Q2 2024 The Chefs' Warehouse Inc Earnings Call
[inaudible]
Operator: Greetings and welcome to the Chefs' Warehouse 2nd quarter 2024 earnings conference call.
Speaker Change: Greetings and welcome to the Chefs' Warehouse second quarter 2024 earnings conference call. As a reminder, this conference is being recorded.
Operator: As a reminder, this conference is being recorded in the presentation.
Operator: As a reminder, 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. Thank you, operator. Good morning, everyone.
Alex Aldous: 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.
Speaker Change: 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.
Alexandros Aldous: 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 second quarter 2024 earnings press release. It can also be found at www.chefswarehouse.com under the investor relations section. Throughout 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 in similarly titled non-GAAP financial measures used by other companies.
Alex Aldous: Thank you, operator.
Alex Aldous: Good morning, everyone. With me on today's call, are Chris Pappas, founder, chairman, and CEO, and Jim Leddy, here, CFO. By now, you should have access to our 2nd quarter 2024 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout 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 in similarly titled non-GAAP financial measures used by other companies.
Alexandros Aldous: Thank you, operator. Good morning, 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 second quarter 2024 earnings press release.
Speaker Change: Throughout 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.
Speaker Change: These measurements are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies.
Alex Aldous: Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release.
Alexandros Aldous: 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 them on due reliance. 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 others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website.
Speaker Change: Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release.
Alex Aldous: 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 them. 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. Others are discussed in your annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website.
Speaker Change: Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements.
Speaker Change: including statements regarding our estimated financial performance.
Speaker Change: Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q , which are available on the SEC website.
Alex Aldous: Today we are going to provide a business update and go over our second quarter results in detail. Then we will open up the call for questions.
Alexandros Aldous: Today we are going to provide a business update and go over our second quarter results in detail. Then we will open up the call for questions. With that, I will turn the call over to Chris Pappas.
Chris Pappas: With that, I will turn the call over to Chris Papis.
Chris Pappas: Chris? Thank you, Alex. And thank you all for joining our second quarter of 2024 earnings call. Second quarter, customer demand and pricing display typical seasonality as revenue profitability continued to build as expected, moving from a solid first quarter into seasonally stronger second quarter months. Our operating divisions across domestic and international markets delivered strong unique customer and item placement growth and managed pricing effectively while providing our customers with high quality product and high value service. We are extremely proud of all our teams from sales, sourcing, pricing operations, and support functions coming together to deliver value to our customers.
Christopher Pappas: Thank you, Alex, and thank you all for joining our second quarter 2024 earnings call. In the second quarter, customer demand and pricing displayed typical seasonality as revenue and profitability continued to build as expected, moving from a solid first quarter into a seasonally stronger second quarter month. Our operating divisions across domestic and international markets delivered strong unique customer and item placement growth and managed pricing effectively while providing our customers with high-quality products and high-value service.
Speaker Change: Second quarter, customer demand and pricing displayed typical seasonality as revenue and profitability continued to build as expected, moving from a solid first quarter into seasonally stronger second quarter months.
Speaker Change: Our operating divisions across domestic and international markets delivered strong, unique customer and item placement growth and managed pricing effectively while providing our customers with high-quality product and high-value service.
Christopher Pappas: We are extremely proud of all our teams from sales, sourcing, pricing, operations, and support functions coming together to deliver value to our customers. Leveraging our diverse and broad supply chain, value-add, processing, and culinary expertise to assist our customers with managing menu development as well as product and labor-related costs. A few highlights from the second quarter include 7.2% organic growth in net sales. Specialty sales were up 7.5% organically over the prior year, which was driven by unique customer growth of approximately 8.2%.
Speaker Change: We are extremely proud of all our teams, from sales, sourcing, pricing, operations and support functions, coming together to deliver value to our customers.
Chris Pappas: Leveraging our diverse and broad supply chain value add processing and culinary expertise to assist our customers with managing menu development, as well as product and labor related core. Pue highlights from the second quarter include 7.2% organic growth in net sales. Specialty sales were up 7.5% organically over the prior year, which was driven by unique customer growth of approximately 8.2%. Placement growth of 11.3% and specialty case growth of 4.7%. Excluding prior year low margin customer attrition, in Hearties, total specialty cases grew approximately 5.5% year-of-a-year in the second quarter. Organic pounds in center of the plate were approximately 2.9% higher than the prior year of second quarter.
Speaker Change: Leveraging our diverse and broad supply chain, value-add, processing, and culinary expertise to assist our customers with managing menu development, as well as product and labor related costs.
Speaker Change: Specialty sales were up 7.5% organically over the prior year, which was driven by unique customer growth of approximately 8.2%.
Christopher Pappas: Placement growth of 11.3% and specialty case growth of 4.7%. Excluding prior-year low-margin customer attrition in Hardee's, total specialty cases grew approximately 5.5% year-over-year in the second quarter. Organic pounds in the center of the plate were approximately 2.9% higher than the prior year second quarter.
Speaker Change: Placement growth of 11.3% and specialty case growth of 4.7%.
Speaker Change: Organic pounds in the center of the plate were approximately 2.9% higher than the prior year's second quarter.
Chris Pappas: Gross profit margins increased to approximately 35 basis points. Gross margin and specialty category increased to approximately 50 basis points as compared to the second quarter of 2023, while gross margin and the center of the plate category were essentially flat year-of-a-year.
Christopher Pappas: Gross profit margins increased approximately 35 basis points. Gross margin in the specialty category increased approximately 50 basis points as compared to the second quarter of 2023, while gross margin in the center of the plate category was essentially flat year over year. Jim will provide more detail on gross profit and margins in a few moments. We remain focused on making progress towards our five-year goals, which include revenue of approximately $4.6 billion to $5 billion and adjusted EBITDA of $300 to $350 million.
Speaker Change: Gross profit margins increased approximately 35 basis points.
Speaker Change: Gross margin in the specialty category increased approximately 50 basis points as compared to the second quarter of 2023, while gross margin in the center of the play category were essentially flat year over year.
Chris Pappas: Jim will provide more detail on gross profit and margins in a few moments. We remain focused on making progress towards our five-year goals, which include 2028 revenue of approximately 4.6 billion to 5 billion, and adjusted EBIT of 300 to 350 million. It is important to highlight the key investments we have put in place to provide our teams with the market footprint, product categories, infrastructure, and investment and sales force necessary to grow towards achieving these targets. Regarding infrastructure, since 2019, we have added approximately 1 million square feet of distribution capacity, excluding acquisitions, or approximately a 60% increase to the 2019 baseline.
Speaker Change: Jim will provide more detail on gross profit and margins in a few moments.
Jim: We remain focused on making progress towards our five-year goals, which include 2028 revenue of approximately $4.6 billion to $5 billion, and adjusted EBITDA of $300 to $350 million.
Christopher Pappas: It is important to highlight the key investments we have put in place to provide our teams with the market footprint, product categories, infrastructure, and investment and sales force necessary to grow towards achieving these targets. Regarding infrastructure, since 2019, we have added approximately 1 million square feet of distribution capacity, excluding acquisitions, or approximately a 60% increase to the 2019 baseline.
Jim: It is important to highlight the key investments we have put in place to provide our teams with the market footprint, product categories, infrastructure, and investment and sales force necessary to grow towards achieving these targets.
Jim: Regarding infrastructure, since 2019 we have added approximately 1 million square feet of distribution capacity excluding acquisitions or approximately a 60% increase to the 2019 baseline.
Chris Pappas: These include investments in future growth in high value markets, such as the expansion of our distribution centers in Dubai, Seattle, Southern California, and Florida. This also includes facility expansion to create future operating synergies, such as our recently completed protein processing facility in Northern California. During the second quarter, we initiated processing operations and completed the first phase of a multiple facility consolidation with the move of our Brisbane processing and distribution operation. We expect to complete the next move during the third quarter, with the focus on completing the full consolidation during the first quarter of 2025. We expect to provide route, labor, and technology-driven efficiencies with room for future growth in the region.
Christopher Pappas: These include investments in future growth and high-value markets, such as the expansion of our distribution centers in Dubai, Seattle, Southern California, and Florida. This also includes facility expansion to create future operating synergies, such as our recently completed protein processing facility in Northern California. During the second quarter, we initiated processing operations and completed the first phase of a multiple facility consolidation with the move of our Brisbane Processing and Distribution operations.
Jim: These include investments in future growth in high-value markets such as the expansion of our distribution centers in Dubai, Seattle, Southern California, and Florida.
Jim: This also includes facility expansion to create future operating synergies, such as our recently completed protein processing facility in Northern California.
Jim: During the second quarter we initiated processing operations and completed the first phase of a multiple facility consolidation with the move of our Brisbane Processing and Distribution operation.
Christopher Pappas: We expect to complete the next move during the third quarter with a focus on completing the full consolidation during the first quarter of 2025. We expect to provide route, labor, and technology-driven efficiencies with room for future growth in the region. Regarding our investments in sales and our unique go-to-market strategy, since year-end 2021, we have increased our sales force, excluding acquisitions, by approximately 10% per year. Additionally, over the same time frame, in certain of our high-growth investment markets such as Florida, the Middle East, and California, we have grown our sales force by approximately 20-25% per year on average.
Jim: We expect to complete the next move during the third quarter with a focus on completing the full consolidation during the first quarter of 2025. We expect to provide route, labor, and technology-driven efficiencies with room for future growth in the region.
Chris Pappas: Regarding our investments in sales and our unique go-to-market strategies since year-end 2021, we have increased our sales force excluding acquisitions by approximately 10% per year. Over the same time frame, in certain of our high growth investment markets, such as Florida, the Middle East, and California, we have grown our sales force by approximately 20 to 25% per year on average. In addition, we continue to invest in category expertise and digital and pricing tools across our markets to support our sales and operating teams' execution and growing market share via unique item penetration, new customer acquisition, and improved gross profit dollars per delivery.
Jim: Over the same time frame, in certain of our high growth investment markets such as Florida, the Middle East, and California, we have grown our sales force by approximately 20-25% per year on average.
Christopher Pappas: In addition, we continue to invest in category expertise and digital and pricing tools across our markets to support our sales and operating teams in execution and growing market share via unique item penetration, new customer acquisition, and improved gross profit dollars per delivery. Our investments in acquisitions, categories, infrastructure, and sales teams have given us the marketing and distribution footprint required for growth towards our 2028 goal. We feel we have a balanced portfolio of high-growth markets supported by ample capacity, maturing sales teams with our unique go-to-market strategy complemented by more mature markets focused on category expansion and continued above-average industry growth.
Jim: In addition, we continue to invest in category expertise and digital and pricing tools across our markets to support our sales and operating teams' execution and growing market share via unique item penetration, new customer acquisition, and improved gross profit dollars per delivery.
Chris Pappas: Our investments in acquisitions, categories, infrastructure, and sale teams have given us the marketing and distribution footprint required for growth towards our 2028 goals. We feel we have a balanced portfolio of high growth markets supported by ample capacity, maturing sales teams with our unique go-to-market strategy, complemented by more mature markets focused on category expansion and continued above average industry growth. For the past 40 years, we have developed a moat in our niche of the food service industry by investing in and developing the talent and expertise to sell the world's finest chefs, to be logistically nimble and best in class to manage just-in-time service, and to manage price and margins in a volatile world.
Jim: Our investments in acquisitions, categories, infrastructure, and sales teams have given us the marketing and distribution footprint required for growth towards our 2028 goals.
Jim: We feel we have a balanced portfolio of high-growth markets supported by ample capacity, maturing sales teams with our unique go-to-market strategy complemented by more mature markets focused on category expansion and continued above-average industry growth.
Christopher Pappas: Over the past 40 years, we have developed a moat in our niche of the food service industry by investing in and developing the talent and expertise to sell the world's finest chefs, to be logistically nimble and best-in-class to manage just-in-time service, and to manage price and margins in a volatile world. We have built a culture and strategy designed to be the unique food service solution company focused on serving quality culinary-driven operators 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?
Jim: For the past 40 years we have developed a moat in our niche of the food service industry by investing in and developing the talent and expertise to sell the world's finest chefs, to be logistically nimble and best-in-class to manage just-in-time service.
Chris Pappas: We have built a culture and strategy designed to be the unique food service solution company focused on serving quality culinary-driven operators.
Jim: and to manage price and margins in a volatile world. We have built a culture and strategy designed to be the unique food service solution company focused on serving quality culinary-driven operators.
Jim Leddy: 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?
Jim: 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?
James F. Leddy: 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 June 28, 2024, increased approximately 8.3% to $954.7 million from $881.8 million in the second quarter of 2023. The growth in net sales was a result of an increase in organic sales of approximately 7.2%, as well as the contribution of sales from acquisitions, which added approximately 1.1% to sales growth for the quarter. Net inflation was 3.3% in the second quarter, consisting of 2.7% inflation in our specialty category and inflation of 4.3% in our center of the play category versus the prior year quarter.
Jim Leddy: Thank you, Chris. 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 June 28, 2024, increased approximately 8.3 percent to 954.7 million from 881.8 million in the second quarter of 2023. The growth in net sales was a result of an increase in organic sales of approximately 7.2 percent, as well as the contribution of sales from acquisitions, which added approximately 1.1 percent to sales growth for the quarter. Net inflation was 3.3 percent in the second quarter, consisting of 2.7 percent inflation in our specialty category and inflation of 4.3 percent in our center of the play category versus the prior year quarter.
James F. Leddy: Gross profit increased 9.9% to $229 million for the second quarter of 2024 versus $208.4 million for the second quarter of 2023. Gross profit margins increased approximately 35 basis points to 24%, and our procurement, sales, pricing, and operating teams delivered strong gross profit dollar growth across categories during the quarter. Selling general and administrative expenses increased approximately 8.8% to $194.8 million for the second quarter of 2024 from $179 million for the second quarter of 2023.
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.
James F. Leddy: The increase was primarily due to higher depreciation and amortization driven by acquisitions and facility investments and costs associated with compensation, facility costs, and distribution costs to support sales growth in the current quarter. And as a percentage of net sales, adjusted operating expenses were 18.1% for the second quarter of 2024. Operating income for the second quarter of 2024 was $33.9 million, compared to $25.3 million for the second quarter of 2023.
James F. Leddy: The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general, and administrative expenses versus the prior year quarter. Income tax expense was $6.7 million for the second quarter of 2024, compared to $3.5 million for the second quarter of 2023.
Jim: Our net sales for the quarter ended June 28, 2024, increased approximately 8.3% to $954.7 million, from $881.8 million in the second quarter of 2023.
James F. Leddy: Our gap net income was $15.5 million, or $0.37 per diluted share, for the second quarter of 2024, compared to net income of $9.9 million, or $0.25 per diluted share, for the second quarter of 2023. On a non-GAAP basis, we had adjusted EBITDA of $56.2 million for the second quarter of 2024 compared to $51.1 million for the prior year's second quarter. Adjusted net income was $17 million, or $0.40 per diluted share, for the second quarter of 2024 compared to $14.4 million, or $0.35 per diluted share, for the prior year's second quarter.
James F. Leddy: Turning to the balance sheet and an update on our liquidity, at the end of the second quarter, we had total liquidity of $208.3 million, comprised of $38.3 million in cash and $170 million of availability under our ABL facility. During this second quarter, we continue to make progress toward achieving our year-end 2025 capital allocation goals of two and a half to three times net debt leverage, and we're purchasing $25 million to $100 million of equivalent outstanding shares.
Jim: The growth in net sales was a result of an increase in organic sales of approximately 7.2%, as well as the contribution of sales from acquisitions, which added approximately 1.1% to sales growth for the quarter.
Jim: Net inflation was 3.3% in the second quarter, consisting of 2.7% inflation in our specialty category and inflation of 4.3% in our center of the play category versus the prior year quarter.
Jim Leddy: Growth profit increased 9.9 percent to $229 million for the second quarter of 2024 versus $208.4 million for the second quarter of 2023. Growth profit margins increased approximately 35 basis points to 24 percent, and our procurement sales pricing and operating teams delivered strong growth profit dollar growth across categories during the quarter. Selling, general and administrative expenses increased approximately 8.8 percent to 194.8 million for the second quarter of 2024 from 179 million for the second quarter of 2023. The increase was primarily due to higher depreciation and amortization driven by acquisitions and facility investments, and costs associated with compensation, facility costs, and distribution costs to support sales growth in the current quarter.
Jim: Gross profit increased 9.9% to $229 million for the second quarter of 2024 versus $208.4 million for the second quarter of 2023.
Jim: from $179 million for the second quarter of 2023. The increase was primarily due to higher depreciation and amortization driven by acquisitions and facility investments and costs associated with compensation, facility costs, and distribution costs to support sales growth in the current quarter.
Jim Leddy: Adjusted operating expenses increased 9.8 percent versus the prior year's second quarter, and as a percentage of net sales, adjusted operating expenses were 18.1 percent for the second quarter of 2024. Operating income for the second quarter of 2024 was $33.9 million compared to $25.3 million for the second quarter of 2023. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general, and administrative expenses versus the prior year quarter. Income tax expense was $6.7 million for the second quarter of 2024 compared to $3.5 million expense for the second quarter of 2023.
Jim: Adjusted operating expenses increased 9.8% versus the prior year's second quarter. And as a percentage of net sales, adjusted operating expenses were 18.1% for the second quarter of 2024.
Jim: Income tax expense was $6.7 million for the second quarter of 2024, compared to $3.5 million expense for the second quarter of 2023.
Jim Leddy: Our gap net income was $15.5 million or $0.37 per diluted share for the second quarter of 2024 compared to net income of $9.9 million or $0.25 per diluted share for the second quarter of 2023. On a non-gap basis, we had adjusted EBITDA of $56.2 million for the second quarter of 2024 compared to $51.1 million for the prior year second quarter. Adjusted net income was $17.0 million or $0.40 per diluted share for the second quarter of 2024 compared to $14.4 million or $0.35 per diluted share for the prior year second quarter.
Jim: Our gap net income was $15.5 million, or $0.37 per diluted share for the second quarter of 2024, compared to net income of $9.9 million, or $0.25 per diluted share for the second quarter of 2023.
Jim Leddy: Turning to the balance sheet in an update on our liquidity, at the end of the second quarter we had total liquidity of $208.3 million, comprised of $38.3 million in cash and $170 million of availability under our ABL facility. During the second quarter, we continued to make progress toward achieving our year-end 2025 capital allocation goals of two and a half to three times net debt leverage and repurchasing $25 million to $100 million of equivalent outstanding shares. As of June 28, 2024, year-to-date we have repurchased $10 million of our outstanding common shares, resulting in a reduction of approximately 264,000 shares outstanding, and repaid $14.5 million of outstanding debt.
Jim: Turning to the balance sheet and an update on our liquidity. At the end of the second quarter, we had total liquidity of 208.3 million, comprised of 38.3 million in cash and 170 million of availability under our ABL facility.
Jim: During this second quarter, we continue to make progress toward achieving our year-end 2025 capital allocation goals of 2.5 to 3 times net debt leverage and repurchasing $25 million to $100 million of equivalent outstanding shares.
James F. Leddy: As of June 28, 2024, year-to-date, we have repurchased $10 million of our outstanding common shares, resulting in a reduction of approximately 264,000 shares outstanding, and repaid $14.5 million of outstanding debt. As of June 28, 2024, total net debt was approximately $661 million, inclusive of all cash and cash equivalents.
Jim: As of June 28, 2024, year-to-date, we have repurchased $10 million of our outstanding common shares, resulting in a reduction of approximately 264,000 shares outstanding and repaid $14.5 million of outstanding debt.
Jim Leddy: June 28, 2024, total net debt was approximately $661 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 3.2 times, as compared to approximately 3.3 times as of the first quarter of 2024.
Jim: June 28, 2024, total net debt was approximately $661 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 3.2 times as compared to approximately 3.3 times as of the first quarter of 2024.
James F. Leddy: And net debt to adjusted EBITDA was approximately 3.2 times as compared to approximately 3.3 times as of the first quarter of 2024. Turning to our full-year guidance for 2024, based on the current trends in the business, we are providing full-year financial guidance as follows. We estimate that net sales for the full year of 2024 will be in the range of $3.665 billion to $3.785 billion, gross profit to be between $874 million and $902 million, and adjusted EBITDA to be between $208 million and $219 million.
Jim Leddy: Turning to our full-year guidance for 2024, based on the current trends in the business, we are providing our full-year financial guidance as follows. We estimate that net sales for the full year of 2024 will be in the range of $3.665 billion to $3.785 billion, gross profit to be between $874 million and $902 million, and adjusted EBITDA to be between $208 million and $219 million. Please note for the third quarter of 2024 we expect both convertible notes maturing in December of this year and those maturing in 2028 to be diluted for reporting purposes, and therefore we expect the fully diluted share count to be approximately 45.9 million shares.
Jim: Turning to our full-year guidance for 2024. Based on the current trends in the business, we are providing a full-year financial guidance as follows.
Jim: We estimate that net sales for the full year of 2024 will be in the range of $3.665 billion to $3.785 billion.
Jim: Gross profit to be between $874 million and $902 million Adjusted EBITDA to be between $208 million and $219 million
James F. Leddy: Please note, for the third quarter of 2024, we expect both convertible notes maturing in December of this year and those maturing in 2028 to be diluted for reporting purposes. Therefore, we expect the fully diluted share count to be approximately 45.9 million shares for the fourth quarter and for the full year of 2024. We expect the remaining convertible notes maturing in 2028 to be diluted.
Jim: Please note, for the third quarter of 2024, we expect both convertible notes maturing in December of this year and those maturing in 2028 to be diluted for reporting purposes and therefore we expect the fully diluted share count to be approximately 45.9 million shares.
Jim Leddy: For the fourth quarter and for the full year of 2024, we expect the remaining convertible notes maturing in 2028 to be diluted, and therefore we expect the fully diluted share count to be approximately 45.9 million shares for the fourth quarter and full year reporting period.
