on.
The lower end on on the beach protein in particular, and then spanning more globally as we think about all of those good you bring into your warehouses and connect with your chat partners from around the world what kind of disruption do you expect as we started to.
Open things up and then maybe where on the front end of this reopening cycle you should we start thinking about or having that conversation around potential disruptions in all of those products and.
Items, you're sourcing from artisan partners around the world going forward.
Sure well.
Amazingly, our our producers you know overall all stayed open. So you know we import obviously a lot from a Italy and France and.
The category management team you know when it's a daily call I have said basically they're well producing and they have products. So you know it because I think it's more logistically you know I.
I think there's been some disruption you know maybe with a obviously a air freight got very expensive. The the the good news is that we didn't really need a lot of that product you know.
During this pandemic the bad news is that the freight got expensive, but obviously that will keep coming down is just more and more flights.
And more and more ships.
Our coming in but that hasn't really been you know.
Something that's been a real issue for us I mean on the protein side I know it's been in the papers a lot I know that the pork side, which is not a huge part of our business was really disrupted.
Our team did a great job you know getting ahead on the beside.
So we went into the we went to the shortage really well prepared.
I think better than most.
A lot of the products as you said you know our our high end cuts are crime and our why go there are a real premium.
Deep cuts.
We were pretty prepared.
With a good amount as inventory so are you know I.
I get the credit to our Ah you know our talent to the protein team for really getting ahead of it and I jump you know I don't have a crystal ball, but I don't think it's gonna be a disruption for a very very long time. So I think we're fine with it.
I know that a you know you hear Wendy's has no hamburger and ER.
There's a shortage on the shelves and the supermarkets, but I think we I think we did a great job you know two out for the for the.
Current outlook are well positioned to that.
Great thank him for bad and.
Wanted to also then dig into some of the integration work they had been going on with the recent acquisitions and you clearly I think it's by no understatement that.
The integration process during a crisis like this is going to be even more challenging but as you think about what you've been able to accomplish and then yeah. Just the high quality brand and teams that you've now got its part of your family. How do you expect that integration process to go forward.
Just looking out over the next quarter or too, obviously, but how does things start to reopen but just from a back of house piece, but we don't typically get to see wins this period, particularly disruptive or was a lot of the work behind the scenes more or less flowing as expected.
Yeah walk again, you know, we've all been working or most people remotely or continuing to work on you know upgrading the systems in getting prepared for Ah you know the reopening of the country. So I think it's it's something that's not on the top of the list.
Now as far as you know what certain deadlines, we're going to need for integrating the companies or operating fine. So you know doing more of the integration is a nice to have but I think more of the focus you know during the pandemic was.
Getting up are you can see.
Business, which are the team was really focused on and good an incredible job and actually you know we created a new business. During a you know the most around the time I've ever experienced some of my business career and with human tragedy. So I think you know we're starting now to get you know back.
To focusing on the reopening and back on scheduling of getting the companies.
Integrated and I think you know, we'll get back to a certain timeline, but a lot of it I would not put that on the top of all this right now is due to the most important things that we have to get done Oh, Yes, obviously, you get reopened and get our customers reopened and get a people back to work and believe that you know.
Focus was on protecting our people protecting our balance sheet and making sure that we were ready when does in the lights, which gets turned on hopefully in the very short period of time.
Great. Thank you for that and maybe pivoting a little bit to set last piece, where we're getting to the reopening and yeah, having things come back online common theme that we've been talking about and hearing is just the.
Kind of accelerated adoption, yeah, digital or technological toolsets, obviously, you've been able to build out of.
Very fun interesting and meaningful piece here in the B to C side, but curious on how you think about technology going forward and maybe just to recap of where it was heading into the current period and yeah, there's an opportunity to to lean into that as it's been was turned back on.
Sure.
So I think what we've learned during this you know this time is a we've learned a lot more about online and Ah you know I think the shep.
Yes warehouse, a customer base and relationships, we have with our customers is pretty unique you know if you're going to you're going to put a thing you know into the group of the other broad liners, you know we call us up to specialty broad liner.
I think our customer base overall is different because we do sell so many smaller independent restaurants as well as obviously the you know the best restaurants in the world and hotels, but I think we're going to make big strides in our ability to improve our online water system.
I think our our go to market strategy has always been you know we've kind of how the team sell so we're very very talented people that are experts in categories. Because we cover so many and seafood me specialty and.
