Q4 2024 The Chefs' Warehouse Inc Earnings Call
[music].
Greetings and welcome to the chefs warehouse fourth quarter 2024 earnings conference call.
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.
Speaker Change: Please go ahead Sir.
Speaker Change: 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 fourth quarter 2024 earnings press release. It can also be found at www dot chefs warehouse dot 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 adjusted EBITDA adjusted net income adjusted earnings per share adjusted operating expenses net debt leverage and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated.
Speaker Change: Differently from similarly, titled non-GAAP financial measures used by other companies quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release and fourth quarter 2024 earnings presentation before we begin our formal remarks I need to remind.
Speaker Change: 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.
Speaker Change: 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 some of these risks are mentioned in todays release, others are disclosed in our annual report on Form 10-K, importantly reports on Form 10-Q, which are available on the SEC website.
Speaker Change: Today, we are going to provide a business update and go over our fourth quarter results in detail for a portion of our discussion. This morning, we will refer to a few slides posted on the chefs warehouse website under the Investor Relations section titled Fourth quarter 2024 earnings presentation. Please note that these slides are disclosed at this time for illustration.
Speaker Change: Purposes, only then we will open up the call for questions with that I will turn the call over to Chris Pappas Chris.
Speaker Change: Thank you Alex Thank you all for joining our fourth quarter 2024 earnings call.
Speaker Change: Business activity and demand remained consistently strong through the fourth quarter amidst a healthy environment for our core upscale casual to higher end dining customer base.
Speaker Change: Our teams across domestic and international markets provide an excellent product and service amidst a busy holiday season and delivered the first $1 billion plus revenue quarter.
Speaker Change: <unk> warehouse history and strong growth in gross profit dollars in March.
Speaker Change: During the quarter, we continued growing market share.
Speaker Change: Here with strong year over year growth and unique item placement and new customer acquisition.
Speaker Change: I'd like to thank the entire chefs warehouse team for their dedication and commitment in delivering a strong 2024 for our team members, our customers and supply partners and our shareholders.
Speaker Change: Now please refer to slide three of the presentation.
Speaker Change: A few highlights from the fourth quarter include.
Eight 7% growth in net sales.
Speaker Change: Specialty sales were up 11, 5% over the prior year, which was driven by unique customer growth of approximately four 5%.
Speaker Change: Placement growth of 12, 3% and specialty case growth of six 1%.
Speaker Change: Pounds in center of the plate or approximately three 6% higher than the prior year fourth quarter.
Speaker Change: Gross profit margins increased approximately 23 basis points.
Speaker Change: Gross margin in the specialty category increased approximately 22 basis points as compared to the fourth quarter of 2023, while gross margin in the center of the play category decreased approximately 70 basis points year over year.
Speaker Change: Jim will provide more detail on gross profit margins in a few moments.
Speaker Change: Now please refer to slide four.
Speaker Change: Sure one provides a full year 2024 update to gross profit dollars per route.
The 2019.
Speaker Change: Truck to provide full year 2024, adjusted operating expense as a percentage of gross profit dollar improvement by 24 basis points versus 2023, and 92 basis points versus 2019.
Speaker Change: Full year 2024, adjusted EBITDA per employee increased 13% versus 2023 and 18% versus 2019.
Speaker Change: Now please refer to slide five.
Speaker Change: <unk> display the progression of customer orders come in via our digital platform.
Speaker Change: Which include orders coming via mobile and website invest.
Speaker Change: Investments in our digital platform continue to contribute to margin enhancement as our team drives both online order adoption growth.
Speaker Change: Hansman to customer facing functionality and improved real time data and analytics.
Speaker Change: Our sales team.
Speaker Change: The fourth quarter of 2020 for approximately 56% of customers ordering through our domestic specialty locations are.
Speaker Change: Our online versus online versus 48% in 2023 and 20% at year end 2019.
Speaker Change: Now please refer to slide six.
Slide six plays the five key areas that our teams are focused on in order to deliver our expectation of continued above industry average top line gross profit dollar and adjusted EBIT EBIT growth as well as targeted incremental adjusted EBITDA margin improvement over the next.
Speaker Change: For years we.
Speaker Change: We look forward to expanding more on each of these areas at our Investor day This coming March.
Speaker Change: 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 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.
Speaker Change: Please refer to slide seven.
Speaker Change: Net sales for the quarter ended December 27, 2024 increased approximately eight 7% a 1.034 billion from $955 million in the fourth quarter of 2023.
Speaker Change: Net inflation was three 8% in the fourth quarter, consisting of five 1% inflation in our specialty category and inflation of one 8% and our center of the plate category versus the prior year quarter.
Speaker Change: Reported inflation was impacted by two primary factors in the fourth quarter versus the prior year quarter.
Speaker Change: And the chocolate category continued to.
Speaker Change: To remain elevated versus the prior year and specialty product cross sell growth in Texas as we combined our legacy specialty and protein sales with our hardee's produce operation average revenue per case in Hardie has increased approximately 15% versus the fourth quarter of 2023 as the mix of higher dollar specialty.
Speaker Change: Cases increased.
Speaker Change: The impact of the Texas Cross sell growth aggregate specialty inflation was approximately three 6% and overall inflation for the company was approximately 3%.
Speaker Change: Gross profit increased nine 8% to $251 million for the fourth quarter of 2024 versus $228 6 million for the fourth quarter of 2023 gross profit margins increased approximately 23 basis points to 24, 3%.
Speaker Change: And our procurement sales pricing and operating teams delivered strong gross profit dollar growth across categories during the quarter.