Jim: For the fourth quarter and for the full year of 2024, we expect the remaining convertible notes maturing in 2028 to be diluted and therefore we expect the fully diluted share count to be approximately 45 million shares for the fourth quarter and full year reporting periods.
James F. Leddy: And therefore, we expect the fully diluted share count to be approximately 45 million shares for the fourth quarter and full year reporting period. Thank you, and at this point, we'll open it up to questions. Operator.
Jim Leddy: Thank you, and at this point, we'll open it up to questions. Operator? Thank you.
Speaker Change: Thank you and at this point we'll open it up to questions. Operator?
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in question. You may press star, then 2 if you would like to remove your question from the line.
Operator: We will now be conducting their question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation turn will indicate your line is in the question queue. You may press star, then two, if you would like to remove your question from the queue. For participants using speak equipment, it may be necessary to pick up your hands before pressing the star keys.
Speaker Change: Thank you. We will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star, then 2 if you would like to remove your question from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. The first question we have is from Alex Slagle of Jefferies. Please go ahead.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Operator: One moment please, while we poke for questions.
Speaker Change: One moment please while we poll for questions.
Alex Lego: The first question we have is from Alex Lego of Jeffries. Please go ahead.
Speaker Change: The first question we have is from Alex Slagle of Jefferies. Please go ahead.
Alex Lego: Thanks.
Alexander Russell Slagle: Thanks. Good morning, you guys. I wanted to ask... Yeah, I just wanted to know about the case growth opportunity for the back half. And maybe if you could just talk to some of the drivers and pipeline visibility you have, that would give you confidence being able to continue driving the organic case growth like you have recently. I know consumer demand in the restaurant industry more broadly seems to have gotten a bit choppier.
Chris Pappas: Good morning, you guys. I want to ask one more on the case growth opportunity for the back half, and maybe if you could just talk to some of the drivers and pipeline visibility you have that can give you confidence. Thanks. Being able to continue driving the organic case growth, like you have recently, I know, consumed demand and restaurant industry more broadly. Things they've got a little bit choppy or so just want to get kind of your thoughts and things that give you confidence. And then the back half. Sure. Yeah. So Andy, I mean, again, I think that our clientele, you know, had a pretty strong second quarter.
Alexander Russell Slagle: Thanks. Good morning, you guys.
Alexander Russell Slagle: Yeah, I was just wondering on...
Alexander Russell Slagle: on the case growth opportunity for the back half and maybe if you could just talk to some of the drivers and pipeline visibility you have that kind of give you confidence being able to continue driving the organic case growth like you have recently.
Speaker Change: I know consumer demand in the restaurant industry more broadly seems to have gotten a little bit choppier, so I just wanted to get kind of your thoughts and things that give you confidence in the end of the back half.
Alexander Russell Slagle: So I just wanted to get kind of your thoughts and things to give you confidence going into the back half. Sure. Yeah, so Andy, I mean, again, I think that our clientele, you know, had a pretty strong second quarter.
Speaker Change: Sure.
Speaker Change: So, Andy, I mean, again, I think that our clientele
Speaker Change: You know, had a pretty strong second quarter, and I think when you look at last year,
Chris Pappas: And I think when you look at last year, as well, you know, as you came into the summertime, you know, it was a little choppy last year. I think what we're, you know, it's too early to see, but I think it's kind of a, you know, becoming more of a typical summer where, you know, a lot of a lot of people from the US travel. And last year, you know, we saw it like come roaring. We're entering back again in September. So, you know, forecasting. You know, we're looking at bookings. We're looking at hotel bookings.
Christopher Pappas: And I think when you look at last year as well, you know, as you came into the summertime, it was a little choppy last year. I think what we're, you know, it's too early to see, but I think it's kind of becoming more of a typical summer where, you know, a lot of people from the U.S. travel. And last year, you know, we saw it come roaring back again in September.
Speaker Change: as well, you know, as you came into the summertime.
Speaker Change: You know, it was a little choppy last year. I think what we're, you know, it's too early to see, but I think it's kind of a, you know, becoming more of a typical summer where, you know, a lot of people from the U.S. travel.
Speaker Change: And last year, you know, we saw it, like, come roaring back again.
Christopher Pappas: So, you know, forecasting, you know, we're looking at bookings, we're looking at hotel bookings, we're looking at conferences, we're looking at corporate events, we're looking at, you know, talking to our customers. You know, we see a pretty normal, you know, type of, you know, third, fourth quarter as last year, hopefully coming together. And you know, we've invested so much in what we call the hybrid sale. We put lots of teams out there, you know, we're cross-selling, we're putting more and more, you know, trained salespeople out in the street. We've added capacity in the warehouses.
Speaker Change: in September . So, you know, forecasting...
Chris Pappas: We're looking at conferences. We're looking at corporate events. We're looking at, you know, talking to our customers. You know, we see a pretty, you know, we see a pretty normal, you know, type of, you know, third quarter, as last year, you know, hopefully coming together. And, you know, we've invested so much in, you know, what we call the hybrid sale. We put lots of teams out there. You know, we're cross selling. We're putting more and more, you know, trained salespeople out in the street. We've added the capacity in the warehouse. So, I think it's what we're expecting.
Speaker Change: You know, we're looking at bookings, we're looking at hotel bookings, we're looking at conferences, we're looking at corporate events, we're looking at, you know, talking to our customers.
Speaker Change: You know, we see a pretty, you know, we see a pretty normal, you know, type of, you know, third, fourth quarter as last year, you know, hopefully.
Speaker Change: coming together. And, you know, we've invested so much in, you know, what we call the hybrid sale. We put lots of teams out there. You know, we're cross-selling. We're putting more and more, you know, trained salespeople.
Speaker Change: Out in the street, we've added...
Christopher Pappas: So I think it's what we're expecting, you know, we've invested in it. And, you know, obviously, it could be up or down a little bit, but, you know, we feel pretty good about where we've invested and boots on the ground and our product mix, which I think is the most unique in the industry. And we continue to see, you know, new opportunities. And I think that's where we're winning a lot.
Speaker Change: The capacity in the warehouse is so, I think it's what we're expecting, you know, we've invested in it and, you know, obviously it could be up or down a little bit, but, you know, we feel pretty good about, you know, where we've invested and boots on the ground and our product mix, which I think is the most unique.
Chris Pappas: You know, we've invested in it. And, you know, obviously, it could be up a down a little bit. But, you know, we feel pretty good about, you know, where we've invested and boots on the ground and our product mix, which I think is the most unique in the industry. And we continue to see, you know, new openings. And I think that's where we're winning a lot. You know, I always say restaurant tours, open restaurants. You know, people that, you know, are in the hotel business, want to build hotels. And I think what you're seeing more and more is, you know, I'm reading some of the reports where, you know, head counts down in restaurants, you know, two, three percent depending on your sector.
Speaker Change: in the industry. And we continue to see, you know, new openings. And I think that's where we're winning a lot. You know, I always say restauranteurs open restaurants, you know, people that are in the hotel business want to build hotels and
Christopher Pappas: You know, I always say restaurateurs open restaurants, you know, people that are in the hotel business want to build hotels. I think what you're seeing more and more is, you know, I'm reading some of the reports where, you know, head counts are down in restaurants, you know, 2%, 3%, depending on your sector. But we also have so many openings.
Speaker Change: I think...
Speaker Change: What you're seeing more and more is, you know, I'm reading some of the reports where, you know, head counts are down.
Speaker Change: In restaurants, you know, two, three percent, depending on your sector, but we also have so many openings. So I think where Chef is winning is we're winning in the openings, and that could be making up for any sort of headwinds in customer counts.
Chris Pappas: But we also have so many openings. So, I think where Chef is winning is we're winning in the openings. And that could be making up for any sort of headwinds in customer counts.
Christopher Pappas: So I think where Chef is winning is we're winning in the openings. And that could be making up for any sort of headwinds in customer counts. Yeah, Alex, I'll just say, I'll just add that, you know, we're reporting first half of the year new customer acquisition, close to 10%, just under 10%. Item placement growth, double digits, 11 to 12%.
Jim Leddy: Yeah, I'll just add that reporting first half of the year, new customer acquisition close to 10%, just under 10%, item placement growth, double digits, 11 to 12%, and that's been making up for a little bit of the moderation that Chris mentioned that you're seeing in terms of demand or volume, especially during the summer. And so, some of the investments that we've made in those areas and category growth in sales force and some of the tools we're giving them are paying off. Got it? And give a follow-up that if you could provide any color around potential cadence to the margin leverage we have in the back cap at the 3Q laps, there are some unique headwinds and timing dynamics that play as you roll off, like the increased growth from some of the new facilities, no.
James F. Leddy: And that's been making up for, you know, a little bit of the moderation that, you know, Chris mentioned that you're seeing in terms of, you know, demand or volume, and especially during the summer. And so some of the investments that we've made in those areas and category growth in Salesforce, in some of the tools that we're giving them are paying off. Got it. And Jim, a follow-up question: if you could provide any color around the potential cadence of the margin leverage we have in the back half. 3Q Lab
Speaker Change: Yeah, Alex, you know, I'll just add that, you know, we're reporting first half of the year.
Alexandros Aldous: You know, new customer acquisition, you know, close to 10%, just under 10%.
Alex: Item placement growth, double digits, 11 to 12 percent.
Alex: And that's been making up for, you know, a little bit of the moderation that, you know, Chris mentioned that you're seeing in terms of, you know, demand or volume and especially during the summer. And so some of the investments that we've made in those areas and category growth in Salesforce and some of the tools we're giving them are paying off.
Alex: Got it. And, Jim, a follow-up, if you could provide any color around potential cadence of the margin leverage we have in the back half. I know the 3Q laps, there are some unique headwinds.
James F. Leddy: Timing dynamics at play as you roll off the increased revenue from some of the new facilities now. Yeah, the guidance implies, obviously, in the first half of the year, organic growth was closer to 8%. But the full year guidance implies kind of 6% to 7% organic revenue growth. So we had already built in a deceleration, a moderate deceleration in the back half of the year in terms of organic revenue growth. But that's really driven by the comparisons because, if you remember last summer, we really had a margin issue driven by the protein markets. It wasn't a volume issue.
Speaker Change: Some timing dynamics at play as you roll off.
Jim Leddy: Yeah, the guidance implies obviously in the first half of the year organic growth was closer to 8%, but the full year guidance implies kind of 6% to 7% organic revenue growth. So we had already built in a deceleration, a moderate deceleration in the back cap of the year in terms of organic revenue growth, but that's really driven by the comparisons. Because if you remember last summer we really had a margin issue driven by the protein markets, it wasn't a volume issue, we had really good year-of-year volume and revenue growth, and so we're comping to a little bit of a tougher comp in the back cap of the year, but that's really just driven by last year's cadence versus this year.
Speaker Change: like they increased from some of the new facilities now.
Speaker Change: Yeah, the guidance, you know, the guidance implies obviously in the first half of the year organic growth was closer to 8%, but the full year guidance implies kind of 6-7% organic revenue growth.
Speaker Change: So, we had already built in a deceleration, a moderate deceleration in the back half of the year in terms of organic revenue growth, but that's really driven by the comparisons because...
Speaker Change: If you remember last summer, we really had a margin issue driven by the protein markets. It wasn't a volume issue. We had really good year-over-year volume and revenue growth. And so we're comping to a little bit of a tougher comp in the back half of the year.
James F. Leddy: We had really good year-over-year volume and revenue growth. And so we're comping to a little bit of a tougher comp in the back half of the year, but that's really just driven by last year's cadence versus efficiency. Okay, thanks for the help.
Speaker Change: That's really just driven by last year's cadence versus this year.
Jim Leddy: Okay, thanks for the help.
Speaker Change: Okay, thanks for the help.
Mark Carden: The next question we have is from Mark Corden of Ubase. Do you go ahead? Good morning, thanks so much for taking a question. So I want to dig in a bit more on sales. Tons of your customers are holding up pretty well overall. I know last quarter you talk about some pressure at some of your casual customers. Does it remain pretty constrained to this customer segment, or are you seeing it creep into a broader spot of your customers' restaurants? Yeah, I'm trying to recall really what you're referencing to, but again our customer base is extremely diverse.
Mark Carden: The next question we have is from Mark Carden of UBASE. Please go ahead. Morning. Thanks so much for taking the time to answer the question. So I wanted to dig in a bit more on sales. It sounds like your customers are holding up pretty well overall. I know last quarter you talked about some pressure at some of your casual customers. Does it remain pretty constrained to this customer segment, or are you seeing it creep into a broader swath of your customers' restaurants? Yeah, I'm trying to recall really what you're referencing.
Speaker Change: The next question we have is from Mark Carden of UBA. Please go ahead.
Christopher Pappas: But again, our customer base is extremely diverse. We purposely hire and train large teams to go after different types of businesses, caterers, upscale, fast, casual, hotels, cruise ships, all the way up to what I call super fine dining. So we purposely have that diverse clientele to kind of balance out any headwinds in certain sectors. And as you can see, the second quarter was pretty good.
Mark Carden: Good morning. Thanks so much for taking the question. So I wanted to dig in a bit more on sales. It sounds like your customers are holding up pretty well overall. I know last quarter you talked about some pressure at some of your casual customers. Does it remain pretty constrained to this customer segment, or are you seeing it creep into a broader swath of your customers' restaurants?
Speaker Change: Yeah, I'm trying to recall really what you're referencing to, but, you know, again, our customer base is...
Chris Pappas: We purposely hire trained large teams to go after different types of business caterers, upscale fast casual, hotels, cruise ships, all the way up to what I call super fine dining. We purposely have that diverse clientele to kind of balance out anything that any headwinds in certain sectors, and as you could see, the second quarter was pretty good. We felt our customer base did pretty well in an environment that we see a lot of the numbers coming out of QSR and some of the lower price restaurant groups. We think our customers are pretty savvy; they understand how to where they have to promote, give a little bit more value, and on the higher end I think it's bipricated.
Speaker Change: is extremely diverse, you know, we purposely, you know, hire, train, you know, large teams to go after different types of business, caterers, upscale, fast, casual, you know, hotels, cruise ships.
Speaker Change: all the way up to, you know, what I call super fine dining.
Speaker Change: So, you know, we purposely have that diverse...
Speaker Change: Plaintel to kind of balance out, you know, anything that, you know, any headwinds in certain...
Speaker Change: And as you can see, you know, the second quarter was pretty good. You know, we felt our customer base, you know, did pretty well, you know, in an environment that, you know, we see a lot of the numbers coming out of, you know, QSR.
Christopher Pappas: We felt that our customer base did pretty well in an environment where we see a lot of numbers coming out of QSR and some of the lower-priced restaurant groups. So we think our customers are pretty savvy. They understand where they have to promote, give a little bit more value. And on the higher end, I think that it's bifurcated.
Speaker Change: and some of the lower-priced restaurant groups.
Speaker Change: We think our customers are pretty, they're savvy, they understand how to, you know, where they have to promote.
Speaker Change: give a little bit more value.
Chris Pappas: You have certain sectors that slow down a little bit. You see a lot of the reports coming out of other distributors and the restaurant reports, and other parts of our clientele have accelerated. I think that balance attack is helping us put up pretty good numbers.
Christopher Pappas: You have certain sectors that have slowed down a little bit. You see a lot of the reports coming out of other distributors and restaurants. And other parts of our clientele have accelerated, so I think that the balance attack is helping us put up pretty good numbers. Good.
Speaker Change: So, I think that balance attack, you know, is helping us, you know, put up pretty good numbers.
Jim Leddy: Great. And then inflation appears to be pretty healthy. Any unusual dynamics caught on that front? And just how are you thinking about it now for the balance of the year? Not really anything to call out. I mean, you look at the first quarter and second quarter together, you know, roughly 3% type of average inflation. I would say there's a couple of categories on the specialty side that are, you know, driving probably the difference between kind of 2% and 3%. I mean, I think everybody's aware of, you know, what's happened with olive oil and some categories like chocolate, you know, driven by weather in different parts of the world.
James F. Leddy: And inflation appears to be pretty healthy. Any unusual dynamics call out on that front? And just how are you thinking about it now for the balance of the year? Not really anything to call out.
Speaker Change: Great. And then inflation appears to be pretty healthy. Any unusual dynamics to call out on that front? And just how are you thinking about it now for the balance of the year?
James F. Leddy: I mean, you look at the first quarter and second quarter together, you know, roughly 3% type of average inflation. I would say there's a couple of categories on the specialty side that are probably driving the difference between 2% and 3%. I mean, I think everybody's aware of what happened with olive oil and some categories like chocolate, driven by weather in different parts of the world.
Speaker Change: Not really anything to call out. I mean, you look at the first quarter and second quarter together, you know, roughly 3%.
Speaker Change: type of average inflation. I would say there's a couple of categories on the specialty side that are...
Speaker Change: You know, driving probably the difference between kind of 2% and 3%.
Jim Leddy: So, excluding those, you're kind of in that normal kind of 2% to 3% range. And we don't really expect anything materially different at this point going forward.
Speaker Change: You know, driven by weather in different parts of the world.
Speaker Change: So, excluding those, you're kind of in that normal kind of 2-3% range, and we don't really expect anything materially different at this point going forward.
Jim Leddy: Great. Thanks so much. Good luck, guys. Thanks. The next question we have is from Todd Brooks of the Beige More Company. Please go ahead. Hey, Todd. Hey, guys. Good morning. Congrats on the results in quarter. A couple of quick questions for you. If you look across your customer base, just wondering what you're seeing as far as geographic disparities in performance. If you look at the California market, I don't know if some of that angst that we're hearing about broadly in the category has crept into the fine dining end of the sector there. And then we also hear that Florida remains a challenged market.
Speaker Change: Great. Thanks so much, and good luck, guys. Thanks.
James F. Leddy: So excluding those, you're kind of in that normal kind of 2% to 3% range, and we don't really expect anything materially different at this point going forward. Thanks so much, and good luck, guys. Thanks. The next question we have is from Todd Brooks of the Benchmark Company. Please go ahead. Hey Todd. Hey guys. Good morning.
Speaker Change: The next question we have is from Todd Brooks of the Benchmark Company. Please go ahead.
Todd Morrison Brooks: Congratulations on the results. I have a couple quick questions for you. If you look across your customer base... Just wondering what you're seeing as far as geographic... Disparities in performance if you look at the California market. I don't know if some of that angst that we're hearing about broadly in the category has crept into the fine dining end of the sector there. And then we also hear that Florida remains a challenged market. So I was wondering if you looked across the base, maybe strong versus weaker markets. We haven't really seen a huge disparity across regions.
Todd Morrison Brooks: Hey, Todd. Hey, guys. Good morning. Congrats on the results in the quarter.
Todd Morrison Brooks: A couple quick questions for you. If you look across your customer base,
Todd Morrison Brooks: Just wondering what you're seeing as far as geographic disparities in performance. If you look at the California market...
Speaker Change: I don't know if some of that angst that we're hearing about broadly in the category has crept into the fine dining end of the sector there. And then we also hear that Florida remains a challenged market. So just wondering if you look across the base, maybe strong versus weaker markets and thoughts on that.
Todd Brooks: So, just wondering if you look across the base, maybe strong versus weaker markets and thoughts on that. We haven't really seen a huge disparity across regions.
Speaker Change: We haven't really seen a huge disparity across regions. I think, you know, we've mentioned, I think we mentioned on our first quarter call that.
Christopher Pappas: I think, you know, we've mentioned on our first quarter call that, you know, we saw some of the higher-end steakhouses down, you know, year over year from a traffic perspective where there's a bit of a trade-down where we're selling more high-end burgers versus, maybe, the prime steaks, but we're still making good margin on those. So we see different dynamics across, you know, our regions. You know, our international markets are doing really well, and there are a number of domestic markets that are showing strength. Some are showing a little bit more moderation.
Chris Pappas: I think, you know, we've mentioned, I think we mentioned on our first quarter call that, you know, we saw some of the higher-end steakhouses are down, you know, year-over-year from a traffic perspective where there's a bit of a trade-down where, you know, we're selling more high-end burgers versus the, maybe the prime steaks, but we're still making good margin on those. So, we see different dynamics across, you know, our regions. You know, our international markets are doing really well. And there's a number of domestic markets that are showing strengths; some are showing a little bit more moderation.
Speaker Change: You know, we saw some of the higher-end steakhouses are down, you know, year-over-year from a traffic perspective where there's a bit of a trade-down where, you know, we're selling more high-end burgers versus the, maybe the prime steaks, but we're still making good margin on those.
Speaker Change: We see different dynamics across
Speaker Change: you know, our regions, you know, our international markets.
Speaker Change: are doing really well and there's a number of domestic markets that are showing strength, some are showing a little bit more moderation. I don't think there's any specific markets that we would call out as being significantly different.
Chris Pappas: I don't think there's any specific markets that we would call out as being significantly different. So, I would just say that there's, you know, pockets of moderation across regions. Yeah, I mean, I'll add a little more color to that. I think that, you know, where there is a little bit of softness, I think, in everybody reporting in the Stamesource sales, I think we're seeing the same thing and, you know, we're adding so many customers in Southern California where we've, you know, added, you know, a state-of-the-art facility and more boots on the ground. And I think it's the same in Florida.
Christopher Pappas: I don't think there are any specific markets that we would call out as being significantly different. So I would just say that there are, you know, pockets of moderation across regions. Yeah. I mean, I'll add a little more color to that.
Speaker Change: So I would just say that there's, you know, pockets of moderation across regions. Yeah, I mean, I'll add a little more color to that. I think that...
Christopher Pappas: I think that... You know, where there is a little bit of softness, I think, in everybody reporting the same sort of sales, I think we're seeing the same thing, and, you know, we're adding so many customers in Southern California where we've, you know, added a state-of-the-art facility and more boots on the ground, and I think it's the same in Florida. You know, Florida had great numbers for You know, they continue to grow.