Groceries in dairy so I think any pushed you know I think the the amount of time it would have taken us to focus just like you know more and more restaurants were doing then do take out anyway. You know they already started I think this accelerated I don't think that's gonna go away.
And I think that's going to accelerate our ability to do more business online be able to take orders from customers who was happening anyway.
But I think there's there's pandemic has also made me realized that we are still in the people business and even though yes, we do need the technology angry scanning and the warehouses in where you know the hoping for better robotics and.
Turning up our sales staff, which we will be really we have because we have a really different models than most of the larger.
Your line is where we have an incredible customer service team, which is more part of the sales team and a they do free up our sales team to go out to see customers more and present new products. I think that's why we have such a rate of cross selling and ER on numbers you know the first two months or you have a 10% organic growth.
Okay, and our specialty sales.
If we were firing on all pistons. So we were seeing all the we will get reaping the rewards of all our investments in people and processes.
And we hope to get back to that you know turns the lights get turned on and it will be a combination of continuing to invest in technology increasing.
<unk> customers that do order online at the same time, it's expanding our category sales to our customers because at the other day, it's all about a the GP dollars and you know that's what you take the the bank.
Okay. Thank you.
Our next question kind of come from Kelly.
I'm Ok capital.
Hi, Thanks, Pennsylvania here.
Why don't get just asked a couple of questions about your customer base and just how they're managing through that and if you have any you know anecdotal or metrics to share about what what percent are kind of operating and doing take out or delivery of some sort of and and then also.
I'd be states open back up so obviously, Texas I think you know capacity risk restrictions on 25% out I guess, we'll see what happens in New York in California, but and other parts, but what what are you hearing from your customers are they going to be opening up is seen as they can do you do they feel like they need.
To wait till they can operate at full capacity just you know what are you hearing from your customer base.
Yeah, I tell me I think it's.
I think it's a tale of many cities. So you know what we're hearing in California, who obviously is a their blessed with a much better weather when we have on the east coast.
This past month to you know that's different than what we're starting to see from Ah you know places that people out of the so called so some customers Oh, well open up a 25%.
You know what what I would always impresses me and you know not that this is a typical you know storm obviously, we've lived through 911, and a financial crashes and Hurricanes and.
You name it is the.
Our customer base is unbelievable entrepreneurial and all you know people say well you know a lot of restaurants are going to close I think you know a lot of restaurants always close and a lot of restaurants opened thats, what restaurant, where do I mean, not everyone is going to become a financial analysts in an investment banker.
This is what these people do so you know.
When I look at what happened after the crashes rents went down.
Restaurants, one out of business and new restaurants opened with.
More inexpensive cost structure.
And I think the people that have a Ah you know I think everybody's negotiating their leases right now.
And the ones that have a cost structure that allow them to make money at 25% I think we'll open a plus I think it's you know prepping to open up at 100%. So I think what was great about takeout was a lot and a lot a lot of restaurant initially they all close.
And then as they started to open a takeout you know you know meet the you know you're you're dinner outside the I'd love to really incredible the way they were able to do it safely. Okay. Noncontact then I think it got them going to open. So I think there's a lot of these restaurants those will probably.
Open first for the 25%.
And then go to 50, and then hopefully a completely open what we're also seeing is.
Oh, yeah creativity of some of the areas that have opened of adding a tremendous amount of seats outside so if there's one good thing is I think it is like it did springtime or it's a really warm stacking in Florida, and California, where they're adding.
Lots of seats and parking lots there are renting towns that putting canopies. So they've got I think they are all our country clubs are adding a you know many more chairs and seats available outside so it's a much safer environment, okay for their clientele to field.
You know your outside you got fresh air annual space. The parts. So I think those type of restaurants in clubs.
Well, we'll be the first start to you know do the 25%.
I think the larger restaurants were probably wait a little debt you know unless it's more like a prep. So imagine if you were opening a brand new 300 feet restaurant, you probably have you know a week or two or friends and family and warming up the staff. So.
They might use that you know at the time to start to just get ready.
And it's a it's so I think it's all over the player. So I think they've gotten our are huge days of smaller independent restaurants, I think we'll.
Probably a hoping for us at 25%.
Because I think they can find ways to still make money because they can control their cost.
Rather than my family businesses, and I think that's what I'm hearing and I think that's what we're seeing you know im a little parts that are open to ready.
Okay. Thanks, that's that's really helpful.
And I guess omni direct to consumer initiatives. You know can you help us think about how that's going what what you're seeing.
