Q4 2020 Chefs' Warehouse Inc Earnings Call

February 10, 2021

[music].

Greetings and welcome to the chefs warehouse, the fourth quarter 'twenty and 'twenty earnings Conference call. As a reminder of this conference is being recorded I would now like to turn the conference over to your host Alex Aldous General Counsel Corporate Secretary and Chief Government Relations Officer. Please go ahead Sir.

Thank you operator, good afternoon, everyone with me on today's call are Chris Pappas, founder, Chairman and CEO and Jim Leddy, our CFO by now you should have access to our fourth quarter 'twenty and 'twenty earnings press release and can also be found at www dot chefs warehouse dot com under the Investor Relations.

Section three.

This conference call, we will be presenting non-GAAP financial measures, including among others historical and estimated EBITDA and 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 GAAP and may be calculated differently and 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.

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 that day.

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.

And are discussed in our annual report on form 10-K, and quarterly reports on form 10-Q, which are available on the SEC website.

Today, we are going to provide a business update and go over our fourth quarter results in detail and then we will open up the call for questions with that I will turn the call over to Chris Pappas Chris.

Thank you Alex and thank you all for joining our fourth quarter of 2020 earnings call.

October and November of business trends remain relatively stable at approximately 78% prior to your revenue and.

And the physical comparison basis of sequential growth and certain markets was offset by the declining outdoor dining and colder weather markets such as the northeast and Midwest.

The surge of Covid related shutdowns and late November and the absence of Hollywood holiday related events and gatherings drove volume lowered towards year range. Despite.

Despite the increased restrictions December revenue remained above 60% of prior year and we continue to see the number of total active customers increased sequentially versus the third quarter of 2020.

Similar to our previous reporting I will compare sales and gross margin results of the current quarter sequentially for the third quarter of 2020, Jim will provide the comparison to prior year and his comments later in the core.

During the quarter net sales were 10, 9% higher versus the third quarter of 2020.

Specialty sales were up three 3% organically, which was driven by an increase and unique customers of approximately five 4% higher placements of approximately two 8%.

And then increase and specialty cases of three 6%.

Organic pounds and center of the plate were approximately $8, 2% higher than in the quarter third quarter of 2020.

Gross profit margins decreased approximately 297 basis points compared to the third quarter.

Gross margin and the specialty category decreased 460 basis points as compared to the third quarter of 200020.

Primarily due to COVID-19 related inventory adjustments that Jim will describe later, while gross margin and the center of the plate category decreased 90 basis points.

As mentioned and our recent press release during the fourth quarter, we are shifting our northern California Center of the plate brand strategy to leverage our Allen brothers', great Steakhouse steaks and the worlds finest seafood brands. We are extremely excited to bring this premier brand and product line recognize.

For best in class Master Butchering, and aging methods to our customers and we look forward to introducing the incredible suite of Allen brothers products for the entire West coast culinary community and.

In conjunction with this we will discontinue sales under the del Monte pork seafood and Baskin farms trade names.

Now to move on to and update on recent business activity.

Sales in January were trending at approximately 62% of prior year, despite the worst of winter limiting outdoor dining demand, even and moderate climate and markets.

Very recently, we see some loosening of restrictions and both indoor and outdoor dining, including major markets like New York, Chicago, and California and are beginning to see early impacts of that increased capacity.

2020 was by far of the most challenging year and our company's 35 year history, no industry was impacted more by the Covid crisis, and the hundreds of thousands of independent restaurants, and hospitality establishment of across our nation and the.

The impact of the family's careers and business owners has been on the scale that is both devastating and and measurable.

Since March 16, 2020, the day of the nationwide shutdown of indoor dining was mandated our primary focus has been on working with our customers to help them continue operating and pivot to new business models.

Providing flexibility on credit and maintaining the high touch service and high quality product model that they have come to depend on us supporting our customers our teams supplier partners and the broader industry to of coordinated lobbying efforts.

And delivering our fine dining experience product line to People's homes.

Donating food totaling approximately $8 million to charitable organizations and food banks across the country and.

And right size and the company and strengthening the balance sheet and order to manage through the volatility and the unknown timing and nature of the Covid crisis.

Our goal is to emerge from this challenging period, and a strong financial and strategic strategic position.

And enabling us to invest and growth and take advantage of business development opportunities over the next few years.

While we poll of certain projects. During 2020, we continued to invest in both sales and operations talent enhanced our technology infrastructure and digital platform and expanded category growth and seafood and produce.

We will continue our of path of investing in growth markets and to that and have restarted the process of building, our la facility and expect to complete our Florida expansion and the first half of 2022.

I would like to thank the entire chefs warehouse team along with our customers and supplier partners for their dedication and hard work throughout 2020.

Our industry is filled with amazing people of every gender and ethnicity, who all of the culinary world the level of innovation and agility and displayed during this period has been inspiring to all of us.

Net chefs warehouse, we look forward to building our industry back together and stronger than ever.

With that I'll 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'll 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.

Our net sales for the quarter ended December 25, 2020 decreased approximately 34% to $281 7 million from $426 $5 million and the fourth quarter of 2019. The decrease in net sales was the result of the decline in organic sales of approximately 41, 7% as well as the contribution.

<unk> of sales from acquisitions, which added approximately seven 7% of sales growth for the quarter.

Net inflation was 0.5% and the fourth quarter, consisting of 0.4% deflation and our specialty category and inflation of one 6% and our center of the plate category versus the prior year quarter.

Gross profit decreased 42, 5% to $58 9 million for the fourth quarter of 2020 versus $102 4 million for the fourth quarter of 2019 gross profit margins decreased approximately 311 basis points to 29%.

Gross profit dollars and margin were significantly impacted by additional reserve adjustments for inventory valuation loss of approximately $4 8 million due to the extended expected extended impact of COVID-19 on certain market segments and customer openings through the first half of 2021.

Excluding the impact of the reserve adjustments gross profit margins declined 140 basis points versus the prior year quarter. The primary driver of net specialty deflation was significant price decreases and dairy and bakery categories, partially offset by inflation and cheese and chocolate categories.

Inflation and the center of the plate category was driven by higher pricing across most beef categories as well as product mix changes attributed to strong growth and our Allen brothers direct to consumer business.

Total operating expense increased approximately 27, 5% to $107 1 million for the fourth quarter of 2020 from $84 million for the fourth quarter of 2019, the noncash impairment charge of $24 2 million related to the discontinuance of the del Monte and bashing and farms trade.

<unk> was the driver of higher total operating expense on.

And an adjusted basis operating expense decreased six 5% year over year and excluding the impact of acquisitions adjusted operating expenses decreased approximately 23% versus the prior year quarter as.

And as a percentage of net sales adjusted operating expenses were 24, 6% for the fourth quarter of 2020 compared to 17, 4% for the fourth quarter of 2019 of.

Operating loss for the fourth quarter of 2020 was $48 3 million compared to operating income of $18 4 million for the fourth quarter of 2019. The decrease in operating income was driven primarily by lower gross profit and increased operating expenses inclusive of the $24 2 million impairment.

Charge and the quarter.

Income tax benefit was $16 6 million for the fourth quarter of 2020 compared to expense of $3 2 million for the fourth quarter of 2019 of.

Our GAAP net loss was $37 1 million or of $1 <unk> loss per diluted share for the fourth quarter of 2020 compared to net income of $10 9 million for 36 cents per diluted share for the fourth quarter of 2019.

On a non-GAAP basis, we had negative adjusted EBITDA of $10 5 million for the fourth quarter of 2020 compared to positive.