Speaker Change: You know where there is a little bit of softness I think in everybody reporting and in the same source sales
Speaker Change: I think we're saying the same thing,
Speaker Change: You know, a...
Speaker Change: State-of-the-art facility and wore boots on the ground and I think it's the same in Florida You know Florida, Florida had had great numbers for us
Chris Pappas: You know, Florida had great numbers for us. You know, they continue to grow. You know, we started up pretty small. You know, we just opened up our new facility. And I think any sort of softness in Stamesource sales, you know, we're optimistic that we're making it up because we are winning. And we're adding, you know, continuing to add, you know, customers. Daley, and I think it's because of our size, too. We're able to be small. I think to the major players that we're in Florida. And I think that the Chef go-to-market strategy, who we are, what we're selling, is making up for any of that softness.
Christopher Pappas: You know, we started off pretty small. We just opened up our new facility, and I think any sort of softness and same-store sales, we're optimistic that we're making it up because we are, you know, winning, and we're adding, you know, continuing to add, you know, customers daily.
Speaker Change: They continue to grow. We started off pretty small. We just opened up our new facility.
Speaker Change: And I think any sort of softness and same-store sales, you know, we're optimistic that we're making it up because we are, you know, we are winning, and we're adding, you know, continuing to add, you know, customers.
Christopher Pappas: And I think it's because of our size, too. You know, we're relatively small, I think, compared to the major players that we are in Florida. And I think that, you know, the Chef go-to-market strategy, who we are, what we're selling, is making up for any of that softness. And, you know, I think we've seen this in our past so many years in business. You know, it's really a pattern that, you know, we've done pretty well, even when there are some headwinds and some softness, you know, in the consumer. That's great.
Speaker Change: daily, and I think it's because of our size too. You know, we're relatively small, I think, to the major players that
Speaker Change: We're in Florida, and I think that, you know, the Chef go-to-market strategy, who we are, what we're selling, is making up for any of that softness. And, you know, I think we've seen this in our past so many years in business.
Chris Pappas: And I think we've seen this in our past so many years in business. Because it's really a pattern that we've done pretty well, even when there's some headwinds and some softness in the consumer.
Speaker Change: It's really a pattern that we've done pretty well, even when there's some headwinds and some softness in the consumer.
Jim Leddy: That's great. My second question, and Jimmy pointed to the international markets doing very well. Can you just remind us on the distribution facility expansion timing for CME, and maybe a sense of what the old facility could handle capacity-wise. And what it should be able to handle post the expansion being done. Thanks. Yeah, thanks for the question, Todd. Yeah, we're doubling the size of the facility. They were actually using a lot of kind of off-campus storage and freezer space, which was fairly expensive. And so we'll be, we'll finish that project probably at the end of the third quarter, early fourth quarter, and then do a kind of a phase move through the fourth quarter.
James F. Leddy: My second question, and Jim, you pointed to the international markets doing very well. Can you just remind us of the distribution facility expansion timing for CME and give me a sense of what the old facility could handle capacity-wise and what it should be able to handle post the expansion being done? Yeah, thanks for the question, Todd. Yeah, we're doubling the size of the facility. They were actually using a lot of kind of off-campus storage and freezer space, which was fairly expensive.
Speaker Change: That's great. My second question, and Jim, you pointed to the international markets doing very well. Can you just remind us on the distribution facility expansion timing for CME and
Speaker Change: Maybe a sense of what the old facility could handle capacity-wise and what it should be able to handle post the expansion being done. Thanks.
Speaker Change: Yeah, thanks for the question, Todd. Yeah, we're doubling the size of the facility. They were actually using a lot of kind of off-campus storage and freezer space.
James F. Leddy: And so we'll finish that project probably at the end of the third quarter, early fourth quarter, and then do kind of a phased move through the fourth quarter. So we'll see most of the growth and benefits really come in during 25 and into 26. But, yeah, we're going from about 100,000 square feet to 200,000 square feet with a lot of room for growth. And that market is growing. It's very dynamic.
Speaker Change: which was fairly expensive, and so...
Speaker Change: We'll finish that project probably at the end of the third quarter, early fourth quarter.
Jim Leddy: So we'll see most of the growth and benefits really coming into 25 and into 26. But yeah, we're going from about 100,000 square feet to 200,000 square feet, with a lot of room for growth. And that market is growing. It's very dynamic. So we're pretty excited about it.
Speaker Change: and then do a kind of a phased move through the fourth quarter. So we'll see most of the growth and benefits really coming into 25.
Speaker Change: and then to 26, but...
Speaker Change: Yeah, we're going from about 100,000 square feet to 200,000 square feet with a lot of room for growth and that market is growing, it's very dynamic. So we're pretty excited about it and even in their current space they've been doing really well as they continue to grow in that market.
James F. Leddy: So we're pretty excited about it. And even in their current space, they've been doing really well as they continue to grow in that market. OK, great.
Peter Saleh: And even in their current space, they've been doing really well as they continue to grow in that market. Okay, great. Thanks, guys. Thanks. The next question we have is from Peter Sade of BTIG. Please go ahead. Great. Thanks. Congrats on the quarter. I didn't want to ask. It sounds like you guys are continuing to win with new restaurant openings and new restaurant formation. I think you mentioned new customer acquisitions of about 10%. Is there any reason to believe that new restaurant formation will slow, or that this trend will slow at all over the coming years?
Todd Morrison Brooks: Thanks, guys. Thanks. The next question we have is from Peter Saleh of BTIG. Please go ahead.
Speaker Change: Okay, great. Thanks, guys.
Speaker Change: The next question we have is from Peter Saleh of BTIG. Please go ahead.
Peter Mokhlis Saleh: Great, thanks, and congrats on the quarter. I did want to ask, it sounds like you guys are continuing to win with new restaurant openings and new restaurant formations. I think you mentioned new customer acquisitions of about 10%. Is there any reason to believe that new restaurant formation will slow or that this trend will slow at all over the coming years? Is there anything that leads you to believe that this trend won't continue? Yeah, great question. You know, if I had the crystal ball, I'd feel a little bit better.
Peter Mokhlis Saleh: Great, thanks and congrats on the quarter. I did want to ask, it sounds like you guys are continuing to win with new restaurant openings and new restaurant formation. I think you mentioned new customer acquisitions of about 10%.
Speaker Change: Is there any reason to believe that...
Speaker Change: that new restaurant formation will slow or that this trend will slow at all over the coming years. Is there anything that leads you to believe that this trend won't continue?
Chris Pappas: Is there anything that leads you to believe that this trend won't continue? Great question. If I had the crystal ball, I feel I feel a little bit better. But again, I could just go about our history, and the world's changed since COVID. I think I remember even coming out of COVID, I said there's going to be an acceleration of openings because they were delayed during COVID. And you see a lot of change in cities. You see the real estate dynamics of trying to reinvent buildings that were offices and trying to change those neighborhoods into more where they can add housing.
Speaker Change: Yeah, great question.
Speaker Change: You know, if I had the crystal ball, I'd feel a little bit better, but, you know, again, I could just go back, our history, and, you know, the world's changed.
Christopher Pappas: But, you know, again, I could just go back to our history and, you know, the world's changed since COVID. I think I remember, you know, even coming out of COVID, I said there was going to be an acceleration of openings because they were delayed, right, during COVID. And, you know, you see the real estate dynamics of trying to reinvent buildings that were offices and, you know, trying to change those neighborhoods into more, you know, where they can add housing.
Speaker Change: Since COVID-19.
Speaker Change: I think I remember, you know, even coming out of COVID, I said there's going to be an acceleration of openings because they were delayed, right, during COVID.
Speaker Change: And, you know, you see a lot of change in cities. You know, you see the real estate dynamics of, you know, trying to reinvent buildings that were offices and, you know, trying to change those neighborhoods into more, you know, where they can add housing. You know, we see a change in the suburbs where people are working.
Chris Pappas: We see a change in the suburbs where people are working more from home a few days a week. So I think restaurant tours continue to follow the money. And they continue to open restaurants where the traffic patterns seem to be, especially real estate developers, a lot of them building restaurants to attract people to those areas. So I don't think I'm going to see much of a slow down. I think a lot of the restaurant world is trying to reinvent itself too in a change. There's more take out. There's more what we have seen as proliferation of different types of restaurants and different types of food away from home.
Christopher Pappas: You know, we see a change in the suburbs where people are working more from home, a few days a week. So I think restaurateurs, you know, continue to follow the money, and they continue to open restaurants where the traffic patterns seem to be, especially with real estate developers, a lot of them building restaurants to attract people to those areas, Peter. So I don't think I'm going to see much of a slowdown.
Speaker Change: more from home, you know, a few days a week. So, I think restauranteurs, you know, continue to follow the money.
Speaker Change: and they continue to open restaurants where the traffic patterns seem to be, especially with real estate developers, a lot of them building restaurants to attract people.
Speaker Change: to those areas, Peter. So I don't think I'm going to see much of a slowdown. I think a lot of the restaurant world is trying to reinvent itself, too, in a change. You know, there's more takeout.
Christopher Pappas: I think a lot of the restaurant world is trying to reinvent itself, too, in a change. There's more takeout, there's more, you know. What we have seen is a proliferation of different types of restaurants and different types of food away from home. You know, I continue to believe that people really are too busy to want to cook.
Peter: There's more, you know, what we have seen is a proliferation of different types of restaurants and different types of food away from home.
Chris Pappas: I mean, I continue to believe that people really are too busy to want to cook. Even when they go into the markets, they're buying a lot of prepared foods. And I think more and more of our great chefs, restaurateurs are getting more and more into that business. And I think that's making up for maybe where there's softness in the typical sit-down restaurants that people are used to. The other side of that business has accelerated, and it's better food that you could take out or get delivered, or it's food that you could sit down and eat, or you could take it home.
Speaker Change: You know, I mean, I continue to believe that people really are too busy to want to cook.
Christopher Pappas: You know, even when they're going to the markets, they're buying a lot of prepared foods, and I think more and more of our great chefs, restaurateurs, are getting more and more into that business, and I think that's, you know, making up for maybe where there's softness in the typical sit-down restaurants that people are used to. The other side of that business has accelerated, and it's, you know, better food that you can take out or get delivered, or it's food that, you know, you could sit down and eat, or you could take it home. So, you know, we're seeing a tremendous proliferation of new types of outlets for us to sell. Great
Speaker Change: You know, even when they're going to the markets, they're buying a lot of prepared foods, and I think more and more of our great chefs.
Speaker Change: Restauranteurs are getting more and more into that business and I think that's
Speaker Change: you know, making up for maybe where there's softness.
Speaker Change: in the typical sit-down restaurants that people are used to.
Speaker Change: The other side of that business has accelerated.
Speaker Change: And it's, you know, it's better food that you could take out or get delivered or...
Speaker Change: It's food that, you know, you could sit down and eat, or you could take it home. So, you know, we're seeing a tremendous proliferation of new types of outlets for us to sell.
Chris Pappas: So we're seeing a tremendous proliferation of new types of outlets for us to sell. Great. And then just on the investment in the sales team, you know, 10% annual sales growth or sales team growth for the past several years. You know, given your targets into 2028, are you anticipating to accelerate that or keep that kind of pace of investment in the sales team the same? Yeah, I mean, I think the pace is, you know, what we budgeted and forecasted to spend. You know, we're looking at the dynamics of our business. You know, there's been so much, so much talk about, you know, online will replace sales people, which we think online is making sale people more efficient and giving them more time to do what we really want them to do: be consultant.
Christopher Pappas: And then just on the investment in the sales team, you know, 10% annual sales growth or sales team growth over the past several years, you know, given your targets into 2028, are you anticipating to accelerate that or keep that kind of pace of investment in the sales team the same? Yeah, I mean, I think the pace is, you know, what we budgeted and forecasted to spend. You know, we're looking at the dynamics of our business.
Christopher Pappas: You know, there's been so much talk about how online will replace salespeople, but we think online is making salespeople more efficient and giving them more time to do what we really want them to do, which is be consultants. And I think I've been beating that drum for the last four or five years that the crystal ball says that online is going to get better and better. You know, younger people as they come into the industry are going to use a lot of those tools because they're so used to being on an app and researching.
Chris Pappas: And I think I've been beaten that drum for the last four or five years that, you know, the crystal ball says that, you know, online is going to get better and better. You know, younger people, as they come into the industry, are going to use a lot of those tools because they're so used to, you know, being on an app and researching. So, you know, we are investing in better information, more information online, being a partner to our customer, assisting them in menu development, assisting them in, you know, chef security, you know, they're constantly, you know, wanting to learn and constantly wanting to invent.
Christopher Pappas: So we are investing in better information, more information online, being a partner to our customers, assisting them in menu development, assisting them in, you know, Chefs are curious. You know, they're constantly wanting to learn and constantly wanting to invent. So we're trying to, you know, be that partner that's supplying that information. And again, we continue to add people because we see that, you know, for what we do, and it might not work for everybody's business.
Speaker Change: and researching, so we are investing in...
Speaker Change: in better information, more information online.
Speaker Change: being a partner to our customer, assisting them in menu development.
Speaker Change: assisting them and, you know, Chef Securius.
Chris Pappas: So, we're trying to, you know, be that, that partner that's supplying that information. And again, we continue to add people because we see that, you know, for what we do, and it might not work for everybody's business. They want to see somebody who, you know, is talking to them, and we have, you know, a tremendous amount of talent that, you know, man's the phone still. And obviously, we could chat if you want to be just online. So, we like to give our customers choices, and we think that, you know, we found a winning balance for now.
Christopher Pappas: They want to see somebody who, you know, is talking to them. And we have, you know, a tremendous amount of talent that still answers the phone. And obviously, we could chat if you want to be just online.
Speaker Change: Everybody's business. They want to see somebody who is talking to them, and we have a tremendous amount of talent that mans the phone still.
Christopher Pappas: So we like to give our customers choices. And we think that, you know, we've found a winning balance for now, which can always change, that really works for our customers, and it's driving, you know, more volume to all our Chef customers, all our Chef opcos. Thank you very much. The next question we have is from Kaylee Bania of BMO Capital Markets. Please go ahead. Hi, good morning. Ben Wood on for Kelly.
Chris Pappas: It can always change that really works for our customers, and it's driving, you know, more volume to, to all our chef customers, all our chef obstacles.
Speaker Change: that really works for our customers and it's driving, you know, more volume to all our chef customers, all our chef opcos.
Ben Wood: Thank you very much. The next question we have is from California of BMO Capital Markets. Please go ahead. Hi, good morning. This is Ben Wood on for Kelly. Thank you for taking our questions. So, first we just wanted to dig in a little bit more on the unique customer growth and the placement growth. And are there specific regions or markets that are driving that? Or is that fairly consistent throughout your markets?
Speaker Change: The next question we have is from Kayleigh Bania of BMO Capital Markets. Please go ahead.
Speaker Change: Hi, good morning. This is Ben Wood on for Kelly. Thank you for taking our questions.
Kelly Ann Bania: So first, we just wanted to dig in a little bit more on unique customer growth and the placement growth. Are there... How they are tracking against your activity. Yeah, thanks for the question, Ben. Yeah, we always have, you know, like Chris mentioned in his prepared remarks, we always have in our portfolio, you know, a mix of more mature markets, you know, like the Northeast and, you know, other areas that, you know, we've been operating for 40 years, and then our newer higher growth investment markets that we've talked about, you know, as we're coming out of our heavy investment cycle, like Florida and Southern California, Dubai, Seattle, some of our smaller markets like Nashville and Michigan, and that are, you know, we've making investments in and we have higher growth.
Benjamin David Klieve: Are there specific regions or markets that are driving that, or is that fairly consistent throughout your markets? I'm just hoping you can help us frame how maybe high-growth markets are comparing to your mature markets, and if those high-growth areas you're investing in.
Jim Leddy: Just hoping you can help us frame how maybe high growth markets are comparing to your mature markets and if those high growth areas you're investing in, how they are tracking against your expectations. Yeah, thanks for the question, Ben. Yeah, we always have, you know, like Chris mentioned in his prepared remarks. We always have in our portfolio, you know, a mix of more mature markets, you know, like the Northeast and, you know, other areas that, you know, we've been operating for 40 years. And then our newer higher growth investment markets that we've talked about, you know, as we're coming out of our heavy investments cycle, like Florida and Southern California, Dubai, Seattle.
Speaker Change: How they are tracking against your expectations.
Chris: Oh yeah, thanks for the question, Ben. Yeah, we always have, you know, like Chris mentioned in his prepared remarks, we always have in our portfolio, you know, a mix of more mature markets,
Chris: You know, like the Northeast and, you know, other areas that, you know, we've been operating for 40 years.
Speaker Change: You know, as we're coming out of our heavy investment cycle, like Florida and Southern California, Dubai...
Jim Leddy: Some of our smaller markets like Nashville and Michigan and that are, you know, we've making investments in and, and we have higher growth. Also, yeah, I mean, it's like any portfolio of businesses where your high growth markets are going to contribute more to, you know, unique customer acquisition; your mature markets. You're growing more through category expansion and growing more relevance with your customers through item penetration, selling more items, as well as, you know, growing in the outlying markets. You know, call it the higher income suburbs around the major cities. And that's how you grow in your mature markets.
Speaker Change: Seattle.
Speaker Change: some of our smaller markets like Nashville and Michigan.
Kelly Ann Bania: So yeah, I mean, it's like any portfolio of businesses where your high growth markets are going to contribute more to, you know, unique customer acquisition; your mature markets, you're growing more through category expansion and growing more relevance with your customers through item penetration, selling more items, as well as, you know, growing in the outlying markets, you know, call it the higher-income suburbs around the major cities, and that's how you grow in your So, you know, we have 54 locations in 32 or 33 operating markets now.
Speaker Change: Your high growth markets are going to contribute more to unique customer acquisition, your mature markets, your growing markets.
Speaker Change: more through category expansion and growing more relevance with your customers through item penetration, selling more items.
Jim Leddy: So, you know, we have 54 locations in 32 or 33 operating markets now. So, there's always a, there's always a good balance between your more mature markets and then your high growth markets. And I think, you know, we expect that the big investments that we've made in capacity and infrastructure and sales force that we talked about are going to drive, you know, a lot of our growth going forward.
Speaker Change: Operating markets now so there's always a there's always a good balance between your more mature markets and then your high growth markets and and I think you know we expect that the big investments that we've made in capacity
Speaker Change: and infrastructure and sales force that we talked about are going to drive, you know, a lot of our growth going forward.
Jim Leddy: Okay, that's helpful. And then just to follow up on maybe some of the new restaurant openings you're seeing for your core end customers, do you guys have an estimate on the pace that you're currently seeing in new restaurant openings and how does that compare to maybe the current levels? It sounds like Chris has mentioned that it was faster than normal, potentially, but just wanted to make sure I understood that correctly. Yeah, again, I think, you know, our numbers, you know, we're growing in new markets, so, you know, for us, it's new accounts, right? So I don't think our system's differentiate between a new customer and a new opening.
Speaker Change: Okay, that's helpful. And then just a follow-up on maybe some of the new restaurant openings you're seeing for your core end customers.
James F. Leddy: So there's always a good balance between your more mature markets and then your high-growth markets. And I think, you know, we expect that the big investments that we've made in capacity, in infrastructure, in Salesforce that we talked about are going to drive, you know, a lot of our growth going forward. Okay, that's helpful, and then just a follow-up on some of the new restaurants opening for your core end customers.
James F. Leddy: Do you guys have an estimate on the pace that you're currently seeing in the new restaurant? How does that compare to maybe the current levels? It sounds like Chris, faster than normal, potentially, but just wanted to make sure I understood that.
Speaker Change: mentioned that it was...
Speaker Change: faster than normal, potentially, but just wanted to make sure I understood that correctly.
Christopher Pappas: Yeah, I think again. You know, our numbers, you know, we're growing in new markets, so, you know, for us, it's new accounts, right? So, I don't think our systems differentiate between a new customer and a new opening. So, I think the numbers are a little fuzzy there. So, you know, I think Jim said before that we had a 10% increase in the customer base overall. So, you know, part of that is brand new openings, and part of that is a lot of new customers for Chef.
Speaker Change: Yeah, again, I think...
Speaker Change: We know...
Speaker Change: You know, our numbers, you know, we're growing in new markets, so, you know, for us, it's new accounts, right? So, you know, we're growing in new markets.
Speaker Change: I don't think our systems differentiate between...
Chris Pappas: So I think the numbers are a little fuzzy there. So, you know, I think Jim said before, you know, we had a 10% increase in customer base overall. So, you know, part of that are brand new openings, and part of those are a lot of new customers for Chef. But, you know, what I could tell you in Canada, we've seen is a lot of development. You know, when I look at Florida, you know, we see tremendous development in new neighborhoods, new buildings, and they're all adding restaurants, you know, in restaurants. I think our, you know, how developers use as a reason for someone to come look at their buildings.
Speaker Change: a new customer and a new opening. So, I think the numbers are a little fuzzy there. So, you know, I think Jim said before, you know, we had 10% increase in customer base.
Jim: Overall, so, you know, part of that are brand new openings and part of those are a lot of new customers.
Christopher Pappas: But, you know, what I could tell you anecdotally is a lot of development. You know, when I look at Florida, we see tremendous development in new neighborhoods, new buildings, and they're all adding restaurants. You know, and restaurants, I think, are what developers use as a reason for someone to come look at their building.
Speaker Change: for Chef, but you know what...
Speaker Change: And they're all adding restaurants, you know, and restaurants, I think, are, you know, how developers use...
Christopher Pappas: So, I just continue to see, especially in the American market, Dubai, we have tremendous amounts of openings constantly. But in the U.S. market, you kind of see a constant shift of where people are choosing to live. You know, I still don't think we're at what anyone would call normal, right? I don't know what normal is anymore.