And it sounds like this is more not only just a temporary strategy that could be you know a longer term you know part as part of the company and so.
As we think about that like what are you thinking could be the EBITDA margin profile of that business longer term.
Yeah.
I think that's a little early.
To give you have to give censorship forecast because you know right now where we're seeing you know I mean.
Number one it really was able to allow us to keep a lot of people on the payroll.
And get the creative juices going you know in the leadership team and the entrepreneurship and ideas that will help the b to b, but.
The the response that we receive has been overwhelming and.
I wouldn't want to do this forever you know.
But I wonder.
A tragic pandemic to launch it but you know when we named <unk>. The company chefs warehouse. So we always had shop like a shaft.
And you it would be a or some sort of consumer business, whether we were going to open up a shop like a chef outlets.
Which is probably still a good possibility.
In the long term, but.
No the intricacies of delivering to People's houses.
We're still in the process of figuring out and that's why you know trying to predict an EBITDA. We've learned from a lot of the business has gone up you know ahead of us to deliver the People's homes, you know you'd have to give people a time time slot and all the things packaging. So right now I think we're in the last stage, so even though.
Having tremendous success the models gonna have to evolve our packaging was evolving but what I always intrinsically I think you.
Just from being in the business to 35 plus years worth a lot of our customers customers were always asked how can we shop. All these incredible products and there is really good value because it is bulk.
No we don't want to compete with a walmart or supermarkets or Cosco, Oh, what really I always thought we could leverage was are or what was our advantage or what was what was our.
Already are our platform, which was a talented staff you know nobody knows food like the chef warehouse team.
Our ability to deliver a little logistical experts.
And we know how to run warehouses.
And we know what we know the consumers we want to sell because there are customers customers. So it's kind of built in so it's not like with selling prison systems in the hospitals and we're running all these different types of.
Clientele, where it would be impossible to pivot the way we did a we haven't you we went into the neighborhoods where our customers customers live.
There they were going to want a byproduct and especially right now they're all doing a lot of cooking, so selling our incredible stuff toward a leaves and ravioli from.
It was northern Italy, where you know the total even created a was gonna be appealing and having hundreds Sunday at olive oil obviously, we didn't put them on the side because we had a greater fight. So I would say we're in the first thing that's something that's really interesting.
And to treat gain and the teams really sites to really take it to the next level. So if there's any silver lining you know I.
I think it was time such Isaac Newton that's good.
Finish this theory of gravity during the Oh, the plague and ER I think a chef warehouse created a shop like a shot during the.
Corona Corona pandemic.
[noise] and you mentioned you know just I think you need to alternative revenue streams in general I mean, yeah can you help us think about grocery and the opportunity there and is there anything else that you're thinking about.
Well right now, where we're really thinking that the like Colorado 40000 customers to re helped [laughter] you know I still find it up amazing that you know this week, we hit a 50% compared to last years, Oh volumes, they will all our customers basically.
So.
It just shows you that.
The the creativity of all of our team our sales team our leadership to be able to go find business I think we were the first actually.
And I'll give our customers credit we have customers say.
No there's lines out the door you know.
When you turn this into a a chefs warehouse outlet and I think our first store or when I'm fold up almost 5000 boxes that I think it was about $20000 with a product up to their customer base. Because you know obviously you see the lines that were going at supermarkets and once you get into copco. So I think we.
We found all different outlets of I think a lot of people of copied it since then they're called them glus threats and stuff and well that will go away, but I think that what will not go away will be restaurants, now that they need other avenues of income.
I think that or you know if I had a crystal ball, you know and and I had to say you know business is not going to be great for for a while tourism is gonna be down.
What I do think it's going to happen is you know restaurant argument volume you know, they're not going to do what they were doing before until obviously there's a.
Different world out there, but I think they're gonna do a lot of takeout, which is going to make up a lot of what they are losing.
And sit down not everybody, obviously not everyone who's maybe in the theater district, and it's not a residential neighborhood or a typical place, but I think the a tremendous amount of business that we serve and that we've seen open up to take out I think that's going to continue I know just from my own.
Experiences a I did a lot of cooking and ER towards the last two weeks I did a lot of takeout you know.
You got tired of doing a you know cleaning up and having to having prepare meals and all that I, obviously as most people start to get back to work and busy and busier I think more of the norm I will come back where people are just too busy to want to spend two three hours you know putting together a big meals. They will cook, obviously, but I think takeout is.
Going to become a bigger part of the average restaurant.