Adjusted EBITDA of $28 2 million for the prior year fourth quarter.

Adjusted net loss was $19 million of <unk> 52.

Per diluted share for the fourth quarter of 2020 compared to adjusted net income of $12 1 million for 39 per diluted share for the prior year fourth quarter.

Turning to the balance sheet and an update on our liquidity as of February five 2021, we had total liquidity of $232 2 million comprised of $193 6 million and cash and $38 6 million of availability under our ABL facility.

Net debt as of February five 2021 was approximately $210 2 million inclusive of all cash and cash equivalents.

At this time due to the continued uncertainty regarding both the pace of broader economic recovery and the lifting of the in room dining restrictions across our key markets, we will not be providing guidance for 2021, we hope to provide more color as we gain more clarity on the length of the economic downturn and the pace of reopening.

And at this point, we will open it up to questions operator.

Thank you, we'll now be conducting a question and answer session, if you'd like to be placed and the question queue. Please press star one on the telephone keypad a confirmation tone will indicate your line is and the question queue. You May press star two of people like to remove your question from the queue for participants using speaker equipment may be necessary to pick up per handset.

For pressing star one one moment, please while we poll for questions.

Our first question today is coming from Alex Slagle from Jefferies. Your line is now live.

Thanks, and good morning.

Good morning wanted the.

The Allen brothers, if you could talk about the success, you're seeing with that business and.

How you think that could evolve over time.

So are you referring to our <unk>.

Yes the.

The b the C, but just kind of broader thoughts on that that brand and Ryan and the actions you're taking share.

Sure. So when we bought Allen brothers.

And the five six years ago.

It was one of the really the only brands and foodservice.

That had a national presence.

And that was really what drove the always been and love with the brand and stood for Super quality you'd see it on menus and always have.

Of the catalog.

For the beat of Seaworld.

Really unique that it broke BDC and b to be together and we've been slowly.

Vesting and the brand and we really got the payback.

During the Covid, where really the sales on the beat of suicide exploded and.

And with new customers discovered.

They could get steakhouse quality steaks and.

Other products delivered right to their door. So we're really really excited about the.

The discovery process.

And I call it or our regular customers customers.

And as we started to open up more of.

Protein processing facilities around the country through acquisition or Greenfield.

And we acquired many brands over the past five six years.

And we just took the first big step and rebranding our west coast operation, which is a pretty big protein business.

And under many different flags.

Purchase multiple companies and we thought it was the right time now that we have the team and the quality and the ability to deliver.

And for.

Protect the brand.

And the image of being the best and so.

And we've now opened up the Allen brothers steak and seafood and and.

Northern California, and we think that.

That will continue we think that New York will probably be and Allen brothers steak and seafood and probably the new England will be the algorithm the steak and seafood and we'll just keep building on the brand we have such a great. Following now.

So many different between consumers and steakhouses and are true.

2000, independent restaurants that we the could say it for.

<unk> and it will just continue to growth.

Great.

And then.

And I looked like the November activity held up pretty well and with the help of outdoor dining and some of the off premise business and the imagine it's all of the pent up demand and whether it's starting to warm up and coming weeks, adding in the spring.

And I have some more optimism and excitement youre hearing from customers in the northeast and mid Atlantic and.

Smartly kind of talk about the role of outdoor dining and your business and how much this could offset the window of dining restrictions, which probably continue for a bit here.

Sure well, obviously, we're very excited to finally, see New York and Chicago and.

And California, you start taking the first steps towards.

Indoor dining.

But we really are excited about what we saw with the.

Explosion of the outdoor dining and.

Kind of reinventing.

For the dining experience and so many cities and suburbs.

Around North America and.

Optimistically going forward I think that as well.

Become part of dining.

I always say when you've got of Paris, or some of the European cities you see so much.

Outdoor dining and Garda and tables and.

The restrictions with some strength and many of our big cities.

And the outdoor dining and with.

With the relaxation of a lot of the restrictions our customers were able to build.

And quite <unk>.

Credible settings of.

To accommodate customers who wanted the outside of obviously during the pandemic, especially but we think that will continue and.

And we think that's going to be.

And a dish.

The real addition to our customers' business going forward after the pandemic. So we are.

We are really optimistic about 20022.

We think 'twenty, one and again, it's a rebuilding year I always say.

I've been saying this for the past the puts.

Several months.

Living and a cold environment and traveling back and forth the warmer climates. When you come to Florida, you're kind of few of the future.

The indoor and outdoor people and a lot more comfortable for for many reasons and we just see the pent up demand and restaurants that are full and we can just feel the momentum building and that's very optimistic.

That's great. Thanks.

Thank you. Our next question today is from Peter Saleh F&B Tid. Your line is now live.

Alright, thank you.

Chris.

And there's a lot of discussion and theories out there that post pandemic.

Some of the larger chains, and we'll be taking some share.

I recognize that the majority of your customer base and the 85% are the and.

Dependence do you anticipate any mix change going forward.

I'll post pandemic, you think youll garner some more chain business and can you just give us an update on where you stand today with some of the.

And some chains.

Sure well I think the word chain can sometimes be.

The misleading.

We service.

And so many of our customers have turned into what I call groups I would say the predominant of the larger customers. They're all part of some sort of group, whether it's five restaurants 10 restaurants 20 restaurants.

I think one of our biggest best customers is 52.

Restaurants, and we are of a large customer who has got 6700 restaurants, but maybe service of 100 of them.

Fit into.

The chef model so.

I do think that they are grabbing some pretty good real estate during the pandemic.

So we will we will benefit.

With their acquisitions.

And again, obviously, the lower end and.

The massive change went out of Taco Bell.

The distributor but.

Do a lindsay task and I go back to where do I want to eat.

When this is over right.

And out every night.

During the Covid, so I've been out canvassing, our markets and talk with the customers and really the overall sentiment as people are really want to support the underdog the.

Of course, the little Guy the.

Restaurant and 100 seat share family owned.

Type of operations so.

I saw it happen after the 911 and I think that's going to happen again, I think some of the bigger operators.

Our expanding and taken advantage of their balance sheets.

I don't think Andy really good operator independent has given up of prime space I think they are hanging in there. They are the negotiated their lease they've gotten the PPP money.

I think the PPP has been incredible help the slot this last push I'm hearing from customers getting.

Great amounts of money, which is life savings. So we're really excited to hear that for the money is flowing but.

<unk>.

<unk> described the little Guy I think the sentiment of.

And of the American and Canadian consumer and the markets that we serve really wants to support the the independent restaurants, and I think they're going to come Roaring back.

Great.

Jim can you just.

In light of the cash and cash position and the reopening now of.

And the next couple of days of the York and most.

Recently, California, how are you guys thinking about inventory planning and should we expect to you and just start drawing down on.

On the cash position too.

The fund future demand and the.

The first quarter.

Well.

We expected.

As we were coming through before the the recent shutdowns of post Thanksgiving, we expected to see some level of cash burn.

As the business kind of steadied around 70% coming out of September and into October and November and then kind of.

Started to drop.

As Covid started to search and post Thanksgiving, we expected if we were on that path we'd start to.

The invest more in NAR, and and inventory and you'd see some level of investment and working capital, we still expect that to happen but.

We built a pretty decent size cash cushion.

And we've kept that pretty much level to where it was given some moving parts.

Pre pandemic and then post pandemic.

So.

But as you know that will be a good problem to have will be.

Generating.

Free cash flow at that point investing and working capital and we expect.

To continue to have a strong liquidity position.

Coming out of this.