Chris Pappas: So I just continue to see as, you know, especially in the American market, you know, Dubai. We have tremendous amounts of openings constantly. But in the, in the US market, you know, you kind of see still a shifting of where people are choosing to live. You know, I still don't think we're, you know, at the, what anyone would call normal, right? I don't know what normal is anymore. You know, people are working hybrid. Are they all going to come back to the office five days a week? So I think restaurant tours and developers are kind of following, you know, where people are migrating to, you know, to live, and they're building restaurants and they're building apartments and they're building homes.
Speaker Change: But in the U.S. market, you know, you kind of see still a shifting of...
Speaker Change: of where people are choosing to live. You know, I still don't think we're, you know, at the, what anyone would call normal, right? I don't know what normal is anymore. You know, people are working hybrid. Are they all going to come back to the office five days a week?
Christopher Pappas: You know, people are working a hybrid. Are they all going to come back to the office five days a week? So, I think restaurateurs and developers are kind of following where people are migrating to, you know, to live. And they're building restaurants, and they're building apartments, and they're building homes. And I don't see that slowing down. I mean, anything could happen, but I think it's at a pretty healthy pace. Great, thank you very much.
Speaker Change: So, I think restauranteurs and developers are kind of following, you know, following the, where people are migrating to, you know, to live and they're building restaurants and they're building apartments and they're building homes.
Chris Pappas: And I don't, I don't see that slowing down.
Ben Wood: I mean, anything could happen, but I think it's got a pretty healthy pace. Great.
Speaker Change: And I don't see that slowing down. I mean, anything could happen, but I think it's at a pretty healthy pace.
Ben Wood: Thank you very much.
Ben Wood: Thanks, Ben.
Kelly Ann Bania: Thanks, Ben. The next question we have is from Andrew Wolf of Seal King. Please go ahead. All right, good morning.
Speaker Change: Great. Thank you very much. Thanks, Ben.
Andrew Wolf: The next question we have is from Andrew Wolf of Feelking. Please go ahead. Hi, good morning. Thank you. I want to tell you about margins. First, the gross margin at specialty, you know, expanded nice. I think you said 50 bailiffs. And I think it was kind of flatish last quarter.
Speaker Change: The next question we have is from Andrew Wolf of Seal King. Please go ahead.
Andrew Paul Wolf: I wanted to ask you about... Margins. First, the gross margin at specialty, you know, expanded... Um, could you just give us a sense of, uh... What was accounted for the nice increase in the margin? Is it sort of for buying inflation back, or is it a mix, or German, or just kind of randomness?
Andrew Paul Wolf: Hi, good morning, thank you.
Speaker Change: Margins. First, the gross margin at specialty, you know, expanded nicely. I think you said 50-fifths.
Jim Leddy: Could you just give us a sense of, you know, what it counted for the, an ice increase in the margin and is it sort of for buying inflation back or mix or German or just and a random. and the inventory management, and sort of a feeling for sustainability. Yeah, thanks for the question, Andy. You know, I think it just goes back to kind of the improvement we started to drive coming out of the summer last year into September and the fourth quarter, but it's also the fruition of a lot of work that our pricing and procurement teams and our sales management teams have been doing around margin management.
Andrew Paul Wolf: and I think it was kind of flattish last quarter. Could you just give us a sense of...
Speaker Change: So what accounted for the nice increase in the margin and is it sort of for buying inflation back?
Speaker Change: Next, sir.
Speaker Change: chairman or just kind of randomness and you know the inventory management this and you know sort of a feeling for sustainability.
James F. Leddy: Inventory management and, you know, sort of a feeling for sustainability. Yeah, thanks for the question, Andy. You know, I think it just goes back to kind of the improvement we started to drive coming out of the summer last year into, you know, September in the fourth quarter. But it's also the fruition of a lot of work that our pricing and procurement teams and our sales management teams have been doing around margin management. You know, we've invested in a lot of tools, a lot of technology, and a lot of focus on, you know, margins after we experienced some of that volatility last year. And that's just continued.
Speaker Change: Yeah, thanks for the question, Andy. You know, I think it just goes back to kind of the improvement we started to drive coming out of the...
Speaker Change: the summer last year into, you know, September in the fourth quarter.
Speaker Change: But it's also the fruition of a lot of work that our pricing and procurement teams
Speaker Change: and our sales management teams have been doing around...
Jim Leddy: You know, we've invested in a lot of tools, a lot of technology, and a lot of focus on margins after we experienced some of that volatility last year. And that's just continued. And so it's everything from reducing, you know, errors in inventory management, you know, that lead to waste, that impact your margins. It's everything from, you know, further integration of our acquisitions and driving the cross-cell. You know, Texas is a good example as we further integrated our sales teams and our inventory with our CW specialty business and parties, the produce business. We've been able to improve overall margins there as we're selling more expensive specialty boxes on their trucks as we're growing relevance with our customers by having the produce category.
Speaker Change: Margin Management. You know, we've invested in a lot of tools.
Speaker Change: A lot of technology and a lot of focus on margins after we experienced some of that volatility last year. And that's just continued.
James F. Leddy: And so it's everything from reducing, you know, errors in inventory management that lead to waste that impacts your margins. It's everything from, you know, further integration of our acquisitions and driving cross-sell. You know, Texas is a good example as we've further integrated our sales teams and our inventory with our CW specialty business and Hardee's, the produce business. We've been able to improve overall margins there as we're selling more expensive specialty boxes on their trucks, as we grow relevance with our customers by having the produce category.
Speaker Change: And so, it's everything from reducing, you know, errors in inventory management, you know, that lead to waste that impact your margins.
Speaker Change: It's everything from, you know, further integration of our acquisitions and driving the cross-sell. You know, Texas is a good example. As we've further integrated our sales teams and our inventory with our CW specialty business.
Speaker Change: and Hardee's, the produce business. We've been able to improve overall margins there as we're selling more.
Speaker Change: more expensive specialty boxes on their trucks.
Jim Leddy: And then obviously, it's not specialty related, but we, you know, we invested and built an Allen Brothers processing plant in Texas. And we're selling more expensive protein boxes on those trucks through our processing facility there.
Speaker Change: . . . as we're growing relevance with our customers by having the produce category and then obviously it's not specialty related but . . .
James F. Leddy: And then, obviously, it's not specialty related, but we invested in and built an Allen Brothers processing plant in Texas, and we're selling more expensive protein boxes on those trucks through our processing facility there. So it's really a combination of things and a lot of really good work by a lot of our teams coming together. And we're just seeing that continue. Okay, thanks. That's helpful.
Speaker Change: We invested and built an Allen Brothers processing plant in Texas, and we're selling more expensive protein boxes on those trucks.
Jim Leddy: So it's really a combination of things and a lot of really good work by a lot of our teams coming together, and we're just seeing that continue. Okay, thanks. That's helpful.
Speaker Change: through our processing facility there. So it's really a combination of things and a lot of really good work by a lot of our teams coming together and we're just seeing that continue.
Andrew Paul Wolf: Same question, but looking at the kind of adjusted expense ratio, you know, it did expand by a little less than last quarter. And obviously, with all the new facilities, there's a lot of unabsorbed overhead, maybe some of the variable costs are obviously maybe not optimized. But I'm wondering, What is the outlook there? I mean, are you going to have slow progress?
Jim Leddy: Same question, but looking at the kind of adjusted expense ratio, you know, it did expand again, but by a little less than last quarter. And obviously, with all the new facilities, is a lot of over, you know, an absorbed overhead, and maybe even some of the variable costs are obviously maybe not optimized yet. But, you know, what is the outlook there? I mean, are you going to have slow progress? Is that sort of just a slow and steady at the center still up? Or are there other parts of the business where maybe labor inflation or other issues are still kind of impacting overall expense leverage?
Speaker Change: Thanks, that's helpful. Same question, but looking at the adjusted expense ratio, it did expand again, but by a little less than last quarter.
Speaker Change: And obviously, with all the new facilities, there's a lot of over, you know, unabsorbed overhead and maybe even some of the variable costs are obviously maybe not optimized yet. But...
Speaker Change: You know, what is the outlook there? I mean, are you going to have slow progress? Is that sort of just a slow and steady as the centers fill up, or are there other parts of the business where maybe labor inflation or other issues are still kind of impacting overall, you know, expense leverage?
Jim Leddy: No, we talked about it. You know, earlier when we when we gave the guidance, Andy, if you recall, the operating leverage is, you know, weighted to the back half of the year, mainly the fourth quarter. So we got a modicum this this quarter. We expect, you know, a little bit more in Q three, but in Q four is where we expect because we'll fully lap some of the big facility and the expenses, the operating expenses that are associated with those big facility investments really in the back half of the year and then into 25. So, you know, similar to our, our Cap X is more heavily weighted to the, you know, the first half of the year because we're finishing those projects.
James F. Leddy: Maybe labor inflation or other issues are still impacting overall. No, we talked about it, you know, earlier, when we gave the guidance. Andy, if you recall, the operating leverage is, you know, weighted to the back half of the year, mainly the fourth quarter. So we got a modicum this quarter; we expect, you know, a little bit more in Q3, but in Q4 is where we expect because we'll fully lap some of the big facility and the expenses, the operating expenses that are associated with those big facility investments, really in the back half of the year and then into 25.
Speaker Change: No, we talked about it, you know, earlier when we gave the guidance, Andy, if you recall, the operating leverage is, you know, weighted to the back half of the year, mainly the fourth quarter.
Speaker Change: So, we got a modicum this quarter. We expect, you know, a little bit more in Q3, but in Q4 is where we expect because we'll fully lap.
Speaker Change: Some of the big facility and the expenses, the operating expenses that are associated with those big facility investments really in the back half of the year and then into 2025. So, you know, similar to our CapEx is more heavily weighted to the...
James F. Leddy: So, you know, similar to our CAPEX is more heavily weighted to the first half of the year because we're finishing those projects, our operating leverage related to the expenses is weighted towards the back half of the year. And the guidance implies that it's really nothing more than that. Obviously, in the fourth quarter, we normally get the most operating leverage just driven by, you know, the top line power of the fourth quarter versus really the rest of the year. Okay, I've got it. Thank you. That's it for me.
Jim Leddy: Our operating leverage related to the expenses is weighted towards the back half of the year, and the guidance implies that it's really nothing more than that. Obviously, in the fourth quarter, we normally get the most operating leverage just driven by, you know, the top line power of the fourth quarter versus really the rest of the year. here. Okay. Got it. Thank you.
Speaker Change: The first half of the year, because we're finishing those projects, our operating leverage related to the expenses is weighted towards the back half of the year, and the guidance implies that. It's really nothing more than that. Obviously, in the fourth quarter, we normally get the most operating leverage.
Speaker Change: driven by, you know, the top-line power of the fourth quarter versus really the rest of the year.
Jim Leddy: It's here for me.
Speaker Change: Okay, I've got it. Thank you. That's it for me.
Ben Klieve: Thanks, Andy. The next question we have is from Ben Klieve of Lake Street Capital Market. Please go ahead. All right. Thank you for taking my questions. I grabbed on a nice quarter here. Jim, I had a follow-up question for you. You noted that you are seeing some customers eating nice burgers instead of nice steaks. And I'm wondering if you can comment a bit on the impact of the beef complex on your business. Specifically, has the persistent increase in beef prices really flowed through your financials as you would expect. And then also looking forward as the price of beef versus other proteins really just continues to widen.
Andy: Thanks, Andy.
Andrew Paul Wolf: Thanks, Andrew. The next question we have is from Ben Klieve of Lake Street Capital Market. Please go ahead. All right, thanks for taking my questions and congratulations on a nice quarter here. Jim, I had a follow-up question for you.
Speaker Change: The next question we have is from Ben Klieve of Lake Street Capital Market. Please go ahead.
Benjamin David Klieve: All right, thank you for taking my questions, and congrats on a nice quarter here. Jim, I had a follow-up question for you. You noted that you are seeing some customers eating nice burgers instead of nice steaks, and I'm wondering if you can comment a bit on kind of the impact of the beef complex on your business.
Benjamin David Klieve: You noted that you are seeing some customers eating nice burgers instead of nice steaks, and I'm wondering if you can comment a bit on the impact of the beef complex on your business. [inaudible] Well, I think the first thing I would add is that beef prices, in general, haven't gone up as much as everybody expected. And actually, while the year-over-year price inflation we reported was about 4%, it was flat versus the first quarter, sequentially, and fairly flat versus the back half of last year.
Speaker Change: Specifically, has the persistent increase in beef prices really flowed through your financials as you would expect?
Speaker Change: And then also looking forward, as the price of beef versus other proteins really just continues to widen, is there anything to call out on a forward-looking outlook specifically related to beef?
Jim Leddy: Is there anything to call out on a forward looking out what's specifically related to beef? Well, I mean, I think the first thing I would add is that beef prices, in general, have been gone up as much as everybody expected. And actually, while the year-over-year price inflation we reported was about 4%. Really, it was flat versus the first quarter sequentially. And fairly flat versus the back half of last year. So actually, a lot of the middle meats and the middle cuts are actually, you know, prices have been moderating. And even in the last couple of months, even the higher end has moderated a little bit.
James F. Leddy: And actually, a lot of the middle cuts are actually, prices have been moderating. And even in the last couple of months, even the higher end has moderated a little bit. So the year-over-year is a little misleading versus what's happening in the market right now. You're not seeing incredible spikes, and I think a lot of that is driven by the fact that retail demand is lower, and that really drives prices. Yeah, and I think they add a little bit more color to our customers substituting eating a hamburger versus steak. Again, I mean, steakhouses are a small part of our total business, so steakhouses are a little bit more unique. White customers go to a steakhouse.
Jim: Well, I mean, I think the first thing I would I would add is that beef prices in general haven't gone up.
Jim: As much as everybody expected, and actually, you know, while the year-over-year price inflation we reported was about 4 percent,
Jim: Really, it was flat versus the first quarter, sequentially.
Jim: And fairly flat, you know, versus the back half of last year. So, actually, a lot of the middle meets and the middle cuts are actually, you know, prices have been moderating.
Jim: and even in the last couple of months.
Jim Leddy: So, you know, the year-over-year is a little misleading versus what's happening in the market right now. You're not seeing incredible spikes. And I think a lot of that is driven by the fact that retail demand is lower, and that really drives the price of beef. Yeah. And I think they add a little bit more color to our customers, substituting, you know, even a hamburger versus steak. Again, I mean, steak houses are a small part of our total business. So, you know, steak houses are a little bit more unique. You know, of white customers go to a steak house.
Jim: Even the higher end has moderated a little bit. So, you know, the year-over-year is a little misleading versus what's happening in the market right now. You're not seeing incredible spikes. And I think a lot of that is driven by the fact that retail...
Speaker Change: Yeah, and I think they add a little bit more color to...
Speaker Change: You know, are customers substituting, you know, eating a hamburger versus a steak? Again, I mean, steakhouses are a small part of our total business. So, you know, steakhouses are a little bit more unique, you know, of white customers go to a steakhouse.
Jim Leddy: But, you know, we sell so much, so much protein, so much beef to our thousands and thousands of other customers. And again, they're creative. You know, that's why we have these state-of-the-art cut shops and all the talent that we have to create, you know, whether it's going from a 14 ounce to a 12 ounce type of steak, you know, different types of cuts, how they mix and match their menus, you know. So, it can give maybe a little bit of value entry point to, you know, types of different types of customers. So, we still see a very healthy demand for, you know, our prime steaks, our Wagyu steaks, our Japanese steaks.
Christopher Pappas: But, you know, we sell so much protein, so much beef to our thousands and thousands of other customers. And again, they're creative. You know, that's why we have these state-of-the-art cut shops and all the talent that we have to create, you know, whether it's going from a 14-ounce to a 12-ounce type of steak, you know, different types of cuts, how they mix and match their menus. You know, so it can give maybe a little better value entry point to, you know, different types of customers.
Speaker Change: And, again, they're creative, you know, that's why we have these state-of-the-art cut shops and all the talent that we have to create, you know, whether it's going from a 14-ounce to a 12-ounce.
Speaker Change: how they mix and match their menus.
Speaker Change: You know, so it can give maybe a little better value.
Christopher Pappas: So we still see a very healthy demand for, you know, our prime steaks, our Wagyu steaks, our Japanese steaks. So, you know, the demand is still strong. But is it as strong as it was coming out of COVID?
Speaker Change: Our prime steaks, our Wagyu steaks, our...
Jim Leddy: So, you know, the demand is still strong. Is it as strong as it was coming out of COVID? We didn't expect it to be. You know, we think that was a once-in-a-lifetime kind of like, you know, big rush everybody going out and enjoying life again. So, I think we're going back to, you know, more normalcy. And, you know, I've seen these cycles before and that's why, you know, we have, you know, five, six different types of premium choices for customers and say in our custom grinding operations. And we're also cutting, you know, all different types and maybe smaller size portions for customers who, you know, want to keep the quality and maybe lower their price a few bucks per steak by, you know, offering, you know, you see it on a lot of the menu, a petite filet.
Speaker Change: are Japanese steaks. So, you know, the demand is still strong. Is it as strong as it was coming out of COVID? We didn't expect it to be. You know, we think that was a once-in-a-lifetime kind of like...
Christopher Pappas: We didn't expect it to be. You know, we think that was a once-in-a-lifetime kind of, you know, big rush, everybody going out and enjoying life again. So I think we're going back to, you know, more normalcy. And, you know, I've seen these cycles before, and that's why, you know, we have, you know, five, six different types of premium choices for customers and, say, in our custom grinding operations. And we're also cutting, you know, all different types and maybe smaller sized portions for customers who, you know, want to keep the quality and maybe lower their price a few bucks per steak by, you know, offering, you see it on a lot of the menus, a petite filet or, you know, we sell a tremendous amount of obviously skirt steaks and different cuts that fit people's menus.
Speaker Change: You know, big rush, everybody going out and enjoying life again, so I think we're going back to, you know, more normalcy.
Speaker Change: And, you know, I've seen these cycles before and that's why, you know, we have, you know, five, six different types of premium choices for customers and say in our custom grinding.
Speaker Change: Operations, and we're also cutting, you know, all different types and maybe smaller-sized portions.
Speaker Change: for customers who want to keep the quality and maybe lower their price a few bucks per steak by offering, you know, you see it on a lot of the menu, a petite filet.
Jim Leddy: Or, you know, we sell a tremendous amount of obviously skirt steaks and different cuts that fit people's menus. So, again, our customer base, which is mainly the independence, are extremely creative. And I think they're going to continue to find ways to get customers in the door and stay profitable and meet a price point that, you know, the customer base at the date and time, you know, with all the media on saying things are changing or, you know, the economy slowing, you know, has a kind of effect. But overall, our customer base, you know, is really more higher end, and I think it affects them less.
Christopher Pappas: So, again, our customer base, which is mainly independents, is extremely creative, and I think they're going to continue to find ways to get customers in the door and stay profitable and meet a price point that, you know, the customer base at the date and time, you know, with all the media saying things are changing or, you know, the economy's slowing, you know, has a kind of effect. But overall, our customer base, you know, is really higher end, and I think it affects them less. I got it. I got it. Very helpful from both of you. Thanks for the color there.
Speaker Change: And stay profitable and meet a price point that, you know, the customer base, the date and time, you know, I think with the...
Ben Klieve: Got it. Very helpful for both of you. Thanks for the color there. Thanks for taking my question. Look at the back of the queue. Thanks, Ben. Thank you. At the time, the honor for the Christians.
Benjamin David Klieve: Thanks for taking my questions. I'll get back to you. Thanks, Ben. Thank you. At this time, there are no further questions, and I would like to hand the call back over to Chris Pappas for any closing remarks. Well, we hope everybody is having a great summer, and we thank everybody for joining us on our call, and we look forward to everybody joining us on our next quarter. Thank you very much.
Speaker Change: Got it. Got it. Very helpful from both of you. Thanks for the color there. Thanks for taking my questions. I'll get back in queue.
Chris Pappas: And I would like to hand the call back over to Chris Pappas for any closing comments. Sure. Well, we hope everybody is having a great summer. And we thank everybody for joining us on our call. And we look forward for everyone joining on our next quarter. Thank you very much. Thank you.
Speaker Change: Thank you.
Operator: Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines. Thank you very much.
Christopher Pappas: Ladies and gentlemen, that concludes today's conference. Thank you for joining us; you may now disconnect your line. BF-WATCH TV 2021, As a reminder, 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.
Speaker Change: Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Speaker Change: ?? ?? ?? ??
Speaker Change: Subs by www.zeoranger.co.uk Subs by www.zeoranger.co.uk
Speaker Change: Subs by www.zeoranger.co.uk
Operator: Greetings, and welcome to the Chefs' Warehouse 2nd quarter 2024 earnings conference call. As a reminder, this conference is being recorded.
Thank you, operator. Good morning, 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 second quarter 2024 earnings press release. It can also be found at www.chefswarehouse.com under the investor relations section. Throughout 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 in similarly titled non-GAAP financial measures used by other companies.
Speaker Change: Greetings and welcome to the Chefs' Warehouse 2nd Quarter 2024 Earnings Conference Call.
Alex Aldous: I would now like to turn the conference over to your host, Alex Aldous. General Counsel, Corporate Secretary, and Chief Government Relations Officer.
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 them on due reliance. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: 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.
Alex Aldous: Please come ahead, Sir.
Alex Aldous: Thank you, operator.
Some of these risks are mentioned in today's release. Others 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 second quarter results in detail, then we will open up the call for questions. With that, I will turn the call over to Chris Pappas.
Alex Aldous: Good morning, 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 2nd quarter 2024 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial measures, including, among others, historical and estimated, EBIT-Dined, adjusted, EBIT-Daw, 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.
Alexandros Aldous: Thank you, operator. Good morning, 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 second quarter 2024 earnings press release. It can also be found at www.chefswarehouse.com under the investor relations section.
Speaker Change: Throughout 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.
Speaker Change: These measurements are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies.
Alex Aldous: Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release.
Speaker Change: Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release.
Alex Aldous: 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 them. 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. Others are discussing your annual report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website.
Speaker Change: Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements.
Speaker Change: including statements regarding our estimated financial performance.