Catering meals, hey, they could do whats incredible is the restaurant tours you know a lot of 'em were immigrants Ah you know when I started the business.
And a lot of their children learn the business and like I said I don't think they're gonna go work of Wall Street or are there going to go back to medical school. These people are this is what they do there in the hospitality business and theyre going to find ways to create a revenue streams to to make a living and hospitality.
[noise] and when we think about the expense reductions that that you've made so far in this quarter.
I guess you know obviously a lot will just depend on where volume goes from here, but how do we think about as that.
As things do open up and ramp back up how to think about what kind of expenses will need to be added back in and not ramping any any help you can kind of thinking through how to model that would be.
Helpful.
Yeah, Mike Kelly, you know, obviously, it's going to depend on.
The pace and level of ramp but.
No as a as volume increases as a a routes increase will layer in the you know the volume driven variable cost of Ratably or.
With the you know and then things like commissions will will increase so it'll it'll take more of a natural.
Kind of cadence as a you know depending on the cadence of business, which we don't have a whole lot visibility into right now.
Yeah, Yeah, I think I think you know you've heard it from the other calls.
You know, we've all gotten down you know into the business at a deeper level. It was a chance to really understand as much as we understand our business. It really gave us insights on where we could be more efficient and what cost we really don't need to add back.
And I think again, you look for silver lining in such a nightmare and I think Kelly. That's really you know another part of the silver lining is that we'll be able to actually come back you know and operate leaner smarter and are you able to you know obviously claw back a way back to where we were.
Sure.
In a a in a more efficient fashion understanding you know.
Where our inefficiencies might existed before you know and obviously business was growing 7% to 10% and obviously you always want to be a tougher as possible, but I think you always learn something when your low to the ground and are you know you're in a situation where you've got to squeeze every.
Every penny and I think as business comes on I think we'll be smarter in how we add back off.
Thank you.
And our next question comes from Ben Klieve.
National Securities.
All right. Thanks for taking my questions. Just a couple of quick ones here on first I'm wondering if you can get a bit of granularity on a weekly improvements that you have described.
But you know over the past few weeks to what degree do you see it would be improved performance being attributable to your emerging shop like a chef initiatives versus improvement from your you know your legacy or your legacy business as restaurants, you'll begin to increasingly being able to take you not to go to go and delivery orders things of that nature.
So Ben Thanks, a question. So just in terms of the cadence or you know the the March 16th when everything fell off a cliff.
Yeah, we saw volume decrease you knows as much 60, 70% and then through April you saw a gradual build to kind of a.
You know mid Thirtys kind of 40%.
Then as Chris mentioned the in the last couple of.
Last week or so you know we've had days, where we were in the the high fortys or even a day or two in at 50%. So.
That's been kind of the ER the cadence that we've seen.
Since March 16th.
And I'm sorry go second for your question.
Well it really isn't it just kind of what what is driving that is that is that the shop like a shop initiative. That's that's beginning to materialize or is that a is that largely attributable to you know your legacy customers that are you know that are ramping back up.
Yeah. It was really materially driven by as our customers as Chris mentioned started to open up for takeout and delivery and curbside served this obviously.
Our shop like a chef and our Allen brothers stake retail business.
I'm really through but it's not the preponderance of of that growth.
Scott on perfect and then last one from me and I'll get a I'll get back in queue, but I'm wondering if you can talk a bit about the growth initiatives in Texas in L.A. on how the you know how that how the cover 19 area is impacting knows and then you're just kind of overall thoughts on capex on for you know on a full.
So your basis, if you can provide any either quantitatively or at least directionally site sort of Capex number.
Yes. So we had originally guided in the kind of $40 million range with the bulk of that being in the second half of the year, we we expected to build out the L.A. facility that weve.
Invested in.
Given the cobot 19, a situation we have temporarily delayed that should we brought our guidance down I think you'll see you noted in our 10-Q, two the a kind of $10 million to $12 million range right now and that's mainly I T and maintenance Capex.
And some in some and about 3 million to Capex that we actually had in the first quarter. So right now.
We still plan to expand in L.A., but.
Given the situation, it's it's a temporarily on hold.
Got that a very good well that doesn't for me. Thanks for taking my questions about the walk a in the second quarter and the rest of the year here.
Thanks, Thanks Bye.
And that does conclude our question and answer session.
Well, thanks for everybody for joining.
That's an easy.
Ladies and gentleman that does conclude our call today, we do appreciate your participation have a great night and at this time you may disconnect. Thank you.
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