Giving us some dry powder to to add some pieces that that could really help us going forward.

Alright, Thank you very much.

Thanks for the next question today is coming from Kelly Bania from BMO capital markets. Your line is not a lot.

Hi, good morning, Thanks for taking the questions.

Okay.

Good morning.

Chris I was wondering if you could just talk a little bit more about the customer acquisition trends.

That you highlight highlighted and just expand a little bit more on what type of customer or under what circumstances categories regions and just help us understand what's happening there.

Sure.

And I don't think its a one size fits all Kelly.

I mean.

We saw.

The massive amounts of new credit applications coming in.

During the pandemic.

Sure.

We typically do have obviously and we're in an industry, where there is turnover.

And restaurants.

And our attrition rate was always you know anywhere from 7% to 15%. So obviously it was higher than that during the pandemic.

I think as the <unk>.

Crystal ball said that.

There were many many.

Clients of ours that did have the balance sheet too.

Hey, you know, what I always love that space, and that's coming available or.

We got a great opportunity the infrastructure is already built the.

And the HUD systems are in and instead of spending $34 million at 700000, all of the renovation and.

And we can have a prime piece of real estate.

And the open and even lots of little places of anywhere from Wynwood, and say and Miami or parts of Brooklyn, New York.

And where the opportunities are there.

It's almost like you're starting a new.

Company.

And youre going to open up and <unk> and.

And 12 months and it's a 12 month buildup.

And to build out so you can open up 1000 restaurants, and a year, it's kind of the atmosphere, we felt obviously and it hasnt been so.

And it has it's been brutal for many many of our clients, but the.

There is a very large customer sector that is.

And is looking at it almost like a startup and that's what I think we saw it and I was just reading the early this morning.

Another one of our very popular customers has signed the new leased the building multi million dollars restaurant and of great space.

And it just goes on and on and non so as much as there's been a lot of carnage.

And in many parts of the industry. There are many many customers taking advantage and.

Of the real estate opportunities reduce rents.

And properties that are pretty much built out and I think thats, what youll start to see going into 2022.

Okay.

That's helpful and I guess.

Just another question in terms of being prepared for the recovery and the next several quarters just how do you feel about.

Number one salespeople and there.

And where you're at with the sales force and there.

The ability to go after these new customers as there as the rebuilding and then also.

Warehouse employees and drivers and just what capacity you have for what you expect to invest and over the next couple of quarters there.

Sure.

Well, so I think I've said on the last earnings call and.

Maybe that's some of the conferences and the last few months that you have two choices. During this pandemic and one was the cut all of your cost and put up a few more pennies.

Two to earnings if you had earnings.

For really look and say, we want to be prepared and we want to be aggressive and we want to grab market share and.

And we chose door and number two so.

Yes, we did cut back we found that we could operate leaner and we plan on operating leaner going forward, So and I think positive.

And that's a positive but.

We kept a lot of routes I mean, we did consolidate routes, but we're really running.

And operation right now is geared for the recovery. So we have tons of trucks on the road that are have empathy. So as business comes back out of those trucks of drivers and the around the routes and they're just waiting for that business and the same with the sales force, we actually grabbed a lot of talent that was looking for and.

New home for various reasons so.

Call. It was a once in a lifetime.

Talent grab and.

And.

We think that those investments obviously, those those salespeople with books arent delivering the kind of numbers.

And that they were pre pandemic, but we're already starting to see signs of that recovery and and parts of the of the U S and Canada.

And <unk>.

Salespeople are hungry and they've had a really bad long year.

And they've been putting that time into canvassing new customers and.

The new category sales and and developing different avenues and retail and <unk>.

Everything from MIT trucks. So necessity was the mother of invention and that's what salespeople do they need to go out and the fine.

Your customers to sell so we're really excited about the talent and.

And the ability with the team that we have.

To really accelerate as business starts to come back and again of course, once we get to the level, where it's too much to handle will start to add continue to add but I think right. Now we are really we're really set up to take to take on a tremendous amount of new business and the infrastructure that we have.

Thank you. Our next question is coming from Todd Brooks from CL, King and Associates. Your line is now live.

Hey, good morning, gentlemen, and hope you're well.

Hey, Todd.

If we can talk about it.

Kind of given us faces for what the recovery looks like and kind of getting through this winter phases what.

You, both and the company has been focused on.

The emerging from.

This winter period, and getting back towards the outdoor and spring and markets of reopening.

You've talked about the strength of your balance sheet and that you want to look at some strategic M&A opportunities coming out of the back side of the pandemic can you maybe touch on.

Both priorities and focus areas for initial strategic M&A, and maybe what the funnel or pipeline of potential deals looks like Chris.

Sure.

So the pipeline was extremely profit.

Pre COVID-19 and.

And I would say the pipeline is.

More and more frothy.

We're still and unfortunately, we're still in Covid.

But we've.

We've been really disciplined.

Where we're not going to chase volume and <unk>.

Very low margin that we don't want to.

We have such a good culture and we are of such a great platform that has so much room to run.

I think the most important part of our.

And being disciplined was to make sure that.

As we call the pumping up the balloon again.

We're taking on customers and businesses that fit into who we are so we could remain a high margin high touch.

Superior product company of differentiator from the other national companies that are out there so.

I think cassandras Crystal ball says that.

It's going to be the wild west and M&A and it was already happening and the industry was consolidating.

I think again, if there is a few positive things coming out of such a incredibly tough year was that.

And opened our eyes that the brand had a lot more legs and many other ways and customers.

That could be part of chef that we buy from sharp.

And I think we were able to look into new categories and grab the expertise and I think thats going to paid tremendous dividends as we start to.

Get back to some sort of normal.

The socializing life and restaurants and hotels continue to open.

So I would say.

And the Crystal ball is right I think that Youll see us.

The wishlist.

First the do.

The graph continue to grab the talent.

The two is to grab the companies that fit into chef and the areas that we have capacities because that's the most of accretive acquisitions, we can make so the southern California, we're going to have a brand new large warehouse at the end of the share hopefully it'll be completed the same with southern flu.

Florida, we're extremely bullish on Florida during the Covid, we did open up the seafood business and made a small acquisition and northern Florida.

And we think that will continue as those warehouses.

Come online.

It will allow us to do fold ins and allow us to.

Acquiring new categories, and we've been setting up New York, and Chicago, and Texas really gearing of those divisions up because where they have capacity we want to fill it.

And I think Thats really how we get back to where we were in the 19 and and.

And exceeded.

Methodical almost surgical approach to M&A of <unk>.

Of course of tomorrow, the phone could ring and there could be something unbelievable, that's transformational, but really the way we've gone about.

The last 10 months is continuing to speak to the people that we wanted to join ship before Covid and.

And we think many of those deals would get done plus.

So many other people that have.

Picked up the phone and said what we think we're better with you.

And so we are disciplined on our approach and what we're willing to pay and.

And obviously right now the forecast is.

Making forecast is really tough. So we are looking at really 'twenty two what we think it's going to be like and I think I think we're going to come out of this and I've said. This a few times I think 'twenty two 'twenty three and 24.

The most likely be even better than what they would have been.

And pre Covid, just because of the opportunities and all of the talent that it's bringing together.

That's super helpful. Thanks, and then my last question is.

You talked about just the evidence of pent up consumer demand that youre seeing and warmer weather markets, Florida, Texas.

I'm wondering if you talk to your hotel your country club customers.

Are you getting a sense of pent up demand for events as you look for the back half of fiscal 'twenty, one and and maybe how the event based business comes back.

If that's also going to be.