Speaker Change: Such forward-looking statements are not guarantees of future performance.
Speaker Change: and therefore you should not put undue reliance on them.
Speaker Change: These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
Speaker Change: Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q , which are available on the SEC website.
Alex Aldous: Today we are going to provide a business update and go over our 2nd quarter results in detail. Then we will open up the call for questions.
Speaker Change: Today, we are going to provide a business update and go over our second quarter results in detail. Then, we will open up the call for questions.
Chris Pappas: With that, I will turn the call over to Chris Papis.
Chris Pappas: Chris? Thank you, Alex, and thank you all for joining our 2nd quarter of 2024 earnings call. 2nd quarter customer demand and pricing display typical seasonality as revenue profitability continued to build as expected, moving from a solid first quarter into seasonally stronger 2nd quarter months. Our operating divisions across domestic and international markets delivered strong unique customer and item placement growth and managed pricing effectively while providing our customers with high quality product and high value service. We are extremely proud of all our teams from sales, sourcing, pricing operations, and support functions coming together to deliver value to our customers.
Thank you, Alex, and thank you all for joining our second quarter 2024 earnings call. Second quarter, customer demand and pricing display typical seasonality as revenue and profitability continue to build as expected, moving from a solid first quarter into a seasonally stronger second quarter month. Our operating divisions across domestic and international markets delivered strong, unique customer and item placement growth and managed pricing effectively while providing our customers with high-quality products and high-value service.
Speaker Change: With that, I will turn the call over to Chris Pappas. Chris? Thank you, Alex, and thank you all for joining our second quarter 2024 earnings call.
Christopher Pappas: Second quarter, customer demand and pricing displayed typical seasonality as revenue and profitability continued to build as expected, moving from a solid first quarter into seasonally stronger second quarter months.
Speaker Change: Our operating divisions across domestic and international markets delivered strong unique customer and item placement growth and managed pricing effectively while providing our customers with high quality product and high value service.
We are extremely proud of all our teams, from sales, sourcing, pricing, operations, and support functions, coming together to deliver value to our customers. Leveraging our diverse and broad supply chain, value-add, processing, and culinary expertise to assist our customers with managing menu development as well as product and labor-related costs. A few highlights from the second quarter include 7.2% organic growth in net sales. Specialty sales were up 7.5% organically over the prior year, which was driven by unique customer growth of approximately 8.2%.
Speaker Change: We are extremely proud of all our teams from sales, sourcing, pricing, operations, and support functions coming together to deliver value to our customers.
Chris Pappas: Leveraging our diverse and broad supply chain value add processing and culinary expertise to assist our customers with managing menu development, as well as product and labor related costs. Q highlights from the 2nd quarter include 7.2% organic growth in net sales. Specialty sales were up 7.5% organically over the prior year, which was driven by unique customer growth of approximately 8.2%. Placement growth of 11.3% and specialty case growth of 4.7%. Excluding prior year low margin customer attrition in Hardies, total specialty cases grew approximately 5.5% year over year in the second quarter. Organic pounds and center of the plate were approximately 2.9% higher than the prior year of second quarter.
Speaker Change: Leveraging our diverse and broad supply chain, value-add, processing, and culinary expertise to assist our customers with managing menu development as well as product and labor related costs.
Placement growth of 11.3% and specialty case growth of 4.7%. Excluding prior-year low-margin customer attrition in Hardee's, total specialty cases grew approximately 5.5% year-over-year in the second quarter. Organic pounds in the center of the plate were approximately 2.9% higher than the prior year of the second quarter.
Speaker Change: A few highlights from the second quarter include 7.2% organic growth in net sales.
Speaker Change: Specialty sales were up 7.5% organically over the prior year, which was driven by unique customer growth of approximately 8.2%.
Speaker Change: Placement growth of 11.3% and specialty case growth of 4.7%.
Speaker Change: Excluding prior year low-margin customer attrition in Hardee's, total specialty cases grew approximately 5.5% year-over-year in the second quarter.
Speaker Change: Organic pounds in the center of the plate were approximately 2.9% higher than the prior year's second quarter.
Chris Pappas: Gross profit margins increased to approximately 35 basis points. Gross margin and the specialty category increased to approximately 50 basis points as compared to the second quarter of 2023, while gross margin and the center of the plate category were essentially flat year over year.
Gross profit margins increased approximately 35 basis points. Gross margin in the specialty category increased approximately 50 basis points as compared to the second quarter of 2023, while gross margin in the center of the play category was essentially flat year over year. Jim will provide more detail on gross profit and margins in a few moments. We remain focused on making progress towards our five-year goals, which include revenue of approximately $4.6 billion to $5 billion and adjusted EBITDA of $300 to $350 million.
Speaker Change: Gross profit margins increased approximately 35 basis points.
Speaker Change: Gross margin in the specialty category increased approximately 50 basis points as compared to the second quarter of 2023, while gross margin in the center of the play category were essentially flat year-over-year.
Chris Pappas: Jim will provide more detail on gross profit and margins in a few moments. We remain focused on making progress towards our 5-year goals, which include 2028 revenue of approximately 4.6 billion to 5 billion, and adjusted EBITDA of 300 to 350 million. It is important to highlight the key investments we have put in place to provide our teams with the market footprint, product categories, infrastructure and investment, and sales force necessary to grow towards achieving these targets. Regarding infrastructure, since 2019, we have added approximately 1 million square feet of distribution capacity, excluding acquisitions, or approximately a 60% increase to the 2019 baseline.
Speaker Change: Jim will provide more detail on gross profit and margins in a few moments.
Jim: We remain focused on making progress towards our five-year goals, which include 2028 revenue of approximately $4.6 billion to $5 billion, and adjusted EBITDA of $300 to $350 million.
It is important to highlight the key investments we have put in place to provide our teams with the market footprint, product categories, infrastructure, and investment and sales force necessary to grow towards achieving these targets. Regarding infrastructure, since 2019, we have added approximately 1 million square feet of distribution capacity, excluding acquisitions, or approximately a 60% increase to the 2019 baseline.
Speaker Change: It is important to highlight the key investments we have put in place to provide our teams with the market footprint, product categories, infrastructure, and investment and sales force necessary to grow towards achieving these targets.
Speaker Change: Regarding infrastructure, since 2019 we have added approximately 1 million square feet of distribution capacity excluding acquisitions or approximately a 60% increase to the 2019 baseline.
Chris Pappas: These include investments in future growth in high-value markets such as the expansion of our distribution centers in Dubai, Seattle, Southern California, and Florida. This also includes facility expansion to create future operating synergies, such as our recently completed ProTeam Processing Facility in Northern California. During the second quarter, we initiated processing operations and completed the first phase of a multiple facility consolidation with the move of our Brisbane processing and distribution operation. We expect to complete the next move during the third quarter, with the focus on completing the full consolidation during the first quarter of 2025. We expect to provide route, labor, and technology-driven efficiencies with room for future growth in the region.
These include investments in future growth and high-value markets, such as the expansion of our distribution centers in Dubai, Seattle, Southern California, and Florida. This also includes facility expansion to create future operating synergies, such as our recently completed protein processing facility in Northern California. During the second quarter, we initiated processing operations and completed the first phase of a multiple facility consolidation with the move of our Brisbane Processing and Distribution operations.
Speaker Change: These include investments in future growth and high-value markets, such as the expansion of our distribution centers in Dubai, Seattle, Southern California, and Florida.
Speaker Change: This also includes facility expansion to create future operating synergies, such as our recently completed protein processing facility in Northern California.
Speaker Change: During the second quarter, we initiated processing operations and completed the first phase of a multiple facility consolidation with the move of our Brisbane Processing and Distribution operation.
We expect to complete the next move during the third quarter with a focus on completing the full consolidation during the first quarter of 2025. We expect to provide route, labor, and technology-driven efficiencies with room for future growth in the region. Regarding our investments in sales and our unique go-to-market strategy, since year-end 2021, we have increased our sales force, excluding acquisitions, by approximately 10% per year. Additionally, over the same time frame, in certain of our high-growth investment markets such as Florida, the Middle East, and California, we have grown our sales force by approximately 20-25% per year on average.
Speaker Change: We expect to complete the next move during the third quarter with a focus on completing the full consolidation during the first quarter of 2025.
Speaker Change: We expect to provide route, labor, and technology-driven efficiencies with room for future growth in the region.
Chris Pappas: Regarding our investments in sales and our unique go-to-market strategy since year-end 2021, we have increased our sales force, excluding acquisitions, by approximately 10% per year. Over the same time frame, in certain of our high growth investment markets such as Florida, the Middle East, and California, we have grown our sales force by approximately 20 to 25% per year on average. In addition, we continue to invest in category expertise and digital and pricing tools across our markets to support our sales and operating teams' execution and growing market share via unique item penetration, new customer acquisition, and improved gross profit dollars per delivery.
Speaker Change: Regarding our investments in sales and our unique go-to-market strategy, since year-end 2021, we have increased our sales force, excluding acquisitions, by approximately 10% per year.
Speaker Change: Over the same time frame, in certain of our high growth investment markets such as Florida, the Middle East, and California, we have grown our sales force by approximately 20-25% per year on average.
In addition, we continue to invest in category expertise and digital and pricing tools across our markets to support our sales and operating teams' execution and growing market share via unique item penetration, new customer acquisition, and improved gross profit dollars per delivery. Our investments in acquisitions, categories, infrastructure, and sales teams have given us the marketing and distribution footprint required for growth towards our 2028 goal. We feel we have a balanced portfolio of high-growth markets supported by ample capacity, maturing sales teams with our unique go-to-market strategy, complemented by more mature markets focused on category expansion and continued above-average industry growth.
Speaker Change: In addition, we continue to invest in category expertise and digital and pricing tools across our markets to support our sales and operating teams' execution and growing market share via unique item penetration, new customer acquisition, and improved gross profit dollars per delivery.
Chris Pappas: Our investments in acquisitions, categories, infrastructure, and sale teams have given us the marketing and distribution footprint required for growth towards our 2028 goals. We feel we have a balanced portfolio of high growth markets supported by ample capacity, maturing sales teams with our unique go-to-market strategy, complemented by more mature markets focused on category expansion and continued above average industry growth. For the past 40 years, we have developed a moat in our niche of the food service industry by investing in and developing the talent and expertise to sell the world's finest chefs, to be logistically nimble and best in class to manage just-in-time service, and to manage price and margins in a volatile world.
Speaker Change: Our investments in acquisitions, categories, infrastructure, and sales teams have given us the marketing and distribution footprint required for growth towards our 2028 goals.
Speaker Change: We feel we have a balanced portfolio of high-growth markets supported by ample capacity, maturing sales teams with our unique go-to-market strategy, complemented by more mature markets focused on category expansion and continued above-average industry growth.
For the past 40 years, we have developed a moat in our niche of the food service industry by investing in and developing the talent and expertise to sell the world's finest chefs, to be logistically nimble and best in class to manage just-in-time service, and to manage price and margins in a volatile world. We have built a culture and strategy designed to be a unique food service solution company focused on serving quality culinary-driven operators. 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?
Speaker Change: For the past 40 years, we have developed a moat in our niche of the food service industry by investing in and developing the talent and expertise to sell the world's finest chefs to be logistically nimble and best in class to manage just-in-time service.
Chris Pappas: We have built a culture and strategy designed to be the unique food service solution company focused on serving quality culinary-driven operators.
Speaker Change: and to manage price and margins in a volatile world. We have built a culture and strategy designed to be the unique food service solution company focused on serving quality culinary-driven operators.
Jim Leddy: 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 June 28, 2024, increased approximately 8.3 percent to 954.7 million from 881.8 million in the second quarter of 2023. The growth in net sales was a result of an increase in organic sales of approximately 7.2 percent, as well as the contribution of sales from acquisitions, which added approximately 1.1 percent to sales growth for the quarter.
Jim: 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.
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 June 28, 2024, increased approximately 8.3% to $954.7 million from $881.8 million in the second quarter of 2023. The growth in net sales was a result of an increase in organic sales of approximately 7.2%, as well as the contribution of sales from acquisitions, which added approximately 1.1% to sales growth for the quarter. Net inflation was 3.3% in the second quarter, consisting of 2.7% inflation in our specialty category and inflation of 4.3% in our center of the play category versus the prior year quarter.
Gross profit increased 9.9% to $229 million for the second quarter of 2024 versus $208.4 million for the second quarter of 2023. Gross profit margins increased approximately 35 basis points to 24%, and our procurement, sales, pricing, and operating teams delivered strong gross profit dollar growth across categories during the quarter. Selling general and administrative expenses increased approximately 8.8% to $194.8 million for the second quarter of 2024 from $179 million for the second quarter of 2023.
The increase was primarily due to higher depreciation and amortization driven by acquisitions and facility investments and costs associated with compensation, facility costs, and distribution costs to support sales growth in the current quarter. Adjusted operating expenses increased 9.8% versus the prior year's second quarter.
And as a percentage of net sales, adjusted operating expenses were 18.1% for the second quarter of 2024. Operating income for the second quarter of 2024 was $33.9 million compared to $25.3 million for the second quarter of 2023. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general, and administrative expenses versus the prior year quarter. Income tax expense was $6.7 million for the second quarter of 2024 compared to $3.5 million for the second quarter of 2023.
Jim: Our net sales for the quarter ended June 28, 2024, increased approximately 8.3% to $954.7 million, from $881.8 million in the second quarter of 2023.
Our GAAP net income was $15.5 million, or $0.37 per diluted share, for the second quarter of 2024, compared to net income of $9.9 million, or $0.25 per diluted share, for the second quarter of 2023. On a non-GAAP basis, we had adjusted EBITDA of $56.2 million for the second quarter of 2024 compared to $51.1 million for the prior year's second quarter. Adjusted net income was $17 million, or $0.40 per diluted share, for the second quarter of 2024 compared to $14.4 million, or $0.35 per diluted share, for the prior year's second quarter.
Turning to the balance sheet and an update on our liquidity, at the end of the second quarter, we had total liquidity of $208.3 million, comprised of $38.3 million in cash and $170 million of availability under our ABL facility. During this second quarter, we continue to make progress toward achieving our year-end 2025 capital allocation goals of 2.5 to 3 times net debt leverage and repurchasing $25 million to $100 million of equivalent outstanding shares.
Jim: The growth in net sales was a result of an increase in organic sales of approximately 7.2%, as well as the contribution of sales from acquisitions, which added approximately 1.1% to sales growth for the quarter.
Jim Leddy: Net inflation was 3.3 percent in the second quarter, consisting of 2.7 percent inflation in our specialty category and inflation of 4.3 percent in our center of the play category versus the prior year quarter. Growth profit increased 9.9 percent to 229 million for the second quarter of 2024 versus 208.4 million for the second quarter of 2023. Growth profit margins increased approximately 35 basis points to 24 percent, and our procurement sales pricing and operating teams delivered strong growth profit dollar growth across categories during the quarter. Selling, general and administrative expenses increased approximately 8.8 percent to 194.8 million for the second quarter of 2024 from 179 million for the second quarter of 2023.
Jim: Net inflation was 3.3% in the second quarter, consisting of 2.7% inflation in our specialty category and inflation of 4.3% in our center-of-the-plate category versus the prior year quarter.
Jim: Gross profit increased 9.9% to $229 million for the second quarter of 2024 versus $208.4 million for the second quarter of 2023.
Jim: Gross profit margins increased approximately 35 basis points to 24% and our procurement, sales, pricing, and operating teams delivered strong gross profit dollar growth across categories during the quarter.
Jim: Selling general and administrative expenses increased approximately 8.8% to $194.8 million for the second quarter of 2024, from $179 million for the second quarter of 2023.
Jim Leddy: The increase was primarily due to higher depreciation and amortization driven by acquisitions and facility investments, and costs associated with compensation, facility costs, and distribution costs to support sales growth in the current quarter. Adjusted operating expenses increased 9.8 percent versus the prior year second quarter, and as a percentage of net sales, adjusted operating expenses were 18.1 percent for the second quarter of 2024. Operating income for the second quarter of 2024 was 33.9 million compared to 25.3 million for the second quarter of 2023. The increase in operating income was driven primarily by higher growth profit, partially offset by higher selling, general and administrative expenses versus the prior year quarter.
Jim: The increase was primarily due to higher depreciation and amortization driven by acquisitions and facility investments and costs associated with compensation, facility costs, and distribution costs to support sales growth in the current quarter.
Jim: adjusted operating expenses increased 9.8% versus the prior year's second quarter and as a percentage of net sales adjusted operating expenses were 18.1% for the second quarter of 2024.
Jim: Operating income for the second quarter of 2024 was $33.9 million, compared to $25.3 million for the second quarter of 2023.
Jim: The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling general and administrative expenses versus the prior year quarter.
Jim Leddy: Income Tax Expense was $6.7 million for the second quarter of 2024, compared to $3.5 million expense for the second quarter of 2023. Our gap net income was $15.5 million, or $0.37 per diluted share for the second quarter of 2024, compared to net income of $9.9 million, or $0.25 per diluted share for the second quarter of 2023. On a non-gap basis, we had adjusted EBITDA of $56.2 million for the second quarter of 2024, compared to $51.1 million for the prior year's second quarter. Adjusted net income was $17 million, or $0.40 per diluted share for the second quarter of 2024, compared to $14.4 million, or $0.35 per diluted share for the prior year's second quarter.
Jim: Income tax expense was $6.7 million for the second quarter of 2024, compared to $3.5 million expense for the second quarter of 2023.
Jim: Our GAAP net income was $15.5 million, or $0.37 per diluted share for the second quarter of 2024, compared to net income of $9.9 million, or $0.25 per diluted share for the second quarter of 2023.
Jim: On a non-GAAP basis, we had adjusted EBITDA of $56.2 million for the second quarter of 2024 compared to $51.1 million for the prior year's second quarter.
Jim: Adjusted net income was $17 million, or $0.40 per diluted share, for the second quarter of 2024 compared to $14.4 million, or $0.35 per diluted share, for the prior year's second quarter.
Jim Leddy: Turning to the balance sheet and update on our liquidity. At the end of the second quarter, we have total liquidity of $208.3 million, comprised of $38.3 million in cash and $170 million of availability under our ABL facility. During the second quarter, we continue to make progress toward achieving our year-end 2025 capital allocation goals of $2.5 to $3 times net leverage and repurchasing $25 million to $100 million of equivalent outstanding shares. As of June 28, 2024, year-to-date, we have repurchased $10 million of our outstanding common shares, resulting in a reduction of approximately 264,000 shares outstanding and repaid $14.5 million of outstanding debt.
Jim: Turning to the balance sheet and an update on our liquidity, at the end of the second quarter, we had total liquidity of $208.3 million, comprised of $38.3 million in cash and $170 million of availability under our ABL facility.
Jim: During this second quarter, we continue to make progress toward achieving our year-end 2025 capital allocation goals of 2.5 to 3 times net debt leverage and repurchasing $25 million to $100 million of equivalent outstanding shares.
As of June 28, 2024, year-to-date, we have repurchased $10 million of our outstanding common shares, resulting in a reduction of approximately 264,000 shares outstanding, and repaid $14.5 million of outstanding debt. June 28, 2024, total net debt was approximately $661 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITDA was approximately 3.2 times as compared to approximately 3.3 times as of the first quarter of 2024.
Jim: As of June 28, 2024, year-to-date, we have repurchased $10 million of our outstanding common shares, resulting in a reduction of approximately 264,000 shares outstanding and repaid $14.5 million of outstanding debt.
Jim Leddy: June 28, 2024, total net debt was approximately $661 million, inclusive of all cash and cash equivalents, and net debt to adjusted EBITAB was approximately 3.2 times as compared to approximately 3.3 times as of the first quarter of 2024.
Jim: June 28, 2024, total net debt was approximately $661 million, inclusive of all cash and cash equivalents. And net debt to adjusted EBITDA was approximately 3.2 times as compared to approximately 3.3 times as of the first quarter of 2024.
Jim Leddy: Turning to our full-year guidance for 2024, based on the current trends in the business, we are providing our full-year financial guidance as follows. We estimate that net sales for the full year of 2024 will be in the range of $3.665 billion to $3.785 billion. Gross profit to be between $874 million and $902 million, and adjusted EBITAB to be between $208 million and $219 million. Please note, for the third quarter of 2024, we expect both convertible notes maturing in December of this year and those maturing in 2028 to be diluted for reporting purposes, and therefore we expect the fully diluted share count to be approximately 45.9 million shares.
Turning to our full-year guidance for 2024, based on the current trends in the business, we are providing full-year financial guidance as follows. We estimate that net sales for the full year of 2024 will be in the range of $3.665 billion to $3.785 billion, gross profit to be between $874 million and $902 million, and adjusted EBITDA to be between $208 million and $219 million. Please note, for the third quarter of 2024, we expect both convertible notes maturing in December of this year and those maturing in 2028 to be diluted for reporting purposes.
Jim: Turning to our full year guidance for 2024. Based on the current trends in the business, we are providing a full year financial guidance as follows.
Jim: We estimate that net sales for the full year of 2024 will be in the range of $3.665 billion to $3.785 billion.
Jim: Gross profit to be between $874 million and $902 million Adjusted EBITDA to be between $208 million and $219 million
Jim: Please note, for the third quarter of this year and those maturing in 2028, to be diluted for reporting purposes, and therefore we expect the fully diluted share count to be approximately 45.9 million shares.
Jim Leddy: For the fourth quarter and for the full year of 2024, we expect the remaining convertible notes maturing in 2028 to be diluted, and therefore we expect the fully diluted share count to be approximately 45 million shares for the fourth quarter and full year reporting periods.
Jim: For the fourth quarter and for the full year of 2024, we expect the remaining convertible notes maturing in 2028 to be diluted and therefore we expect the fully diluted share count to be approximately 45 million shares for the fourth quarter and full year reporting periods.
Jim Leddy: Thank you, and at this point we'll open it up to questions. Operator? Thank you.