Kind of a roaring recovery of what your thoughts are there based on what youre seeing with with booking trends and hearing from customers.

Yeah, sure so I think everyone's being kind of careful.

And the date, you don't want to book and canceled but.

My trips to Florida, I'm already seeing weddings.

I think my wife made the comment like Wow look at that.

Semi socially distance, but the.

The 150 people on the beach set of wedding.

We're starting to hear more and more of that.

I think it's different I think places like Vegas and.

Maybe in the cities I think that people are being a little more cautious to start the book.

From now, but I think definitely these outdoor outdoor venues are starting to book well.

The hearing from our caterers, we're hearing from many of our clients.

Even though they have already started to have some small events $2050 75 people.

I don't know if there are limits still from state the state.

But.

The pent up demand, we're hearing from the wedding planners and indicators.

The people that have delayed the events.

I think it's just gonna be a massive explosion of.

<unk>.

Of catering and.

And <unk> and parties that were put off and people.

Especially weddings people really has put up weddings and what we're hearing is there even if they got married during the pandemic theyre going to have a real wedding celebrations as soon as they are comfortable and obviously we're seeing.

Even from the Super Bowl Youre seeing people that either were vaccinated and have some sort of bracelet or.

Could show a negative I think it starts that way and then slowly slowly I think hopefully we get back to some sort of normality, but.

And even before that I think you'll start to see many more events with kind of limitations and some sort of testing involved.

Okay, Great that's helpful. Thanks, Chris.

Thanks for the next question today is coming from Ben <unk> from National Securities Corporation. Your line is that a lot.

Alright, thanks for taking my questions.

And already most of my questions have been answered, but just one for me this morning.

It's encouraging to hear your comments on investments that were more or less put on hold and then.

Covid and so I'm wondering when you look at your plans across Los Angeles, Texas, Florida, or the plans that you have today is still of the same scale as they were pre pandemic or.

Have there been any material change and the level of investment you are looking to put into these markets and.

The light of in light of everything over the last few quarters.

And Jim Yes.

Yes, it's more of the delay.

And for obvious reasons, we delayed the la <unk> build out which we expected to.

To finish really this year and start last year and then finished this year.

Florida.

It was already and it was.

And the early stages last year.

And it is still in the.

Construction phase so.

A lot of that capital will be will be spent later in the year, where we anticipate more of a the build back so I would characterize it more of the.

The delay in the <unk>.

And the Capex investment.

Versus a scaled back what we have done and we've talked about this before is taking the opportunity to consolidate facilities to reduce our cost structure and a number of markets, including Texas, and new England and the West Coast that will help fund some of that and.

But I would say that especially where we are currently investing which as Chris mentioned earlier Southern California.

Florida, and then in Texas.

We're going to continue to invest in those markets, we see them as key growth markets going forward.

And and so we were going to continue on that path.

Okay perfect. Thanks, Jim that's helpful that does it for me I. Appreciate you taking my question best of luck here navigating hopefully of reopening and coming months and I'll jump back in queue.

Thank you thanks, Ben thank.

As a reminder of that star one to be placed into question queue. Our next question is coming from Nicole Miller from Piper Sandler Your line is now live.

Good morning. Thank you. My first question was the dialogue around the independence of just Super helpful. It doesn't mean, it's just one guy one restaurant.

Two parts.

Number one on the top line I get the Sunset of course somebody has closed but for those that are open and they're recovering at the same pace of let's say of larger chain or a chain at scale. So what would you say about that and then the second part of really hear you about like that occasion transfer of where youre, saying, hey that guest wants to.

Come back and I'm, just wondering how do you and form that outside of our own opinion, because I mean I wanted to do the same thing that's why I want to eat so if the independent restaurant was closed where do you think that guest Wang.

Stay home and E grocery.

Did they go to try a national.

The team that is not exactly the same experience where do they come back from thanks.

Sure Nick.

Maybe I'll start from the last one and then work my way backwards. So.

And again I mean, we have to remember that in Europe.

Citi was closed.

No nobody nobody was open the.

The same when Chicago and.

Many parts of California so.

It's obviously a very unusual year.

So I think customers again, we're takeout was available and they did a lot of takeouts. So they did get the try maybe restaurants that they never.

And went through but when I when I talk about.

Perfect example is.

Youre not going to go from Eaton that lebaron of Dan.

And Midtown Manhattan considered and maybe the final seafood restaurant.

And the country.

And youre going to go to and Olive garden, and you're never going to go back to Liberty of them. So I think.

And at different price points I think.

We have different different situations.

The independents.

And especially in the big cities like New York.

People closed I mean, the higher and just closed they did other things day launched either hamburger concepts or.

Catering services and we've heard all sorts of different the entrepreneurship.

But.

And just did not pay obviously to even think about doing catering the overheads to either the risk.

<unk> two.

Does it was just too difficult so.

Basically what I heard was.

We will see you in the spring.

So I think.

And you look at little independence, when you go into suburbs and talent I think the independents actually did fine.

Obviously, the volumes were lower but they cut their overhead and they did take out.

And I know from my experiences and our little towns that I you didn't.

They were doing 50, 60, outgoing catering orders a night.

Versus what they did pre COVID-19, which was about five obviously.

It didn't make up of 100% for their lack of people coming and when they close and are guiding but as they went to 25% and 50% you started seeing customers come back so.

I don't think its.

You can say it covers every every every city and state, but what we're seeing and what we're hearing and we're starting to see orders are from the independents.

And I think that not everyone is going to make it but there is going to be a tremendous surge and and new openings and new concepts and we're seeing that the cities that are open and where we're going 25% and 50% that the demand is there I think the big guys did do better overall the.

It had the balance sheets, and the marketing and infrastructure, especially and promoting some sort of take out we saw even super high and steakhouses have pick out packages and they were selling their wine.

I don't see that continue I think I think I don't see that.

Once everybody is open.

You can go to of wine store, unless there is tremendous value and selling the sellers.

I do think that the big the big balance sheets are taking advantage of the situation and grabbing some real estate.

And that they've always wanted to but I still stand by don't underestimate the little Guy.

People Love of 100 seat restaurant I do.

And I do like the big event restaurants, and the big Joy of social environment.

But the.

<unk> always the food is great I love seeing the chef and the kitchen and I love seeing the family who owns the restaurant.

And the restaurant they know your name, it's special and I think Americans and Canadians really loved that relationship with their independent so we'd like to see everybody come back of course.

But.

And I still say don't.

Don't don't think the independent is gone.

Okay.

And then could you speak a little bit last question about the deflation.

Jim I think you said the couple of categories that maybe the drivers behind theory and there was one other and then just also address the industry really hasn't seen inflation for a long time. So what is maybe your longer term point of view and then remind us if it were to come back how you pass that along for the customer. Thanks.

Yes, sure so of.

The best way to characterize really the quarter as well as the entire year is a lot of volatility driven by mainly by product mix for us and for the producers and driven by the demand environment. So the.

The re openings and closings and the different demand.

The environmental and weather environments across regions really drove the.

The product.

And side of the product as well as a lot of volatility around.

The producing side so.

And I talked about dairy and.

And and bakery.

Being deflationary.

And what we've seen is within the categories.

More deflationary or more inflationary so just more volatility and and then recently definitely on the center of the plate side.

And started in the fourth quarter and has been continuing.

Into the first part of the first quarter.

Our pricing model.

Allows us to pass on the bulk of that because we don't have a lot of fixed price contracts with.

And like Chris talked about it with the large change et cetera.

The pricing at market and we were able to generally.

Most of that now when it's extremely volatile and hockey stick like type of inflation.

And you can't pass all of it on and use.

You generally work with your customers to then keep some of it on the way down. So there is dynamics like that in general I think there is an expectation out there that.

As restaurants open and you've got retail is still pretty strong that a lot of the commodities you will see inflationary environment of more of inflationary environment in the food space.

Space than we had and in prior years.

But generally if it's if it's low single digits.

And that's a really good environment for us.

And we can capture some of that volatility and actually.

Pass it on.

So I wouldn't say, we're overly concerned about.

Inflation.

We have pricing teams that monitor it and work with our salespeople.

Salespeople and suppliers on a daily basis too.

The two handle inflation and take advantage of inflation or deflation.

So it's what I would describe it is just a lot more volatile than we've seen and the last few years.

And.

Thanks again for the update I appreciate it.

Sure. Thank you we've reached the end of our question and answer session I'd like to turn the floor back over to management for any further of closing comments.

The <unk>.

And Im really.

Really happy everybody can join our call today.

Obviously 2020 was extremely challenging year, but.

And we're grateful that.

We can come out of this the team is more engaged and more together.

And then ever and.

We're really excited to see the openings.

And <unk>.

Get back to normalcy.

Little bit out of time and.

America loves the restaurants and loves the social aspect and we're really excited of what we're seeing and.

Hopefully this and the vaccinations.

Really accelerates and.

And let our industry and get back to.

And where it was pre pandemic. So thank you for joining today and stay healthy and look forward to our next call.

Thank you very much. Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.

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Greetings and welcome to the chefs warehouse, the fourth quarter 'twenty and 'twenty earnings Conference call. As a reminder of this conference is being recorded.

And I'd like to turn the conference over to your host Alex Aldous General Counsel Corporate Secretary and Chief Government Relations Officer. Please go ahead Sir.

Thank you operator, good afternoon, everyone with me on today's call are Chris Pappas, founder, Chairman and CEO and Jim Leddy, our CFO.

By now you should have access to our fourth quarter 2020 earnings press release and can also be found at www dot chefs warehouse dot com under the Investor Relations section.

And these measurements are not calculated in accordance with GAAP and may be calculated differently and 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.

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 todays release, others are discussed in our annual report on form 10-K, and quarterly reports on form 10-Q, which are available and the SEC website.

Alex and thank you all for joining our fourth quarter of 2020 earnings call.

October and November of business trends remained relatively stable and approximately 70% of prior year revenue.

For the fiscal comparison basis of sequential growth and certain markets was offset by declining outdoor dining and colder weather markets such as the northeast and Midwest.

The surge and Covid related shutdowns and late November and the absence of Hollywood holiday related events and gatherings drove volume lowered towards the year round.

During the quarter net sales were 10, 9% higher versus the third quarter of 2020.

Specialty sales were up three 3% organically, which was driven by an increase and unique customers of approximately five 4%.

Placements of approximately two 8%.

And then increase and specialty cases of three 6%.

Organic pounds and center of the plate were approximately $8, 2% higher than in the quarter third quarter of 2020.

Gross profit margins decreased approximately 297 basis points compared to the third quarter.

Gross margin and the specialty category decreased 460 basis points as compared to the third quarter of 2020.

Primarily due to COVID-19 related inventory adjustments that Jim will describe later, while gross margin and the center of the plate category decreased 90 basis points.

As mentioned and our recent press release during the fourth quarter and we are shifting our northern California Center of the play brand strategy to leverage our Allen brothers', great Steakhouse steaks and the world famous seafood brands. We are extremely excited to bring this premier brand and product line recognize.

In conjunction with this we will discontinue sales under the del Monte pork seafood and Baskin farms trade names.

Now to move on to and update on recent business activity.

Sales in January were trending at approximately 62% of prior year, despite the worst of winter limiting outdoor dining demand, even and moderate climate and markets.

2020 was by far of the most challenging year and our company's 35 year history.

No industry was impacted more by the Covid crisis, and the hundreds of thousands of independent restaurants, and hospitality establishment of across our nation.

The impact of the family's careers and business owners has been on the scale that is both devastating and immeasurable.

Abiding flexibility on credit and maintaining the high touch service and high quality product model that they have come to depend on us supporting our customers our teams supplier partners and the broader industry for a coordinated lobbying efforts and delivering our fine dining experience product line for People's homes.

Donating food totaling approximately $8 million to charitable organizations and food banks across the country.

And right sizing the company and strengthening the balance sheet and order to manage through the volatility and the unknown timing and nature of the Covid crisis.

Our goal is to emerge from this challenging period, and a strong financial and strategic strategic position.

And enabling us to invest and growth and take advantage of business development opportunities over the next few years.

While we pause certain projects during 2020, we continued to invest in both sales and operations talent enhanced our technology infrastructure and digital platform and expanded category growth and seafood and produce.

We will continue our of path of investing in growth markets and to that and have started the process of building our la facility and expect to complete our Florida expansion and the first half of 2022.

I would like to thank the entire of subsequent inhouse team along with our customers and supplier partners for their dedication and hard work throughout 2020.

And our industry is filled with amazing people of every gender and ethnicity, who all of the culinary world the level of innovation and agility displayed during this period has been inspiring to all of us.

Chefs warehouse, we look forward to building, our industry back together and stronger than ever.

With that I'll 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'll 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.

Our net sales for the quarter ended December 25, 2020 decreased approximately 34% to $281 7 million from $426 5 million and the fourth quarter of 2019. The decrease in net sales was the result of the decline in organic sales of approximately 41, 7% as well as the contribution.

<unk> of sales from acquisitions, which added approximately seven 7% of sales growth for the quarter.

Net inflation was 0.5% and the fourth quarter, consisting of 0.4% deflation and our specialty category and inflation of one 6% and our center of the plate category versus the prior year quarter.

Excluding the impact of the reserve adjustments gross profit margins declined 140 basis points versus the prior year quarter the.

The primary driver of net specialty deflation with significant price decreases and dairy and bakery categories, partially offset by inflation and cheese and chocolate categories.

March was the driver of higher total operating expense on.

And adjusted basis operating expense decreased six 5% year over year and excluding the impact of acquisitions adjusted operating expenses decreased approximately 23% versus the prior year quarter as.

As a percentage of net sales adjusted operating expenses were 24, 6% for the fourth quarter of 2020 compared to 17, 4% for the fourth quarter of 2019.

Charge and the quarter.

Income tax benefit was $16 6 million for the fourth quarter of 2020 compared to expense of $3 2 million for the fourth quarter of 2019.

Our GAAP net loss was $37 1 million or $1 <unk> loss per diluted share for the fourth quarter of 2020 compared to net income of $10 9 million or <unk> 36 cents per diluted share for the fourth quarter of 2019.

On a non-GAAP basis, we had negative adjusted EBITDA of $10 5 million for the fourth quarter of 2020 compared to positive.

Adjusted EBITDA of $28 2 million for the prior year fourth quarter.

Adjusted net loss was $19 million or 52 cents per.

Per diluted share for the fourth quarter of 2020 compared to adjusted net income of $12 1 million or <unk> 39 per diluted share for the prior year fourth quarter.

Net debt as of February five 2021 was approximately $210 2 million inclusive of all cash and cash equivalents.

At this time due to the continued uncertainty regarding both the pace of broader economic recovery and the lifting of in room dining restrictions across our key markets, we will not be providing guidance for 2021, we hope to provide more color as we gain more clarity on the length of the economic downturn and the pace of re openings.