And therefore, we expect the fully diluted share count to be approximately 45.9 million shares for the fourth quarter and for the full year of 2024. Additionally, we expect the remaining convertible notes maturing in 2028 to be diluted. And therefore, we expect the fully diluted share count to be approximately 45 million shares for the fourth quarter and full year reporting period. Thank you, and at this point, we'll open it up to questions. Operator.
Speaker Change: Thank you and at this point we'll open it up to questions. Operator?
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in question. You may press star, then 2 if you would like to remove your question from the line.
Operator: We will now be conducting a question and answer session. If you would like to ask a question, please first start and then one on your telephone and key pairs. A confirmation turn will indicate your line is in the question. Q. You may press star, then two, if you would like to remove your question from the queue. For both of the spins using speak equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we pull for questions.
Speaker Change: Thank you. We will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star, then 2 if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. The first question we have is from Alex Slagle of Jefferies. Please go ahead.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment please while we poll for questions.
Alex Lego: The first question we have is from Alex Leddyle of Jeffries. Please go ahead.
Speaker Change #161: The first question we have is from Alex Slagle of Jefferies. Please go ahead.
Alex Lego: Thanks.
Thanks. Good morning, you guys. I wanted to ask you about the case growth opportunity for the back half, and maybe if you could just talk to some of the drivers and pipeline visibility you have, that would kind give you confidence being able to continue driving the organic case growth like you have recently. I know consumer demand and the restaurant industry more broadly seems to have gotten a little bit choppier, so I just wanted to get kind of your thoughts and things that give you confidence into the back half. Sure.
Alex Lego: Good morning, you guys. On the case growth opportunity for the back half, and maybe if you could just talk to some of the drivers and pipeline visibility you have that kind of give you confidence being able to continue driving the organic case growth. You have recently, I know, consumed demand and the restaurant industry more broadly seems to have gotten a bit choppy or so just wanted to get kind of your thoughts and things that give you confidence in the back half. Sure. Andy, again, I think that our clientele had a pretty strong second quarter. I think when you look at last year as well, as you came into the summertime, it was a little choppy last year.
Alexander Russell Slagle: Thanks. Good morning, you guys.
Alexander Russell Slagle: I wanted to ask...
Alexander Russell Slagle: on the case growth opportunity for the back half and maybe if you could just talk to some of the drivers and pipeline visibility you have that kind of give you confidence being able to continue driving the organic case growth like you have recently.
Speaker Change #158: I know consumer demand in the restaurant industry more broadly seems to have gotten a little bit choppier, so I just wanted to get kind of your thoughts and things to give you confidence in the end of the back half.
So, Andy, I mean, again, I think that our clientele... You know, had a pretty strong second quarter. And I think when you look at last year as well, as you came into the summertime, it was a little choppy last year. I think what we're, you know, it's too early to see, but I think it's kind of becoming more of a typical summer where, you know, a lot of people from the U.S. travel. And last year, you know, we saw it come roaring back again in September.
Alexander Russell Slagle: Sure.
Speaker Change: So, Andy, I mean, again, I think that our clientele, you know, had a pretty strong second quarter. And I think when you look at last year.
Alexander Russell Slagle: as well, you know, as you came into the summertime.
Chris Pappas: I think what we're, it's too early to see, but I think it's becoming more of a typical summer where a lot of people from the U.S. travel, and last year we saw it come roaring back again in September. We're looking at bookings, we're looking at hotel bookings, we're looking at conferences, we're looking at corporate events, we're looking at talking to our customers. We see a pretty normal type of third-fourth quarter last year, hopefully coming together. We've invested so much in what we call the hybrid cell. We put lots of teams out there. We're cross-selling; we're putting more and more trained sales people out in the street.
Speaker Change: You know, it was a little choppy last year. I think what we're you know, it's too early to see but I think it's kind of a you know becoming more of a typical summer where you know, a lot of a lot of people from the US travel and
Speaker Change: And last year, you know, we saw it, like, come roaring back again.
So, you know, forecasting, you know, we're looking at bookings, we're looking at hotel bookings, we're looking at conferences, we're looking at corporate events, we're looking at, you know, talking to our customers. You know, we see a pretty normal, you know, type of, you know, third, fourth quarter as last year, hopefully coming together. And you know, we've invested so much in what we call the hybrid sale. We put lots of teams out there.
Speaker Change: in September . So, you know, forecasting...
Speaker Change: We're looking at bookings, we're looking at hotel bookings, we're looking at conferences, we're looking at corporate events, we're looking at talking to our customers.
Speaker Change: You know, we see a pretty, you know, we see a pretty normal, you know, type of, you know, third, fourth quarter as last year, you know, hopefully.
Speaker Change: coming together. And, you know, we've invested so much in, you know, what we call the hybrid sale. We've put lots of teams out there. You know, we're cross-selling. We're putting more and more, you know, trained salespeople.
You know, we're cross-selling. We're putting more and more, you know, trained salespeople out in the street. We've added capacity in the warehouses. So I think it's what we're expecting.
Chris Pappas: We've added the capacity in the warehouse. I think it's what we're expecting. We've invested in it, and obviously it could be up a down a little bit, but we feel pretty good about where we've invested and boots on the ground and our product mix, which I think is the most unique in the industry. We continue to see new openings, and I think that's where we're winning a lot. I always say restaurant tours, open restaurants, people that are in the hotel business, want to build hotels. I think what you're seeing more and more is, I'm reading some of the reports where a head counselor down, in restaurants, two, three percent, depending on your sector, but we also have so many openings.
Speaker Change: Out in the street, we've added...
Speaker Change: The capacity in the warehouse is so, I think it's what we're expecting, you know, we've invested in it and, you know, obviously it could be up or down a little bit, but, you know, we feel pretty good about, you know, where we've invested and boots on the ground and our product mix, which I think is the most unique.
You know, we've invested in it, and, you know, obviously, it could be up or down a little bit. But, you know, we feel pretty good about where we've invested and the boots on the ground and our product mix, which I think is the most unique in the industry. And we continue to see, you know, new opportunities. And I think that's where we're winning a lot. You know, I always say restauranteurs open restaurants.
Speaker Change: in the industry. And we continue to see, you know, new openings. And I think that's where we're winning a lot. You know, I always say restaurateurs, open restaurants, you know, people that are in the hotel business want to build hotels and...
You know, people that are in the hotel business want to build hotels. I think what you're seeing more and more is, you know, I'm reading some of the reports where, you know, head counts are down in restaurants, you know, 2%, 3%, depending on your sector. But we also have so many openings.
Speaker Change: I think...
Speaker Change: What you're seeing more and more is, you know, I'm reading some of the reports where, you know, head counts are down.
Speaker Change: In restaurants, you know, 2-3% depending on your sector.
So I think where Chef is winning is that we're winning in the openings. And that could be making up for any sort of headwinds in customer counts. Yeah, Alex, I'll just add that for the first half of the year, new customer acquisition close to 10%, just under 10%. Item placement growth double digits, 11 to 12%.
Jim Leddy: I think where Chef is winning is we're winning in the openings, and that could be making up for any sort of headwinds in customer count. Yeah, I'll just add that reporting first half of the year, new customer acquisition, close to 10%, just under 10%; item placement growth, double digits, 11 to 12%. And that's been making up for a little bit of the moderation that Chris mentioned that you're seeing in terms of demand or volume, especially during the summer. So some of the investments that we've made in those areas in category growth, in sales force and some of the tools we're giving them are paying off.
Speaker Change: But we also have so many openings, so I think where Chef is winning is we're winning in the openings and that could be making up for any sort of headwinds in customer counts.
And that's been making up for a little bit of the moderation that Chris mentioned that you're seeing in terms of demand or volume, especially during the summer. So some of the investments that we've made in those areas and category growth in Salesforce, and some of the tools that we're giving them are paying off. Got it. And, Jim, a follow-up question: if you could provide any color around the potential cadence of the margin leverage we have in the back half. 3Q Lab
Speaker Change: Yeah, Alex, you know, I'll just add that, you know, we're reporting first half of the year.
Alex: You know, new customer acquisition, you know, close to 10%, just under 10%.
Speaker Change: Item placement growth, double digits, 11 to 12 percent.
Alex: And that's been making up for, you know, a little bit of the moderation that, you know, Chris mentioned that you're seeing in terms of, you know, demand or volume and especially during the summer. And so some of the investments that we've made in those areas and category growth and in Salesforce and some of the tools we're giving them are paying off.
Jim Leddy: Got it.
Jim Leddy: And Jim follow-up, if you could provide any color around potential cadence to the margin leverage we have in the back cap, at the 3Q laps, there are some unique headwinds and timing dynamics at play as you roll off, like the increase. Yeah, I mean from some of the new facilities. No, the guidance, you know, the guidance implies obviously in the first half of the year, organic growth was closer to 8%, but the full year guidance implies kind of 6 to 7% organic revenue growth. So we had already built in a deceleration, a moderate deceleration in the back half of the year in terms of organic revenue growth, but that's really driven by the comparisons, because if you remember last summer, we really had a margin issue driven by the protein markets.
Speaker Change: Got it. And Jim, a follow-up, if you could provide any color around potential cadence of the margin leverage we have in the back half. I know the 3Q lapsed, there are some unique headwinds.
There are some unique headwinds. Timing dynamics are at play as you roll off the increased revenue from some of the new facilities now. Yeah, the guidance implies, obviously, in the first half of the year, organic growth was closer to 8%, but the full-year guidance implies kind of 6% to 7% organic revenue growth. So we had already built in a deceleration, a moderate deceleration in the back half of the year in terms of organic revenue growth, but that's really driven by the comparisons. If you remember last summer, we really had a margin issue driven by the protein markets. It wasn't a volume issue.
Speaker Change: The timing dynamics at play as you roll off like the increased from some of the new facilities now
Speaker Change #128: Yeah, the guidance, you know, the guidance implies obviously in the first half of the year organic growth was closer to 8%, but the full year guidance implies kind of 6-7% organic revenue growth.
Speaker Change: So, we had already built in a deceleration, a moderate deceleration in the back half of the year in terms of organic revenue growth, but that's really driven by the comparisons because if you remember last summer, we really had a margin issue driven by the protein markets.
Jim Leddy: It wasn't a volume issue. We had a really good year of a year. You know, volume and revenue growth. And so we're comping to a little bit of a tougher comp in the back cap of the year, but that's really just driven by last year's cadence versus this year.
Speaker Change: It wasn't a volume issue. We had really good year-over-year, you know, volume and and revenue growth and so we're comping to a little bit of a tougher comp in the back half of the year but that's that's really just driven by last year's cadence versus this year.
Mark Carden: Okay, thanks for the help. The next question we have is from Mark Corden of UBA. Please go ahead.
We had really good year-over-year volume and revenue growth, and so we're comping to a little bit of a tougher comp in the back half of the year, but that's really just driven by last year's cadence versus this year. Okay, thanks for the help. The next question we have is from Mark Carden of UBASE. Please go ahead. Good morning. Thanks so much for taking the time to answer the question. So I wanted to dig in a bit more on sales. It sounds like your customers are holding up pretty well overall. I know last quarter you talked about some pressure on some of your casual customers.
Speaker Change #104: Okay, thanks for the help.
Speaker Change: The next question we have is from Mark Carden of UBS. Please go ahead.
Mark Carden: Good morning. Thanks so much for taking a question. So I want to dig in a bit more and sail. Time for your customers is holding up pretty well overall. I know last quarter you talked about some pressure at some of your casual customers. Does it remain pretty constrained to this customer segment, or are you seeing it creep into a broader spot of your customers' restaurants? Yeah, I'm trying to recall really what you're referencing to, but again, our customer base is extremely diverse. We purposely hire trained large teams to go after different types of business: caterers, upscale fast casual, hotels, cruise ships, all the way up to what I call super fine dining.
Speaker Change: Good morning. Thanks so much for taking the question. So I wanted to dig in a bit more on sales. It sounds like your customers are holding up pretty well overall. I know last quarter you talked about some pressure at some of your casual customers. Does it remain pretty constrained to this customer segment, or are you seeing it creep into a broader swath of your customers' restaurants?
Does it remain pretty constrained to this customer segment, or are you seeing it creep into a broader swath of your customers' restaurants? Yeah, I'm trying to recall exactly what you're referencing, but, you know, again, our customer base is extremely diverse. You know, we purposely hire, train, you know, large teams to go after different types of businesses, caterers, upscale, fast, casual, hotels, cruise ships, all the way up to, you know, what I call super fine dining.
Speaker Change: Yeah, I'm trying to recall really what you're referencing to, but, you know, again, our customer base is...
Speaker Change: is extremely diverse, you know, we purposely...
Speaker Change: hire, trained, large teams to go after different types of business, caterers, upscale, fast, casual, hotels, cruise ships, all the way up to what I call super fine dining.
Chris Pappas: So we purposely have that diverse clientele to kind of balance out anything that any headwinds and certain sectors. And as you can see, the second quarter was pretty good. We felt our customer base did pretty well in an environment that we see a lot of the numbers coming out of QSR. And some of the lower price restaurant groups. So we think our customers are pretty savvy. They understand how to, you know, where they have to promote, give a little bit more value. And, you know, on the higher end, I think that, you know, it is, I think it's bifurcated.
So, you know, we purposely have that diverse clientele to kind of balance out, you know, anything that, you know, any headwinds in certain sectors. And as you can see, the second quarter was pretty good.
You know, we felt our customer base did pretty well in an environment that, you know, we see a lot of the numbers coming out of, you know, QSR and some of the lower-priced restaurant groups. So we think our customers are pretty, they're savvy. They understand how to, you know, where they have to promote, give a little bit more value. And, you know, on the higher end, I think that it is, it's, I think it's bifurcated.
You know, you have certain sectors that have slowed down a little bit. You see a lot of the reports coming out of other distributors and restaurant reports. And other parts of our clientele have accelerated. So I think that the balance attack is helping us, you know, put up pretty good numbers.
Chris Pappas: You know, you have certain sectors that have slowed down a little bit. You know, you see a lot of the reports coming out of other distributors and the restaurant reports and other parts of our clientele have accelerated. So I think that balance attack, you know, is helping us, you know, put up pretty good numbers.
Chris Pappas: Great. And then inflation appears to be pretty healthy. Any unusual dynamics caught on that front? And just how are you thinking about it now for the balance of the year? Not really anything to call out. I mean, you look at the first quarter and second quarter together, you know, roughly 3% type of average inflation. I would say there's a couple of categories on the specialty side that are, you know, driving probably the difference between kind of 2% and 3%. I mean, I think everybody's aware of, you know, what's happened with olive oil and some categories like chocolate, you know, driven by weather in different parts of the world.
And inflation appears to be pretty healthy. Any unusual dynamics call out on that front? And just how are you thinking about it now for the balance of the year? Not really anything to call out.
I mean, you look at the first quarter and second quarter together, you know, roughly 3% type of average inflation. I would say there's a couple of categories on the specialty side that are probably driving the difference between 2% and 3%. I mean, I think everybody's aware of what happened with olive oil and some categories like chocolate, driven by weather in different parts of the world. So excluding those, you're kind of in that normal 2% to 3% range.
Jim Leddy: So excluding those, you're kind of in that normal kind of 2% to 3% range. And we don't really expect anything materially different at this point going forward.
And we don't really expect anything materially different at this point going forward. Thanks so much, and good luck, guys. Thanks. The next question we have is from Todd Brooks of the Benchmark Company. Please go ahead. Hey Todd.
Speaker Change: At this point going forward.
Jim Leddy: Great. Thanks so much.
Speaker Change #101: Great. Thanks, so much good luck guys.
Todd Brooks: Good luck, guys. Thanks. The next question we have is from Todd Brooks of the Beige More Company. Please go ahead. Hey Todd. Hey, hey guys. Good morning. Congrats on the results in quarter. A couple of quick questions for you. If you look across your customer base, just wondering what you're seeing as far as geographic disparities and performance. If you look at the California market, I don't know if some of that angst that we're hearing about broadly in the category has crept into the fine dining end of the sector there. And then we also hear that Florida remains a challenged market.
Speaker Change: Thanks.
Speaker Change #125: The next question, we have is from Todd Brooks of the benchmark company. Please go ahead.
Speaker Change #112: Hey, Todd.
Hey guys, good morning. Congratulations on your results. A couple of quick questions for you. If you look across your customer base... Just wondering what you're seeing as far as geography goes... Disparities in performance If you look at the California market, I don't know if some of that angst that we're hearing about broadly in the category has crept into the fine dining end of the sector there. And then we also hear that Florida remains a challenged market. So just wondering if you look across the base, maybe strong versus weaker markets. We haven't really seen a huge disparity across regions.
Todd Morrison Brooks: Hey, guys. Good morning, Congrats on the results of the quarter.
Todd Morrison Brooks: Couple of quick questions for you.
Speaker Change #102: If you look across your customer base.
Speaker Change: Just wondering what youre seeing as far as geographic.
Speaker Change #126: Disparities in performance, if you look at the California market.
Speaker Change #110: I don't know if some of that angst that we're hearing about broadly in the category has crept into the fine dining and or the sector there.
Speaker Change: And then we also hear that Florida remains a challenged market. So just wondering if you look across the base.
Chris Pappas: So just wondering if you look across the base, maybe strong versus weaker markets and thoughts on that. We haven't really seen a huge disparity across regions. I think, you know, we've mentioned, on our first quarter call, that we saw some of the higher end steakhouses are down year of a year from a traffic perspective where there's a bit of a trade down where we're selling more high end burgers versus maybe the prime stakes, but we're still making good margin on those. So we see different dynamics across our regions; our international markets are doing really well.
Speaker Change #106: Strong versus weaker markets and thoughts on that.
Speaker Change: We haven't really seen a huge disparity across regions I think we've mentioned I think we mentioned on our first quarter call that we saw some of the higher end steakhouses are down year over year from a traffic perspective, where there's a bit of a trade down where you know.
I think we mentioned on our first quarter call that some of the higher-end steakhouses are down year-over-year from a traffic perspective, or there's a bit of a trade-down where we're selling more high-end burgers versus maybe the prime steaks, but we're still making good margin on those. We see different dynamics across our regions. Our international markets are doing really well, and there are a number of domestic markets that are showing strength.
Speaker Change: We're selling more high end burgers versus the.
Speaker Change: Maybe the prime steaks, but we're still making good margin on those so we see different dynamics across our regions.
Speaker Change: Our international markets.
Speaker Change #109: Are doing really well.
Chris Pappas: And there's a number of domestic markets that are showing strengths; some are showing a little bit more moderation. I don't think there's any specific markets that we would call out as being significantly different. So I would just say that there's, you know, pockets of moderation across regions.
Speaker Change: And there's a number of domestic markets better.
Speaker Change: Showing strength some are showing a little bit more moderation.
Some are showing a little bit more moderation, but I don't think there are any specific markets that we would call out as being significantly different. I would just say that there are pockets of moderation across regions. You know, where there is a little bit of softness, I think, in everybody reporting the same sort of sales, I think we're seeing the same thing, and, you know, we're adding so many customers in Southern California where we've, you know, added a state-of-the-art facility and more boots on the ground, and I think it's the same in You know, Florida had great numbers for us.
Speaker Change: Theres any specific markets that we would call out as being significantly different.
Speaker Change: So I would just say that there is.
Speaker Change #114: Marcus of moderation.
Speaker Change #121: Across across regions.
Chris Pappas: I mean, I'll add a little more color to that. I think that, you know, where there is a little bit of softness, I think, in everybody reporting in the Stamesource sales. I think we're seeing the same thing, and, you know, we're adding so many customers in Southern California where we've added, you know, a state-of-the-art facility and more boots on the ground. And I think it's the same in Florida. Florida had great numbers for us. You know, they continue to grow. You know, we started up pretty small. You know, we just opened up our new facility.
Speaker Change #129: I mean.
Speaker Change #117: I'll add a little more color to that I think that.
Speaker Change #114: Where there is a little bit of softness I think everybody reporting in the same store sales.
Speaker Change #103: I think we're seeing the same thing and we're adding so many customers in southern California, where we've added.
Speaker Change: Sure.
Speaker Change: State of the art facility and more boots on the ground and I think it's the same in Florida.
Alex: Florida, Florida had great numbers for us.
You know, we started off pretty small. You know, we just opened up our new facility, and I think any sort of softness and same-store sales, we're optimistic that we're making it up because we are, you know, winning, and we're adding, you know, continuing to add, you know, customers daily.
Alex: They continue to grow we started off pretty small we just opened up our.
Alex: The new facility.
Chris Pappas: And I think any sort of softness and St. Store sales, you know, we're optimistic that we're making it up because we are winning. And we're adding, you know, continuing to add, you know, customers. Daily, and I think it's because of our size too. We're able to be small. I think to the major players that we're in Florida, and I think that the Chef go to market strategy, who we are, what we're selling, is making up for any of that softness. I think we've seen this in our past so many years in business. It's really a pattern that we've done pretty well even when there's some headwinds and some softness in the consumer.
Speaker Change #111: I think any sort of softness in same store sales.
Speaker Change #111: We are optimistic that we are making it up because we are we are winning and we are adding continuing to add.
Alex: Customers.
And I think it's because of our size, too. You know, we're relatively small, I think, compared to the major players that were in Florida. And I think that, you know, the Chef go-to-market strategy, who we are, what we're selling, is making up for any of that softness. And, you know, I think we've seen this in our past so many years in business. You know, it's really a pattern that, you know, we've done pretty well, even when there are some headwinds and some softness, you know, in the consumer. That's great.
Alex: Ali and I think it's because of our size two were relatively small I think to the major players.
Ali: We are in Florida, and I think that the chef the chef go to market strategy, who we are what we're selling.
Alex: Is making up for any of that softness and I think we've seen this in our past so many years in business.
Alex: Sure.
Alex: It's really a pattern that we've done pretty well, even when there is some headwinds and some softness in the consumer.
Chris Pappas: That's great.