Thank you and at this point, we will open it up to questions operator.

And before pressing star one one moment, please while we poll for questions.

Our first question today is coming from Alex Slagle from Jefferies. Your line is now live.

Thanks, Good morning.

Hi, Good morning, a question on the debt.

The Allen brothers, if you could talk about the success, you're seeing with that business and.

And how you're going back and evolve over time.

So are you referring to our <unk>.

Yes the.

The BDC, but just kind of broader thoughts on that that brand and Ryan and the actions you're taking share.

Sure.

When we bought Allen brothers.

And the five six years ago.

One of the really the only brands and foodservice.

And I had a national presence.

That was really what drove the always been and.

Love with the brand stood for Super quality, you'd see it our menus and always have the catalog.

For the beat of Seaworld.

No.

Really unique that abroad, b to C and b to B together and.

And we've been slowly.

Investing and the brand and we really got the payback.

Current COVID-19, where.

And really the sales on the <unk> side exploded and.

Thousands of new customer and discovered that.

That could get steakhouse quality steaks.

And other products delivered right to their door. So we're really really excited about the.

And the discovery process of.

And I call it or our regular customers customers.

And as we started to open up more.

And we acquired many brands over the past five six years.

And we just took the first big step and rebranding our west coast operation, which is a pretty big protein business.

Under many different plague.

Purchase multiple companies and we thought it was the right time now that we have the team and the quality and the ability to deliver.

And.

The brand.

The the image of being the best and so we've now opened up the Allen brothers, steak, and seafood and and Northern California, and we think that.

That will continue we think that New York will probably be and Allen brothers steak and seafood and.

Probably the new England will be.

Oliver and the steak and seafood and we'll just keep building on the brand we have such a great. Following now with so many different between consumers and steakhouses and R.

And for 2000 independent restaurants that with a good day.

The <unk> and it will just continue to grow.

Great.

Alright, and then.

Yeah. It looked like the November activity held up pretty well and with the help of the outdoor dining and some of the off premise business and the imagine with all of the pent up demand there.

Weather for starting to warm up and coming weeks, adding in the spring.

And we have some more optimism and excitement youre hearing from customers in the northeast and mid Atlantic and.

Smart you kind of talk about the role of outdoor dining and your business and how much this could offset the window of dining restrictions, which probably continue for a bit here.

Sure well, obviously, we're very excited to finally, see New York and Chicago and.

And California, you start taking the first steps towards.

Indoor dining.

But we really are excited about what we saw with <unk>.

The.

Explosion of outdoor dining and kind of reinventing.

For the dining experience and so many cities and suburbs and.

Around North America and.

Optimistically going forward I think that will.

Become part of dining.

I always say when you go to Paris, or some of the European cities you see so much.

Outdoor dining and gardens and tables and.

And the restrictions with some strength and many of our big cities.

And the outdoor dining and with.

And with the relaxation of a lot of the restrictions our customers were able to build.

Quite.

<unk> settings.

To accommodate customers who wanted the outside obviously during the pandemic, especially but we think that will continue and.

And we think that's going to be.

And of dish.

The real addition to our customers' business going forward after the pandemic. So we are.

We are really optimistic about 20022.

We think 'twenty one again, it's a rebuilding year I always say.

The saying this for the past the put.

Several months.

Living and a cold environment and traveling back and forth the warm requirements. When you come to Florida, you're kind of few of the future.

Indoor and outdoor people and a lot more comfortable for for many reasons and we just see the pent up demand and restaurants that are full and we can just feel the momentum building and that's very optimistic.

That's great. Thanks.

Thank you. Our next question today is coming from Peter's lay up and be Tid. Your line is now live.

Alright, thank you.

Chris.

And there's a lot of discussion and theories out there of that.

Pandemic.

Some of the larger chains, and we'll be taking some share.

I recognize that the majority of your customer base and 85% are the.

And then do you anticipate any mix change going forward.

Post pandemic, you think youll garner some more chain business and can you just give us an update on where you stand today with some of the.

And some change.

Sure well I think the word chain can sometimes be.

The misleading.

We service.

And so many of our customers have turned into what I call groups I would say the predominant of the larger customers. They are all part of some sort of group, whether it's five of restaurants 10 restaurants 20 restaurants.

I think one of our biggest best customers is 52.

Restaurants, and we are of a large customer who has got 6700 restaurants, but maybe service 100 of them.

Fit into.

The chef model so.

I do think that they are grabbing.

Some pretty good real estate during the pandemic.

So we will we will benefit.

And with their acquisition.

Again, obviously, the lower and.

Massive change went out of Taco Bell.

The distributor, but you know.

And I always do a Lindsay test I go back to where do I want to eat.

When this is all of it right.

I've been eating out every night.

During the Covid, so I've been out canvassing, our markets and talking to customers and.

The overall sentiment as people are really want to support the underdog the I call it the little Guy the.

The restaurant and 100 seat share family owned.

Type of operations so.

And I saw it happen after the 911 and I think it's going to happen again, I think yes, some of the bigger operators.

Our expanding and taken advantage of their balance sheets.

I don't think Andy really good operator independent has given up of prime space I think theyre hanging in there and they move negotiated their lease they've got and PPP money.

I think the PPP has been incredible help the slot this last push I'm hearing from customers getting.

Great amounts of money, which is life savings. So we're really excited to hear that the money is flowing but.

Don't discard the little Guy I think the sentiment of.

Of the American and Canadian consumer.

Markets that we serve really wants to support the the.

The independent restaurants, and I think they kind of come Roaring back.

Great.

Jim can you just.

Light of the cash that cash position and the reopening now of and the.

The next couple of days of New York, and most recently, California.

Are you guys thinking about inventory planning and should we expect you and just start drawing down on the on.

The cash position too.

The future demand and the first quarter.

Well.

We expected.

As we were coming through before the the recent shutdowns post Thanksgiving, we expected to see some level of cash burn.

As the business kind of steadied around 70% coming out of September and into October and November and then kind of.

It started to drop.

As Covid started to search post Thanksgiving, we expected if we were on that path we'd start to.

And we invest more and.

And and inventory and you'd see some level of investment and working capital, we still expect that to happen but.

We built a pretty decent size cash cushion.

And we've kept that pretty much level to where it was given some moving parts pre pandemic and then post pandemic.

And so.

But as that will be a good problem to have will be.

<unk> generated.

Free cash flow at that point investing and working capital and we expect.

To continue to have a strong liquidity position.

Coming out of this.

Giving us some dry powder to to add some pieces that that could really help us going forward.

Alright, Thank you very much.

Thanks for the next question today is coming from Kelly Bania from BMO capital markets. Your line is now a lot of.

Hi, good morning, Thanks for taking the questions.

Okay.

Good morning.

Chris I was wondering if you can just talk a little bit more about the customer acquisition trends.

Got you hide it highlighted and just expand a little bit more on what type of customer or under what circumstances categories regions and just help us understand what's happening there.

Sure.

And I don't think its a one size fits all Kelly.

I mean.

We saw.

The massive amounts of new credit applications coming in.

During the pandemic.

Sure.

We typically do have obviously and we're in an industry, where there is turnover.

And restaurants.

And our attrition rate was always you know anywhere from 7% to 15%. So obviously it was higher than that during the pandemic.

I think as the <unk>.

Crystal ball said that.

There were many many.

Are clients of ours that did have the balance sheet too.

What I always love that space, and it's coming available or.

We got a great opportunity the infrastructure is already built the.

The HUD systems are in and instead of spending $34 million at 700000 all of the renovation.

And we can have a prime piece of real estate.

The open and even lots of little places of anywhere from Wynwood, and say and Miami or parts of Brooklyn, New York.

And where the opportunities are there.

It's almost like Youre starting of new.

Company and.

And youre going to open up and <unk> and.

And 12 months and its the 12 month buildup.

And to build out and say you're going to open up 1000 restaurants, and a year, it's kind of the atmosphere, we felt obviously and there hasnt been so.

And it has it's been brutal for many many of our clients, but the.

There is a very large customer sector of that.

And is looking at it almost like a startup and that's what I think we saw it and I was just reading early this morning.

Another one of our very popular customers has signed the new leased the build a multi million dollars restaurant and of great space.

And it just goes on and on and non so much of that then a lot of carnage.

And in many parts of the industry.

There are many many customers taking advantage and.

Of the real estate opportunities reduce rents.

And properties that are pretty much built out and I think thats, what youll start to see going into 2022.

Okay.

That's helpful and I guess.

And just another question in terms of being prepared for the recovery and the next several quarters just how do you feel about.

The one salespeople and there.

And where you're at with the sales force and there.

The ability to go after these new customers as there is the rebuilding and then also.

Warehouse employees and drivers and just what capacity you have for what you expect to invest and over the next couple of quarters there.

Sure.

Well, so I think I've said and the last earnings call and.

And maybe some of the conferences and in the last few months that you have two choices. During this pandemic and one was the cut.

Cut all of your cost and put up a few more pennies.

Two to earnings if you had earnings of.

And really look and say, we want to be prepared and we want to be aggressive and we want to grab market share and.

We chose the door and a bit too so.

Yes, we did cut back we found that we could operate leaner and we plan on operating leaner going forward.

So if anything positive.

That's a positive but.

We kept a lot of routes I mean, we did consolidate routes, but we're really running and.

And the operation right now that is geared for the recovery. So we have tons of trucks on the road that are have empty. So as business comes back out of those trucks of drivers and the around the routes and Theyre just waiting for that business and the same with the sales force, we actually grabbed a lot of talent that was looking for a new.

Home for various reasons, so I call. It was a once in a lifetime.

<unk> grab and.

And.

We think that those investments obviously, those those salespeople with books arent delivering the kind of numbers that they were.

Pandemic, but.

And we already starting to see signs of that recovery and and parts of the of the U S and Canada.

And.

Salespeople of Hungary, they've had a really bad long year.

And they've been putting that time into canvassing, new customers and <unk>.

New category sales and.

And developing different avenues, and retail and <unk>.

Everything from MIT trucks. So necessity was the mother of invention and that's what salespeople do they need to go out and the fine.

Your customers to sell so we're really excited about the talent and.

And the ability with the team that we have.

Thank you. Our next question is coming from Todd Brooks from CL, King and Associates. Your line is now live.

Hey, good morning, gentlemen, and hope Youre well.

Hey, Todd.

If we can talk about if you've kind of given the spaces for what the recovery looks like and kind of getting through this winter phases what.

You of boats and the company has been focused on.

The emerging from.

This winter period, and getting back towards the outdoor and spring and markets of reopening.

You've talked about the strength of your balance sheet and that you want to look at some strategic M&A opportunities coming out of the back side of the pandemic can you maybe touch on.

Growth priorities and focus areas for initial strategic M&A, and maybe what the funnel or pipeline of potential deals looks like Chris.

Sure.

So the pipeline was extremely frothy.

Pre COVID-19 and.

And I would say the pipeline is.

More and more frothy.

Ed.

And we're still and unfortunately, we're still and Covid, but.

We've been really disciplined.

Where we're not going to chase volume and.

The very low margin that we don't want to.

We are of such a good culture and we of such a great platform that has so much room to run there.

I think the most important part of our of being disciplined was to make sure that you know.

As we call the pumping up the balloon again.

Taking on customers and businesses that fit into who we are so.

Could remain a high margin high touch.

Superior product company of differentiator from the other national companies that are out there so.

I think cassandras Crystal ball says that.

It's going to be the wild west and M&A and it was already happening and the industry was consolidating.

I think again, if there is a few positive things coming out of such a incredibly tough year was that.

And opened our eyes that the brand had a lot more legs and many other ways and customers.

It could be part of chef that we buy from shop, and I think we were able to look into new categories and grab of expertise and I think thats going to paid tremendous dividends as we start to.

Get back to some sort of normal.

Socializing life and restaurants and hotels continue to open.

I would say.

For the Crystal ball is right I think that Youll see us.

The wishlist is.

First the do.

The graph continue to grab the talent.

The two is to grab of companies that fit into chef and the areas that we have capacity because that's the most of accretive acquisitions. We can make so the southern California, we're going to have a brand new large warehouse at the end of this year hopefully it will be completed the same with southern Florida.

Florida, we're extremely bullish on Florida during the Covid, we did open up the seafood business and made a small acquisition and northern Florida.

And we think that will continue as those warehouses.

Come online.

It will allow us to do fold ins and allow us to.

Acquire new categories, and we've been setting up New York, and Chicago, and Texas really gearing of those divisions up because where they have capacity we want to fill it.

And I think Thats really how we get back to where we were and the 19 and and.

And exceeded is.

Our methodical almost surgical approach to M&A of <unk>.

Of course tomorrow of the phone could ring and there could be something unbelievable, that's transformational, but really the way we've gone about the <unk>.

Last 10 months is continuing to speaks of the people that we wanted to join ship before COVID-19.

And we think many of those deals would get done plus.

So many other people that.

The picked up the phone and said Hey, what we think we're better with you.

So we are disciplined on our approach and what we're willing to pay and obviously right now the forecast is.

Making forecast is really tough. So we are looking at really 'twenty two what we think it's going to be like and I think I think we're going to come out of this the I've said this a few times I think 22 23 and 24.

Most likely be even better than what they would have been.

The pre COVID-19, just because of the opportunities and all of the talent that it's bringing together.

That's super helpful. Thanks, and then my last question is.

You talked about just the evidence of pent up consumer demand that youre seeing and.

Warmer weather markets, Florida, Texas.

I'm wondering if you talk to your hotel your country club customers.

Are you getting a sense of pent up demand for events as you look for the back half of fiscal 'twenty, one and and maybe how the event based business comes back.

And if that's also going to be.

Kind of a roaring recovery of what your thoughts are there based on what youre seeing with with booking trends and hearing from customers.

Yeah, sure so I think everyone's being kind of careful.

The day.

You don't want to book and canceled but.

And my trips to Florida, I'm already seeing weddings.

It was I think my wife made the comment like Wow look at that.

And semi socially distance, but.

There was 150 people on the beach set of wedding.

We're starting to hear more and more of that.

I think it's different I think places like Vegas and.

And maybe in the cities I think that people are being a little more cautious.

The book.

From now, but I think definitely these outdoor outdoor venues are starting to book.

We're hearing from our caterers, we're hearing from many of our clients.

Even now and they have already started to have some small events 2050 75 people.

I don't know if the.

There are limits still from state the state.

But.

The pent up demand, we're hearing from the wedding planners and caterers.

The people that have delayed the events.

I think it's just going to be a massive explosion of.

<unk>.

Of catering and.

And parties that were put off and people.

Especially weddings people really have put up weddings and what we're hearing is there even if they got married during the pandemic theyre going to have a real wedding celebration as soon as they are comfortable and obviously we're seeing.

Even from the Super Bowl Youre seeing people that either were vaccinated and have some sort of bracelet or.