Alex: That's great and my second question, Jim you pointed to the international market is doing very well.
My second question, and Jim, you pointed to the international markets doing very well. Can you just remind us of the distribution facility expansion timing for CME and give me a sense of what the old facility could handle capacity-wise and what it should be able to handle post the expansion being done? Yeah, thanks for the question, Todd. Yeah, we're doubling the size of the facility. They were actually using a lot of kind of off-campus storage and freezer space, which was fairly expensive.
Jim Leddy: My second question, and Jimmy pointed to the international markets doing very well. Can you just remind us on the distribution facility expansion timing for CME and maybe a sense of what the old facility could handle capacity-wise and what it should be able to handle post the expansion being done? Thanks. Thanks for the question, Todd. We're doubling the size of the facility. They were actually using a lot of off-campus storage and freezer space, which was fairly expensive. We'll finish that project probably at the end of the third quarter, early fourth quarter, and then do a phase move through the fourth quarter.
Speaker Change #100: Can you just remind us on the distribution facility.
Speaker Change #208: Expansion timing for CME and.
Speaker Change #137: Maybe a sense of what the old facility could handle capacity wise and what is it.
Speaker Change #132: Should be able to handle.
Speaker Change #105: Post the expansion being done thanks.
Speaker Change #131: Thanks for the question Todd.
Speaker Change #100: Yes.
Speaker Change #116: We're doubling the size of the facility they were actually using a lot of kind of off campus storage and freezer space.
And so we'll finish that project probably at the end of the third quarter, early fourth quarter, and then do kind of a phased move through the fourth quarter. So we'll see most of the growth and benefits really come in during 25 and into 26. But, yeah, we're going from about 100,000 square feet to 200,000 square feet with a lot of room for growth. And that market is growing. It's very dynamic.
Speaker Change #100: Which is fairly expensive and so.
Speaker Change #100: We'll be we'll finish that project probably at the end of the third quarter early fourth quarter, and then do a kind of a phased move through the fourth quarter. So we'll see most of the growth in benefits really coming into 'twenty five and.
Peter Saleh: So we'll see most of the growth and benefits really coming into 25 and into 26, but yeah, we're going from about 100,000 square feet to 200,000 square feet with a lot of room for growth, and that market is growing. It's very dynamic. So we're pretty excited about it. And even in their current space, they've been doing really well as they continue to grow in that market. Okay, great. Thanks, guys. Thanks. The next question we have is from Peter Saleh of BTIG. Please go ahead. Great. Thanks. Congrats on the quarter. I didn't want to ask. It sounds like you guys are continuing to win with new restaurant openings and new restaurant formation.
Speaker Change #100: And into 'twenty, six but yeah.
Speaker Change #100: Yes.
Speaker Change #100: We're going from about 100000 square feet to 200000 square feet with a lot of room for growth in that market is growing it's very dynamic. So we're pretty excited about it and.
So we're pretty excited about it. And even in their current space, they've been doing really well as they continue to grow in that market. OK, great. Thanks, guys. Thanks. The next question we have is from Peter Saleh of BTIG. Please go ahead.
Speaker Change #100: And even in their current space, they've been they've been doing really well as as they continue to grow in that market.
Speaker Change #115: Okay, great. Thanks, guys.
Speaker Change #100: Thanks.
Speaker Change #147: The next question we have is from Peter <unk> of Citi. Please go ahead.
Speaker Change #118: Great. Thanks, and congrats on the quarter I did want to ask.
Great, thanks, and congrats on the quarter. I did want to ask, it sounds like you guys are continuing to win with new restaurant openings and new restaurant formations. I think you mentioned new customer acquisitions of about 10%. Is there any reason to believe that new restaurant formation will slow or that this trend will slow at all over the coming years? Is there anything that leads you to believe that this trend won't continue? Yeah, great question. You know, if I had the crystal ball, I'd feel a little bit better.
Speaker Change #120: It sounds like you guys are continuing to win with new restaurant openings and new restaurant formation. I think you mentioned new comes from acquisitions of about 10%.
Chris Pappas: I think you mentioned new customer acquisitions up about 10%. Is there any reason to believe that new restaurant formation will slow, or that this trend will slow at all over the coming years? Is there anything that leads you to believe that this trend won't continue? Great question. If I had the crystal ball, I feel a little bit better. But, you know, again, I could just go about our history, and the world's changed since COVID. I think I remember even coming out of COVID, I said there's going to be an acceleration of openings because they were delayed during COVID.
Speaker Change #130: Is there any reason to believe that that new restaurant formation will slow or that this trend will slow at all over the over the coming years is there anything that leads you to believe.
Speaker Change #113: This trend won't continue.
Speaker Change #108: Yes, great question.
Speaker Change #140: If I had the crystal ball I'd feel I feel a little bit better, but again I could just go about our history and the world's changed since COVID-19.
But, you know, again, I could just go back to our history and, you know, the world's changed since COVID. I think I remember, you know, even coming out of COVID, I said there was going to be an acceleration of openings because they were delayed, right, during COVID. And, you know, you see the real estate dynamics of trying to reinvent buildings that were offices and, you know, trying to change those neighborhoods into more, you know, where they can add housing.
Speaker Change #119: I think I remember.
Speaker Change #108: Even coming out of Covid, I've said, there's going to be an acceleration of openings because they were delayed right during COVID-19 and youll see a lot of change in cities.
Chris Pappas: And, you know, you see a lot of change in cities. You know, you see the real estate dynamics of trying to reinvent buildings that were offices and trying to change those neighborhoods into more where they can add housing. You know, we see a change in the suburbs where people are working more from home, you know, a few days a week. So I think restaurant tours, you know, continue to follow the money, and they continue to open restaurants where the traffic patterns seem to be, especially, you know, with real estate developers, a lot of them, you know, building restaurants to attract people to those areas.
Speaker Change #108: You'll see the real estate dynamics, we are trying to reinvent buildings that were offices in.
Speaker Change #108: We're trying to change those neighborhoods into more where they can add housing we see a change in the suburbs where people are working more from home.
You know, we see a change in the suburbs where people are working more from home, a few days a week. So I think restaurateurs, you know, continue to follow the money, and they continue to open restaurants where the traffic patterns seem to be, especially with real estate developers, a lot of them building restaurants to attract people to those areas, Peter. So I don't think I'm going to see much of a slowdown.
Speaker Change #108: A few days a week so.
Alex: Restaurant tours continue to follow the money.
Alex: And they continue to open.
Alex: Restaurants, where the traffic patterns seem to be especially.
Alex: Real estate developers a lot of them building restaurants to attract people to those areas be it or so.
Chris Pappas: So, I don't think I'm going to see much of a slowdown. I think a lot of the restaurant world is trying to reinvent itself, too, in a change. You know, there's more takeout, there's more, you know, what we have seen as proliferation of different types of restaurants and different types of food away from home. You know, I mean, I continue to believe that people really are too busy to want to cook. You know, even when they go into the markets, they're buying a lot of prepared foods, and I think more and more of our great chefs, restaurateurs are getting more and more into that business.
Alex: I don't I don't think im going to see much of a slowdown I think a lot of the restaurant world is trying to reinvent itself to an a change there's more takeout theres more.
I think a lot of the restaurant world is trying to reinvent itself, too, in a change. There's more takeout, there's more, you know. What we have seen is a proliferation of different types of restaurants and different types of food away from home. I continue to believe that people really are too busy to want to cook.
Speaker Change #149: What we have seen is a proliferation of different types of restaurants and different types of food away from home.
Alex: I continue to believe that people really are too busy to want to cook.
Alex: Even when they go into the markets. They are buying a lot of prepared foods, and I think more and more of our our great chefs.
You know, even when they're going to the markets, they're buying a lot of prepared foods, and I think more and more of our great chefs, restauranteurs, are getting more and more into that business, and I think that's, you know, making up for maybe where there's softness in the typical sit-down restaurants that people are used to. The other side of that business has accelerated, and it's, you know, better food that you can take out or get delivered, or it's food that, you know, you could sit down and eat, or you could take it home. So, you know, we're seeing a tremendous proliferation of new types of outlets for us to sell in. Great
Alex: Restaurant tours are getting more and more into that business and I think thats.
Chris Pappas: And I think that's, you know, making up for maybe where there's softness in the typical sit-down restaurants that people are used to. The other side of that business has accelerated in its, you know, it's better food that you could take out or get delivered, or it's food that, you know, you could sit down and eat or you could take it home. So, you know, we're seeing a tremendous proliferation of new types of outlets for us to sell. Great.
Alex: Making up for maybe where there is softness in the typical sit down restaurants that people are used to.
Alex: The other side of that business has accelerated.
Alex: <unk>.
Alex: It's better food that you can take out or get delivered or.
Alex: It's food that.
Alex: No.
Alex: You could you could sit down and aid or or you could take it home.
Alex: We're seeing a tremendous proliferation of of new types of of outlets for us to sell.
And then just on the investment in the sales team, you know, 10% annual sales growth or sales team growth over the past several years, you know, given your targets into 2028, are you anticipating to accelerate that or keep that kind of pace of investment in the sales team the same? Yeah, I mean, I think the pace is, you know, what we budgeted and forecasted to spend. You know, we're looking at the dynamics of our business.
Speaker Change #134: Great and then just on the investment.
Chris Pappas: And then just on the investment in the sales team, you know, 10% annual sales growth or sales team growth for the past several years. You know, given your targets into 2028, are you anticipating to accelerate that or keep that kind of pace of investment in the sales team the same? Yeah, I mean, I think the, I think the pace is, you know, what we, what we budgeted and forecasted to spend. You know, we're looking at the dynamics of our business. You know, there's been so much, so much talk about, you know, online will replace sales people, which we think online is making sales people more efficient in giving them more time to do what we really want them to do: be consultant.
Speaker Change #133: The sales team.
Speaker Change #139: Yes, 10% annual sales growth our sales team growth over the past several years.
Speaker Change #124: Given your targets into 2028 are you anticipating to accelerate that or keep that kind of pace of investment in the sales team the same.
Speaker Change #124: Yes.
Speaker Change #136: I think the pace is what we.
Speaker Change #124: What we budgeted and forecasted to.
Speaker Change #124: To spend.
Speaker Change #145: We're looking at the dynamics of our business Theres been so much.
You know, there's been so much talk about how online will replace salespeople, but we think online is making salespeople more efficient and giving them more time to do what we really want them to do, which is be consultants. And I think I've been beating that drum for the last four or five years that the crystal ball says that online is going to get better and better. You know, younger people as they come into the industry are going to use a lot of those tools because they're so used to being on an app and researching.
Speaker Change #124: So much talk about.
Speaker Change #124: Online will replace salespeople, which we think online is making salespeople more efficient and giving them more time to do what we really want them to do is be consultants and I think I've been.
Chris Pappas: And I think I've been beaten that drum for the last four, five years that, you know, the crystal ball says that, you know, online is going to get better and better. You know, younger people, as they come into the industry, are going to use a lot of those tools because they're so used to, you know, being on an app and researching. So, you know, we are investing in better information, more information online, being a partner to our customer, assisting them in menu development, assisting them in, you know, chefs are curious, you know, they're constantly, you know, wanting to learn and constantly wanting to invent.
Speaker Change #124: Beating that drum for the last four or five years that.
Speaker Change #127: The Crystal ball says that.
Speaker Change #127: Online is going to get better and better.
Alex: Longer people as they come into the industry are going to use a lot of those tools because they are so used to being on an app.
Alex: Researching so we don't know we are investing in.
So we are investing in better information, more information online, being a partner to our customers, assisting them in menu development, assisting them in, you know, Chefs are curious. You know, they're constantly wanting to learn and constantly wanting to invent. So we're trying to, you know, be that partner that's supplying that information. And again, we continue to add people because we see that, you know, for what we do, and it might not work for everybody's business.
Alex: Better information more information online.
Speaker Change #141: Being a partner to our customer assisting them in menu development.
Alex: Assistant and chefs securitas constantly wanting to learn and constantly wanting to invent so we're trying to be that partner that supplying that information.
Chris Pappas: So we're trying to, you know, be that, that partner that's supplying that information. And again, we continue to add people because we see that, you know, for what we do and it might not work for everybody's business, they want to see somebody who, you know, is talking to them. And we have, you know, a tremendous amount of talent that, you know, man's the phone still. And obviously, we could chat if you want to be just online. So we like to give our customers choices, and we think that, you know, we found a, a winning balance for now. It can always change, that really works for our customers and it's driving, you know, more volume to, to all our chef customers, all our chef outputs.
Alex: Again, we continue to add people because we see that for what we do and it might not work for everybody's business.
Alex: They want to see somebody who.
They want to see somebody who, you know, is talking to them. And we have, you know, a tremendous amount of talent that still answers the phone. And obviously, we could chat if you want to be just online.
Speaker Change #138: As talking to them and we have a tremendous amount of talent that man's the phone still.
Alex: Obviously, we could chat if you want to be just online so we'd like to give our customers choices and we think that we found a winning balance for now it can always change that really works for our customers and it's driving more volume to two all our chef customers all our chef op codes.
So we like to give our customers choices. And we think that, you know, we've found a winning balance for now, it can always change, that really works for our customers, and it's driving, you know, more volume to all our Chef customers. Thank you very much. The next question we have is from Kaylee Bania of BMO Capital Markets. Please go ahead. Hi, good morning. Ben Wood on for Cal.
Alex: Sure.
Chris Pappas: Thank you very much.
Speaker Change #155: Thank you very much.
Alex: Yeah.
Ben Wood: The next question we have is from Kylia of BMO Capital Markets. Please go ahead. Hi, good morning. This is Ben Wood on for Kelly. Thank you for taking our questions. So first we just wanted to dig in a little bit more on the unique customer growth and the placement growth. And are there specific regions or markets that are driving that, or is that fairly consistent throughout your markets? Just hoping you can help us frame how maybe high growth markets are comparing to your mature markets and if those high growth areas you're investing in how they are tracking against your expectations.
Alex: The next question, we have is from Kelly Bania of BMO capital markets. Please go ahead.
Don wood: Hi, Good morning. This is Don wood on for Kelly. Thank you for taking our questions.
[inaudible] So first, we just wanted to dig in a little bit more on the unique customer growth and the placement growth. Are there... and the regions or markets that are driving that, or is that fairly consistent throughout your markets? Just hoping you can help us frame how maybe high growth markets are comparing to your mature markets and if those high growth areas you're investing in are tracking against yours. Yeah, thanks for the question, Ben.
Don wood: First we just wanted to dig in a little bit more on the unique customer growth and the placement growth.
Speaker Change #142: Are there specific regions or markets that are driving that or is that fairly consistent throughout your markets.
Speaker Change #107: Just hoping you can help us frame, how maybe high growth markets are comparing to your mature markets and if those high growth areas you're investing in.
Speaker Change #144: How they are tracking against your expectations.
Yeah, we always have, you know, like Chris mentioned in his prepared remarks, we always have in our portfolio a mix of more mature markets, you know, like the Northeast and, you know, other areas that we've been operating in for 40 years. And then our newer, higher growth investment markets that we've talked about, you know, as we're coming out of our heavy investment cycle, like Florida and Southern California, Dubai, Seattle, some of our smaller markets like Nashville and Michigan that we're making investments in, and we have higher growth.
Jim Leddy: Yeah, thanks for the question, Ben. Yeah, we always have, you know, like Chris mentioned in his prepared remarks. We always have, in our portfolio, you know, a mix of more mature markets, you know, like the Northeast and, you know, other areas that, you know, we've been operating for 40 years. And then our newer higher growth investment markets that we've talked about, you know, as we're coming out of our heavy investments cycle like Florida and Southern California, Dubai, Seattle, some of our smaller markets like Nashville and Michigan and that are, you know, we've making investments in and we have higher growth.
Speaker Change #160: Yes. Thanks for the question Ben Yes, we always have.
Christopher Pappas: Chris mentioned in his.
Speaker Change #148: Prepared remarks, we always have in our portfolio.
Speaker Change #148: A mix of more mature markets.
Speaker Change #148: The northeast and other areas that.
Speaker Change #107: We've been operating for 40 years, and then our newer higher growth investment markets that we've talked about you know as we're coming out of our heavy investment cycle, like Florida, and Southern California, Dubai, Seattle, some of our smaller markets like Nashville in Michigan that are we are making investments in and.
So, yeah, I mean, it's like any portfolio of businesses where your high growth markets are going to contribute more to, you know, unique customer acquisition; your mature markets, you're growing more through category expansion and growing more relevance with your customers through item penetration, selling more items, as well as, you know, growing in the outlying markets, you know, call it the higher income suburbs around the major cities. And that's how you grow in your mature markets.
Speaker Change #107: We have higher growth. So yes, I mean, it's like any portfolio of businesses, where youre high growth markets are going to contribute more to.
Jim Leddy: So yeah, I mean, it's like any portfolio of businesses where your high growth markets are going to contribute more to, you know, unique customer acquisition. Your mature markets, you're growing more through category expansion and growing more relevance with your customers through item penetration, selling more items, as well as, you know, growing in the outlying markets, you know, call it the higher income suburbs around the major cities. And that's how you grow in your mature markets. So, you know, we have 54 locations in 32 or 33 operating markets now. So there's always a good balance between your more mature markets and then your high growth markets.
Speaker Change #123: Unique customer acquisition you made.
Speaker Change #107: Sure markets Youre growing more.
Speaker Change #151: More through category expansion and growing more relevance with your customers through through item penetration selling more items.
So, you know, we have 54 locations in 32 or 33 operating markets now. So, there's always a good balance between your more mature markets and then your high-growth markets. And I think, you know, we expect that the big investments that we've made in capacity, in infrastructure, in Salesforce, that we talked about are going to drive a lot of our growth going forward. Okay, that's helpful, and then just a follow-up on...
Speaker Change #107: As well as growing in the outlying markets.
Speaker Change #107: Call it the higher income suburbs around the major cities and that's how you grow in your mature markets. So.
Speaker Change #107: We have.
Speaker Change #107: <unk>.
Speaker Change #107: 54 locations in 32% or 33.
Speaker Change #107: Operating.
Speaker Change #107: Markets now so.
Speaker Change #107: There is always there is always a good balance between your more mature markets and then your high growth markets and I think you know.
Jim Leddy: And I think, you know, we expect that the big investments that we've made in capacity, in infrastructure, and sales force that we talked about are going to drive, you know, a lot of our growth going forward.
Speaker Change #107: We expect that the big investments that we've made in capacity.
Speaker Change #107: In infrastructure and sales force that we talked about are going to drive a lot of our growth going forward.
Jim Leddy: Okay, that's helpful. And then just to follow up on maybe some of the new restaurant openings you're seeing for your core end customers, do you guys have an estimate on the pace that you're currently seeing in new restaurant openings? And how does that compare to maybe the current levels? It sounds like Chris has mentioned that it was faster than normal, potentially, but just wanted to make sure I understood that correctly. Yeah, again, I think our numbers, we're growing in new markets, so for us it's new accounts. So I don't think our systems differentiate between a new customer and a new opening.
Speaker Change #171: Okay. That's that's helpful. And then just a follow up on on maybe.
Some of the new restaurant openings for your core end customers. Do you guys have an estimate on the pace that you're currently seeing in new restaurants? How does that compare to maybe the current levels? It sounds like Chris, faster than normal, potentially, but just wanted to make sure I understood that.
Speaker Change #185: The new restaurant openings Youre seeing for your core end customers.
Speaker Change #193: Do you guys have an estimate on the on the pace that you're currently seeing in new restaurant openings and how does that compare to maybe the current levels. It sounds like Christmas.
Speaker Change #150: You mentioned that it was.
Speaker Change #173: Faster than normal potentially but just wanted to make sure I understood that correctly.
Speaker Change #150: Yes.
Yeah, I think, again, I think, um, You know, our numbers, you know, we're growing in new markets, so, you know, for us, it's new accounts, right, so I don't think our systems differentiate between a new customer and a new opening, so I think the numbers are a little fuzzy there, so, you know, I think Jim said before, you know, we had 10% increase in customer base overall, so, you know, part of that are brand new openings, and part of those are a lot of new customers for Chef, but, you know, what I can tell you anecdotally we've seen is a lot of development, you know, when I look at Florida, you know, we see tremendous development in new neighborhoods, new buildings, and they're all adding restaurants, you know, and restaurants, I think are, you know, how developers use as a, you know, as a reason for someone to come look at their building, so I just continue to see as, you know, especially in the American market, you know, Dubai, we have tremendous amounts of openings constantly, but in the U.S. market, you know, you kind of see still a shifting of where people are choosing to live, you know, I still don't think we're, you know, at the, what anyone would call normal, right, I don't know what normal is anymore, you know, people are working hybrid, are they all going to come back to the office five days a week, so I think restaurateurs and developers are kind of following, you know, following the, where people are migrating to, you know, to live, and they're building restaurants, and they're building apartments, and they're building homes, and I don't see that slowing down, I mean, anything could happen, but I think it's at a pretty healthy pace. Great. Thank you very much.
Speaker Change #154: Again I think.
Speaker Change #172: We know our numbers.
Speaker Change #150: Sure.
Speaker Change #170: We're growing in new markets. So.
Speaker Change #107: For us its new accounts right. So I don't think our systems differentiate between a new customer and a new opening so I think the numbers are a little fuzzy there. So I think Jim said before we we had 10% increase in customer.
Chris Pappas: So I think the numbers are a little fuzzy there, so I think Jim said before we had a 10% increase in customer base overall. So part of that are our brand new openings, and part of those are a lot of new customers for chef. But what I could tell you anecdotally, we've seen is a lot of development. When I look at Florida, we see tremendous development in new neighborhoods, new buildings, and they're all adding restaurants. In restaurants, I think our developers use as a reason for someone to come look at their buildings. So I just continue to see, especially in the American market, Dubai. We have tremendous amounts of openings constantly, but in the US market, you kind of see still a shifting of where people are choosing to live.