And could show a negative I think it starts that way and then slowly slowly I think hopefully we get back to some sort of normality, but.

And even before that I think you'll start to see many more events with kind of limitations and some sort of testing involved.

Okay, Great that's helpful. Thanks, Chris.

Thank you. The next question today is coming from Ben <unk> from National Securities Corporation. Your line is that a lot.

Alright, and thanks for taking my questions.

And.

And I already most of my questions have been answered, but just one for me. This morning on it's encouraging to hear your comments on investments that were more or less put on hold and the.

Covid and so I'm wondering when you look at your plans across Los Angeles, Texas, Florida, or the plans that you have today is still of the same scale as they were pre pandemic or.

Have there been any material change and the level of investment you are looking to put into these markets and.

In light of in light of everything over the last few quarters.

And Jim Yes.

Yes, it's more of the delay so we for obvious reasons, we delayed the law Buildout, which we expected to.

To finish really this year and start last year and then finished this year.

Florida.

It was already and it was.

And the early stages last year and it.

Still in the construction phase so.

A lot of that capital will be will be spent later in the year, where we anticipate more of a of the build back so I would characterize it more of the.

A delay and.

In the and the Capex investment.

And but I would say that especially where we are currently investing which as Chris mentioned earlier Southern California.

Florida, and then in Texas.

Going to continue to invest in those markets, we see them as key growth markets going forward.

And and so we're.

And we're going to continue on that path.

Okay perfect. Thanks, Jim that's helpful that does it for me I appreciate you taking my question.

For the walk here navigating hopefully of reopening and coming months and I'll jump back in queue.

Thank you.

As a reminder, Thats star one to be placed into the question queue. Our next question is coming from Nicole Miller from Piper Sandler Your line is now live.

Good morning. Thank you. My first question was the dialogue around the independence of just Super helpful and it doesn't mean, it's just one guy one restaurant so two parts.

Number one on the top line I get the Sunset of course somebody has closed but for those that are open and they're recovering at the same pace of let's say of larger chain or a chain at scale. So what would you say about that and then the second part I really hear you about like that occasion transfer of where you are saying hey that gas wants to.

Come back and I'm, just wondering how do you and form that outside of our own opinion, because I wanted to do the same thing that's why I want to eat so if the independent restaurant was closed where do you think that just weren't good day.

And stay home and E grocery.

Did they go to try a national and.

Team that is not exactly the same experience where do they come back from thanks.

Sure Nicole maybe I'll start from the last one and then work my way backwards. So.

Again, I mean, we have to remember that.

The city was closed.

Sure.

No no no meetings and nobody was open.

The same when Chicago and.

Many parts of California so.

It's obviously a very unusual year.

So I think customers again, we're takeout was available and they did a lot of take out so they did get the try maybe restaurants that they never.

I went to but when I when I talk about.

Yeah. Perfect example is.

Youre not going to go from Eaton at La burn of den.

And Midtown Manhattan considered and maybe the final seafood restaurant.

And the country.

And youre going to go to and Olive garden, and you're never going to go back to Liberty of them. So I think of.

And at different price points.

I think we have different different situations the.

And the independents.

Especially and the big cities like New York.

People closed I mean, the higher and just closed they did other things day launched either hamburger concepts or.

And catering services and we've heard all sorts of different the entrepreneurship.

But you.

Some of it just did not pay obviously to even think about doing catering the overheads to either the <unk>.

<unk> two.

No.

It was just too difficult. So that's basically what I heard was.

And we'll see you in the spring.

So I think when you look at little independence, when you go into suburbs and talent I think the independents actually did fine.

Obviously, the volumes were lower but they cut their overhead and the takeout and I know from my experiences and our little towns that I you didn't.

They were doing 50, 60, outgoing catering orders a night.

The versus what they did pre COVID-19, which was about five obviously.

Didn't make up of 100% for their lack of people coming and when they close and are guiding but as they went to 25% and 50% you started seeing customers come back so.

And I don't think its.

You can say it covers every every every city and state, but what we're seeing and what we're hearing and we're starting to see orders are from the independents.

And I think that not everyone is going to make it but there is going to be a tremendous surge and and new openings and new concepts.

And we're seeing that the city's IRR from and where we're going 25, and 50% that the demand is there I think the big guys did do better overall.

The balance sheets, and the marketing and infrastructure, especially and promoting some sort of take out we sort of given super high and steakhouses have pick out packages and they were selling their wine.

I don't see that continue I think I think I don't see that.

Once everybody is open.

You can go to of wine store, unless there is tremendous value and selling their sellers, but.

And I do think that the big the big balance sheets are taking advantage of.

Of the situation and grabbing some real estate.

And that they've always wanted to but I still stand by don't underestimate the little Guy.

People Love of 100 seat restaurant I do.

I do like the big event restaurants, and the big Joy of social environment.

But.

To me always the food.

<unk> is great I love seeing the chef and the kitchen and I love seeing the family who owns the restaurant.

And the restaurant they know your name and its special and I think Americans and.

Canadians really loved that relationship with their independent so we'd like to see everybody come back of course of.

But.

And I still think don't.

Don't don't think the independent is gone.

And then could you speak a little bit last question about the deflation.

And Jim I think you said the couple of categories that maybe the drivers behind dairy and there was one other and then just also address the and.

This is really hasnt seen inflation for a long time. So what is maybe your longer term point of view and then remind us if it were to come back how you pass that along to the customer.

Yes sure so.

And the reopening and closings and the different day.

Demand environments and weather environments across regions.

Really drove the.

The product.

And side of the product as well as a lot of volatility around.

The producing side so.

And I talked about dairy and.

And and bakery.

Being deflationary.

And what we've seen is within the categories.

More deflationary or more inflationary so just more volatility and then recently definitely on the center of the plate side.

And started in the fourth quarter and has been continuing.

Into the first part of the first quarter.

The pricing model.

Allows us to pass on the bulk of that because we don't have a lot of fixed price contracts with.

Like Chris talked about it with the large change et cetera.

And we're pricing at market and we were able to generally.

Most of that now when it's extremely volatile and hockey stick like type of inflation.

You can't pass all of it on and use.

And you generally work with your customers to then keep some of it on the way down so there is dynamics like that.

In General I think there is an expectation out there that.

As restaurants open and you've got retail is still pretty strong that a lot of the commodities you will see inflationary environment of more of inflationary environment in the food space.

Space then.

And in prior years.

But generally if it's if it's low single digits.

And that's a really good environment for us.

We can capture some of that volatility and actually.

Don.

So I wouldn't say, we're overly concerned about.

Inflation.

We have pricing teams that monitor it and work with our.

Salespeople and suppliers on a daily basis too.

The two.

Handle inflation and take advantage of inflation or deflation.

So it's.

What I would describe it is just a lot more volatile than we've seen and the last few years.

Thanks again for the update I appreciate it.

Sure. Thank you we've reached the end of our question and answer session I would like to turn the floor back over to management for any further of closing comments.

Listen.

Really happy everybody can join our call today.

Obviously 2020 was extremely challenging year book.

We're grateful that.

We can come out of this of the team as well.

<unk> engaged and work together.

And then ever and we're really excited to see the openings.

And.

Get back to normality.

Little bit out of time and.

America loves the restaurants and loves the social aspect and we're really excited of what we're seeing and.

Hopefully the vaccinations.

Really accelerates and.

And let our industry get back to.

And where it was pre pandemic. So thank you for joining today and stay healthy and look for.

To our next call.

Thank you very much. Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.

Q4 2020 Chefs' Warehouse Inc Earnings Call

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