Speaker Change #107: Base.
Jim: Overall, so part of that are brand new openings and part of those are a lot of new customers.
Speaker Change #200: Chef, but what I can tell you anecdotally we've seen is a lot of development when I look at Florida, We see tremendous development in new neighborhoods, new buildings, and Theyre, all adding restaurants and restaurants I think are developers use.
Speaker Change #159: As a.
Speaker Change #159: As a reason for someone to come look at their building so.
Jim: I just I just continue to see us.
Jim: Especially in the.
Jim: <unk> market.
Jim: Dubai, we have tremendous amounts of openings constantly but.
Jim: In the U S market.
Jim: You kind of see still a shifting of of where people are choosing to live.
Chris Pappas: I still don't think we're at anyone would call normal. I don't know what normal is anymore. People are working hybrid; are they all going to come back to the office five days a week? So I think restaurant tours and developers are kind of following where people are migrating to live, and they're building restaurants and they're building apartments and they're building homes. And I don't see that slowing down. I mean, anything could happen, but I think it's at a pretty healthy pace.
Jim: I don't think we're at the what anyone would call normal right I don't know what normal is anymore.
Jim: People are working hybrid or are they all going to come back to the office five days a week.
Jim: So I think restaurant tours and developers are kind of following following the.
Jim: Where people are migrating to two to live and they are building restaurants and building apartments and they are building homes.
Speaker Change #152: And I don't know.
Jim: I don't I don't see that slowing down I mean anything could happen, but I think it's at a pretty healthy pace.
Ben Wood: Great. Thank you very much.
Speaker Change #163: Great. Thank you very much thanks.
Andrew Wolf: Thanks very much. The next question we have is from Andrew Wolfe of Field King. Please go ahead. Hi, good morning. Thank you. I wanted to ask about margins, first the gross margin and specialty, you know, expanded nice. I think you said 50 bay flips, and I think it was kind of flatish last quarter.
Ben: Thanks Ben.
Speaker Change #143: The next question, we have is from Andrew Wolf of C. L. King. Please go ahead.
Thanks, Ben. The next question we have is from Andrew Wolf of Seal King. Please go ahead.
Andrew Paul Wolf: Hi, good morning, Thank you.
All right, good morning. And I wanted to ask you about... Margins. First, the gross margin at specialty, you know, expanded. Um, could you just give us a chance of, uh... What was accounted for the nice increase in the margin? Is it sort of for buying inflation back, or is it a mix, or German, or just kind of randomness?
Andrew Paul Wolf: Wanted to ask you about.
Speaker Change #194: Margins first the gross margin in specialty.
Speaker Change #164: Banded nicely I think you said 50 basis, yes.
Speaker Change #168: And I think it was kind of flattish last quarter.
Jim Leddy: Could you just give us a sense of what it counted for the increase in the margin and is it sort of for buying inflation back or mix or German or just an arrangement. and the inventory management, and sort of a feeling for sustainability. Yeah, thanks for the question, Andy. I think it just goes back to kind of the improvement we started to drive coming out of the summer last year into September and the fourth quarter. But it's also the fruition of a lot of work that our pricing and procurement teams and our sales management teams have been doing around margin management.
Speaker Change #176: Could you just give us a sense of.
Speaker Change #153: What was it accounted for the nice increase in the margin.
Speaker Change #175: Is it sort of or buying inflation bankers.
Speaker Change #153: Sure.
Jeremy: Jeremy or just randomness.
Speaker Change #157: The inventory management.
Speaker Change #157: And sort of a feeling for sustainability.
Ben: Yes. Thanks for the question Andy I think it just goes back to kind of the improvement we started to drive coming out of the <unk>.
Inventory management and, you know, sort of a feeling for sustainability. Yeah, thanks for the question, Andy. You know, I think it just goes back to kind of the improvement we started to drive coming out of the summer last year into, you know, September in the fourth quarter. But it's also the fruition of a lot of work that our pricing and procurement teams and our sales management teams have been doing around margin management. You know, we've invested in a lot of tools, a lot of technology, and a lot of focus on, you know, margins after we experienced some of that volatility last year. And that's just continued.
Ben: The summer last year into September and the fourth quarter.
Ben: But it's also the fruition of a lot of work.
Ben: That our pricing and procurement teams and our sales management teams have been doing around margin management, we've invested in a lot of tools a lot of technology.
Jim Leddy: We've invested in a lot of tools, a lot of technology, and a lot of focus on margins after we experienced some of that volatility last year. And that's just continued. And so it's everything from reducing errors in inventory management that lead to waste that impact your margins. It's everything from further integration of our acquisitions and driving the cross-cell. Texas is a good example as we further integrated our sales teams and our inventory with our CW specialty business and parties, the produce business. We've been able to improve overall margins there as we're selling more expensive specialty boxes on their trucks, as we're growing relevance with our customers by having the produce category.
Ben: And a lot of focus on.
Ben: Margins.
Ben: After we experienced some of that volatility last year and Thats just continued.
And so it's everything from reducing, you know, errors in inventory management that lead to waste that impacts your margins. It's everything from, you know, further integration of our acquisitions and driving cross-sell. You know, Texas is a good example as we've further integrated our sales teams and our inventory with our CW specialty business and Hardee's, the produce business. We've been able to improve overall margins there as we're selling more expensive specialty boxes on their trucks, as we grow relevance with our customers by having the produce category.
Ben: And so it's everything from reducing.
Ben: Errors and inventory management that lead to waste that impact your margins.
Ben: It's everything from.
Ben: Further integration of our of our acquisitions and driving the cross sells you know, Texas is a good example, as we've as we further integrated our sales teams and our inventory with our CW specialty business.
Ben: And the parties of the produce business.
Ben: We've been able to improve overall margins there as we're selling more.
Ben: More expensive specialty boxes on their trucks as we're growing relevance with our customers by having the produce category and then obviously, it's not specialty related but.
Jim Leddy: And then obviously it's not specialty related, but we invested and built an Allen Brothers processing plant in Texas. And we're selling more expensive protein boxes on those trucks through our processing facility there. So it's really a combination of things and a lot of really good work by a lot of our teams coming together, and we're just seeing that continue. Okay, thanks. That's helpful.
And then, obviously, it's not specialty related, but we invested in and built an Allen Brothers processing plant in Texas, and we're selling more expensive protein boxes on those trucks through our processing facility there. So it's really a combination of things and a lot of really good work by a lot of our teams coming together, and we're just seeing that continue. Okay, thanks, that's helpful.
Ben: We invested and built a and Allen brothers processing plant in Texas, and we're selling more expensive protein boxes on those trucks.
Ben: Through our processing facility. There. So it's really a combination of things and a lot of really good work.
Ben: By a lot of our teams coming together and we're just seeing that continue.
Same question, but looking at the kind of adjusted expense ratio, you know, it did expand by a little less than last quarter. And obviously, with all the new facilities, there's a lot of over, you know, unabsorbed overhead. But I'm, You know, what is the outlook there? I mean, are you going to have slow progress?
Speaker Change #162: Okay. Thanks, that's helpful.
Jim Leddy: Same question, but looking at the kind of adjusted expense ratio, you know, it did expand again, but by a little less than last quarter. And obviously, with all the new facilities, there's a lot of over, you know, an absorbed overhead and maybe even some of the variable costs you're obviously maybe not optimized yet. But, you know, one is the outlook there. I mean, you're going to have slow progress, and that's sort of just a slow and steady at the center still up. Or there are other parts of the business where maybe labor inflation or other issues are still kind of impacting overall, you know, expense leverage.
Speaker Change #184: Same question, but looking at the kind of adjusted expense ratio.
Speaker Change #174: It did expand again led by a little less than last quarter.
Speaker Change #186: And obviously with all the new facilities, there's a lot of Oliver Unabsorbed overhead and maybe even some of the variable costs are obviously, maybe not optimized yet but.
Speaker Change #183: What is the outlook. There I mean are you going to have slow progress is that sort of just a slow and steady is the centers or are there other parts of the business, where maybe labor inflation or other issues are still kind of impacting overall.
This concludes today's webinar. Maybe labor inflation or other issues are still there. [inaudible] uh... expenseless, No, we talked about it earlier when we gave the guidance, Andy, if you recall, the operating leverage is, you know, weighted to the back half of the year, mainly the fourth quarter. So we got a modicum this quarter; we expect, you know, a little bit more in Q3, but in Q4 is where we expect because we'll fully lap some of the big facility and the expenses, the operating expenses that are associated with those big facility investments, really in the back half of the year and then into 25.
Speaker Change #165: Expense leverage.
Jim Leddy: No, we talked about it, you know, earlier when we did the guidance, Andy, if you recall, the operating leverage is, you know, waited to the back half of the year. Mainly the fourth quarter. So we got a motor come this this quarter. We expect, you know, a little bit more in Q3, but in Q4 is where we expect because we'll fully lap some of the big facility and the expenses, the operating expenses that are associated with those big facility investments really in the back half of the year and then into 25. So, you know, similar to our, our Cap X is more heavily weighted to the, you know, the first half of the year because we're finishing those projects.
Speaker Change #196: No we talked about it.
Ben: Earlier.
Speaker Change #167: When we gave the guidance Andy if you recall.
Speaker Change #181: The operating leverage is weighted to the back half of the year, mainly the fourth quarter. So we got more to come.
Speaker Change #166: This quarter, we expect.
Speaker Change #189: A little bit more in Q3, but in Q4 is where we expect because we will fully lap some of the big facility.
Speaker Change #189: And the expenses the operating expenses that is.
Speaker Change #166: Associated with those big facility investments really in the back half of the year and then into 'twenty five so similar.
So, you know, similar to our CAPEX is more heavily weighted to the first half of the year because we're finishing those projects, our operating leverage related to the expenses is weighted towards the back half of the year. And the guidance implies that it's really nothing more than that.
Speaker Change #166: Similar to our.
Speaker Change #166: Our capex is more heavily weighted to the the.
Speaker Change #166: The first half of the year, because we're finishing those projects our operating leverage related to the expenses is weighted towards the back half of the year and the guidance implies that it's really nothing more than that obviously in the fourth quarter. We we normally get the most operating leverage just driven by the topline.
Jim Leddy: Our operating leverage related to the expenses is weighted towards the back half of the year, and the guidance implies that. It's really nothing more than that. Obviously, in the fourth quarter, we would normally get the most operating leverage just driven by, you know, the top line power of the fourth quarter versus really the rest of the year. here. Okay. Got it. Thank you for me.
Obviously, in the fourth quarter, we normally get the most operating leverage just driven by, you know, the top line power of the fourth quarter versus really the rest of the year. Okay, got it. Thank you. That's it for me.
Speaker Change #166: Power of the fourth quarter versus really the rest of the year.
Speaker Change #166: Okay.
Speaker Change #156: Got it. Thank you that's it from me.
Thanks, Andrew. The next question we have is from Ben Klieve of Lake Street Capital Market. Please go ahead. All right, thank you for taking my questions, and congratulations on a nice quarter here. Jim, I had a follow-up question for you.
Ben Klieve: Thanks, Andy. The next question we have is from Ben Klieve of Lake Street Capital Market. Please go ahead. All right. Thank you for taking my questions. I grabbed on a nice quarter here. Jim, I had a follow-up question for you. You noted that you are seeing some customers eating nice burgers instead of nice steaks. And I'm wondering if you can comment a bit on kind of the impact of the beef complex on your business. Specifically, has the persistent increase in beef prices really flowed through your financials as you would expect. And then also looking forward, as the price of beef versus other proteins really just continues to widen.
Andy: Thanks, Andy.
Speaker Change #190: The next question, we have is from bank of Nextgen capital market. Please go ahead.
Speaker Change #177: Alright, Thanks for taking my questions and congrats on a nice quarter here, Jim I have a follow up question for you you noted.
You noted that you are seeing some customers eating nice burgers instead of nice steaks, and I'm wondering if you can comment a bit on the impact of the beef complex on your business, specifically, has the persistent increase in beef prices really flowed through your financials as you would expect? And then also looking forward, as the price of beef versus other proteins really just continues to widen, is there anything to call out on a forward-looking outlook specifically related to that?
Speaker Change #178: You are seeing some customers eating nice burgers and set a nice steaks and I'm wondering if you can comment a bit on kind of the impact of the beef complex on your business specifically has the kind of persistent increase in beef prices really flowed through your financials as you know.
Speaker Change #199: As you would expect.
Speaker Change #192: And then also looking forward as the price of beef versus other proteins really.
Speaker Change #156: Just.
Speaker Change #195: <unk> to widen is there anything to call out on a forward looking outlook specifically related to beef.
Jim Leddy: Is there anything to call out on a forward-looking outlook specifically related to beef? Well, I mean, I think the first thing I would add is that beef prices in general have been going up as much as everybody expected. And actually, you know, while the year-over-year price inflation we reported was about 4%. Really, it was very; it was flat versus the first quarter sequentially. And fairly flat, you know, versus the back half of last year. So actually, a lot of the middle meats and the middle cuts are actually, you know, prices have been moderating. And even in the last couple of months, even the higher end has moderated a little bit.
Well, I think the first thing I would add is that beef prices in general haven't gone up as much as everybody expected. And actually, you know, while the year-over-year price inflation we reported was about 4%, really, it was flat versus the first quarter, sequentially, and fairly flat, you know, versus the back half of last year.
Speaker Change #179: Well I mean, I think the first thing I would add is that beef prices in general haven't gone up as much as everybody expected and actually.
Speaker Change #188: While the year over year price inflation, we reported was about 4%.
Speaker Change #188: Really it was very it was flat versus the first quarter sequentially and fairly flat versus the back half of last year, So actually a lot of the the.
So actually, a lot of the middle cuts are actually, prices have been moderating. And even in the last couple of months, even the higher end has moderated a little bit. So you know, the year-over-year is a little misleading versus what's happening in the market right now. You're not seeing incredible spikes.
Speaker Change #197: The middle meats.
Speaker Change #197: The middle cuts are actually.
Speaker Change #156: Prices had been moderating.
Speaker Change #156: And even in the last couple of months, even the higher end has moderated a little bit so the.
Jim Leddy: So, you know, the year-over-year is a little misleading versus what's happening in the market right now. You're not seeing incredible spikes. And I think a lot of that is driven by the fact that retail demand is lower and is that really drives the price of beef. Yeah. And I think they add a little bit more color to, you know, our customers substituting, you know, eating hamburger versus steak.
Speaker Change #156: The year over year.
Speaker Change #156: Little misleading versus what's happening in the market right now youre not seeing incredible spikes in I think a lot of that is driven by the fact that retail retail demand is lower.
And I think a lot of that is driven by the fact that retail demand is lower, and that really drives the price. Yeah, and I think they add a little bit more color to our customers, substituting eating a hamburger versus steak. Again, I mean, steakhouses are a small part of our total business, so steakhouses are a little bit more unique as to why customers go to a steakhouse. But we sell so much protein, so much beef to our thousands and thousands of other customers, and again, they're creative.
Speaker Change #156: <unk>.
Speaker Change #156: And is that really drives the price of beef.
Speaker Change #156: And I think to add a little bit more color too.
Speaker Change #156: The.
Speaker Change #156: Our customers substituting eating a hamburger versus stake again steakhouses are a small part of our total business. So.
Jim Leddy: Again, I mean, steak houses are a small part of our total business. So, you know, steak houses are a little bit more unique, you know, of white customers go to a steak house. But, you know, we sell so much, so much protein, so much beef to our thousands of thousands of other customers. And again, they're creative, you know. That's why we have these state-of-the-art cut shops and all the talent that we have to create, you know, whether it's going from a 14-ounce to a 12-ounce type of steak, you know, different types of cuts, how they mix and match their menus, you know.
Speaker Change #156: Steakhouses are a little bit more unique.
Speaker Change #187: Why customers go to a steakhouse.
Speaker Change #187: But we sell so much so much protein so much beef too.
Speaker Change #187: To our thousands and thousands of other other customers and again they are creative that's why we have these state of the art cut shops.
That's why we have these state-of-the-art cut shops and all the talent that we have to create, whether it's going from a 14-ounce to a 12-ounce type of steak, different types of cuts, how they mix and match their menus, so it can give maybe a little better value entry point to different types of customers. But we still see a very healthy demand for our prime steaks, our Wagyu steaks So the demand is still strong. But is it as strong as it was coming out of COVID?
Speaker Change #187: The talent that we have.
Speaker Change #187: To create whether it's going from a 14 ounce to a 12 ounce type of stake different types of cuts how they mix and match their menus.
Jim Leddy: So, it can give maybe a little bit of value. Entry point to, you know, types of different types of customers. So, we still see a very healthy demand for, you know, our prime steaks, our Wagyu steaks, our Japanese steaks. So, you know, the demand is still strong. Is it as strong as it was coming out of COVID? We didn't expect it to be, you know, we think that was a once-in-a-lifetime kind of like, you know, big rush everybody going out and enjoying life again. So, I think we're going back to, you know, more normalcy. And, you know, I've seen these cycles before and that's why, you know, we have, you know, five, six different types of premium choices for customers and say in our custom grinding operations.
Speaker Change #156: So.
Speaker Change #204: It can give us maybe a little better value entry.
Speaker Change #202: Entry 0.2 types of different types of of.
Speaker Change #156: <unk>, so we still see a very healthy demand for our our prime steaks are Wagga Stakes are our Japanese.
Speaker Change #156: Stakes so.
Speaker Change #191: The demand is still strong is it as strong as it was coming out of Covid, we didn't expect it to be.
We didn't expect it to be. We think that was a once-in-a-lifetime kind of like big rush, everybody going out and enjoying life again. So I think we're going back to more normalcy, and I've seen these cycles before, and that's why we have five, six different types of premium choices for customers, and say in our custom grinding operations, and we're also cutting all different types and maybe smaller-sized portions for customers who want to keep the quality and maybe lower their price a few bucks per steak by offering, you see it on a lot of the menu, a petite filet, or we sell a tremendous amount of obviously skirt steaks and different cuts that fit people's menus.
Speaker Change #191: Think that was a once in a lifetime kind of like.
Speaker Change #191: Big Rush, everybody going out and enjoying life again, so I think it will go back to more normalcy and.
Speaker Change #191: I've seen these cycles before and that's why.
Speaker Change #201: We have five six.
Speaker Change #191: <unk> types of premium.
Speaker Change #156: Our choices for customers and say in our custom grinding operations and we're also cutting.
Jim Leddy: And we're also cutting, you know, all different types and maybe smaller size portions for customers who, you know, want to keep the quality and maybe lower their price a few bucks per steak by, you know, offering, you know, you see it on a lot of the manual, petite filet, or, you know, we sell a tremendous amount of obviously skirt steaks and different cuts that fit people's menus. So, again, our customer base, which is mainly the independence, are extremely creative. And I think they're going to continue to find ways to get customers in the door and stay profitable and meet a price point that, you know, the customer base at the date and time, you know, with all the media on saying things are changing or, you know, the economy slowing, you know, has a kind of effect.
Speaker Change #156: All different types, and maybe smaller sized portions for customers, who want to keep the quality and maybe lower their price a few bucks per stake by.
Speaker Change #156: Offering.
Speaker Change #156: You'll see it on a lot of the manual Petite filet.
Speaker Change #156: Sure.
Speaker Change #156: We saw a tremendous amount of obviously skirt steak and different cuts that fit peoples' menu. So again, our customer base, which is mainly the independents are.
So again, our customer base, which is mainly independents, is extremely creative, and I think they're going to continue to find ways to get customers in the door and stay profitable and meet a price point that the customer base at the date and time. I think all the media saying things are changing or the economy is slowing has the kind of effect, but overall, our customer base is really more high-end, and I think it affects them less.
Speaker Change #180: <unk> creative.
Speaker Change #180: Yes.
Speaker Change #180: I think theyre going to continue to find ways to get customers in the door and stay profitable and meet a price point that.
Speaker Change #180: The customer base.
Speaker Change #180: The date and time.
Speaker Change #180: I think with the.
Speaker Change #180: While the media on saying things are changing or economy slowing.
Speaker Change #180: Has the kind of effect, but.
Jim Leddy: But overall, our customer base, you know, is really more higher end, and I think it affects them less. Got it. Very helpful from both of you. Thanks for the color there.
Speaker Change #180: Overall, our customer base.
Speaker Change #198: It was really more higher end and I think it affects them less.
Got it. Got it. Very helpful from both of you. Thanks to the caller there. Thanks for taking my questions. I'll get back in queue. Thanks, Ben. Thank you. At this time, there are no further questions, and I would like to hand the call back over to Chris Pappas for any closing remarks. Well, we hope everybody is having a great summer, and we thank everybody for joining us on our call, and we look forward to everyone joining us on our next quarterly call. Thank you very much. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your line.
Speaker Change #206: Got it got it very helpful from both of you. Thanks for the color there. Thanks for taking my questions I'll get back in queue.
Ben Klieve: Thanks for taking my question. Look it back and cue. Thanks, Ben. Thank you.
Pam: Thanks Pam.
Speaker Change #207: Thank you at this time there are no further questions and I would like to hand, the call back over to Chris Pappas for any closing comments.
Chris Pappas: At the time, the honor for the questions, and I would like to hand the call back over to Chris Pappas for any closing comments. Sure. Well, we hope everybody is having a great summer, and we thank everybody for joining us on our call. We look forward to everyone joining on our next quarter. Thank you very much.
Christopher Pappas: Sure well, we hope everybody is having a.
Christopher Pappas: A great summer.
Christopher Pappas: We thank everybody for joining us on our on our call and we look forward.
Christopher Pappas: For everyone joining on our.
Christopher Pappas: On our next quarter. Thank you very much.
Operator: Thank you.
Speaker Change #203: Thank you.
Operator: Ladies and gentlemen, that concludes today's conference. Thank you for joining us.
Speaker Change #182: Ladies and gentlemen that concludes today's conference. Thank you for joining US you may now disconnect your lines.
Operator: You may now disconnect your lines.