Speaker Change: Selling general and administrative expenses increased approximately eight 9% to $206 8 million for the fourth quarter of 2024 from $190 million for the fourth quarter of 2023. The increase was primarily due to higher depreciation and amortization driven by facility investments and costs associated with <unk>.
Speaker Change: Compensation facilities and distribution to support sales growth.
Speaker Change: Adjusted operating expenses increased seven 7%.
Speaker Change: As the prior year fourth quarter and as a percentage of net sales adjusted operating expenses were 17, 7% for the fourth quarter of 2024.
Speaker Change: Operating income for the fourth quarter of 2024 was $46 5 million compared to $38 2 million for the fourth quarter of 2023 <unk>.
Speaker Change: 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.
Speaker Change: Our GAAP net income was $23 9 million or <unk> 55 cents per diluted share for the fourth quarter of 2024 compared to net income of $16 million or <unk> 38.
Speaker Change: Per diluted share for the fourth quarter of 2023.
Speaker Change: On a non-GAAP basis, we had adjusted EBITDA of $68 2 million for the fourth quarter of 2024 compared to $59 million.
Speaker Change: For the prior year fourth quarter adjusted net income was $23 9 million or <unk> 55 per diluted share for the fourth quarter of 2024 compared to $20 2 million or <unk> 47 cents per diluted share for the prior year fourth quarter.
Speaker Change: Turning to the balance sheet and an update on our liquidity. Please refer to slide eight.
Speaker Change: At the end of the fourth quarter, we had total liquidity of $261 4 million comprised of $114 7 million in cash and $146 7 million of availability under our ABL facility.
Speaker Change: For the full fiscal year 2024, we prepaid 14 million principal on our 2029 term loan.
Speaker Change: We settled the December 2020 for maturity convertible notes and a combination of cash and shares due to the partial conversion by certain holders.
Speaker Change: This resulted in $39 7 million of debt reduction and an increase in share count by 696000 shares net of 162000 shares repurchased shortly following the conversion.
Speaker Change: Share repurchases under our authorized $100 million plan totaled $17 $4 million for the full year of 2020 for timing.
Speaker Change: Timing of any future repurchases under our plan will continue to be dependent on share price market conditions and free cash flow generation.
Speaker Change: As of December 27, 2024, total net debt was approximately $557 8 million net of all cash and cash equivalents net.
Speaker Change: Net debt to adjusted EBITDA was approximately two five times as compared to approximately three four times as of year end 2023.
Speaker Change: Due to the timing of certain payments at year end, we estimate that net debt to adjusted EBITDA will be in the range of two five times to two eight times for the foreseeable future.
Speaker Change: Turning to our full year guidance for 2025 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 2025 will be in the range of $3 94 billion to $4 zero 4 billion gross profit to be between 951 million.
Speaker Change: $976 million and adjusted EBITDA to be between $233 million and 246 million.
Speaker Change: Please note for the full year 2025, we expect the convertible notes maturing in 2028 to be dilutive and therefore, we expect the fully diluted share count to be approximately $46 3 million to 47 million shares.
Speaker Change: Thank you and at this point, we will open it up for questions operator.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star and one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star and tool if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset.
Speaker Change: Before pressing the strategies.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: The first question comes from the line of Mark Carden with UBS. Please go ahead.
Mark Carden: Good morning, Thanks, so much for taking the questions. So to start you guys called out strength across the quarter did you see any impact from the softer industry traffic that we've heard about in December or did the higher income consumer or just simply ask a bit differently and then how much of an impact have you guys seen quarter to date from southern winter storms, and the California wildfires.
Mark Carden: Yes, sorry go ahead.
Mark Carden: No I would say that the cadence during the fourth quarter was just pretty evenly.
Mark Carden: Solid or strong.
And I think a lot of people were anticipating maybe some impact from the shorter period from Thanksgiving to Christmas, but we really didn't see that.
Mark Carden: Those three weeks where.
Mark Carden: Really typically strong for a holiday season.
Mark Carden: So there's really nothing to call out on the fourth quarter.
Mark Carden: In terms of weather impacts or anything.
Mark Carden: Anything that we saw from a demand perspective.
Mark Carden: In terms of January and some of the weather impacts.
Mark Carden: The fires in El lay did not really have a hugely material impact on us we only had a handful of customers that actually.
Mark Carden: Got lost their properties.
Mark Carden: <unk> is a very big wide market geographically for us. So there was a little bit of an impact, but it's not going to have a material impact.
Speaker Change: Great. That's helpful. And then in terms of I know, it's a fluid situation, but there is a potential for tariffs coming back to play with Mexico, Canada and Europe. If that occurs how much exposure do you have to these markets from an <unk> perspective, and could you pass through the inflation in most cases or do you look to pivot sourcing.
Speaker Change: Yeah, I mean, historically, we went through a period of some power for us back years ago, I remember that we were dealing with.
Speaker Change: Some of the products.
Speaker Change: From Italy, and France, and Spain I believe.
Speaker Change: We have over 4000.
Speaker Change: Suppliers right now throughout our system at chefs warehouse.
Speaker Change: A tremendous amount of our products are domestic.
Speaker Change: We've always been able to.
Speaker Change: Navigated find other solutions.
Speaker Change: And pass on.
Speaker Change: I mean again I think.
Speaker Change: The largest sector I think of the product lines are fruits.
Speaker Change: Fruits and vegetables from Mexico, a lot of these are $20 boxes.
Speaker Change: So youre talking about a few bucks a case.
Speaker Change: I think our market our customer base kind of used to the ups and downs.
Speaker Change: We do sell a more high end type.
Speaker Change: Of operation.
Speaker Change: It's more labor cost that drives a lot of the costs I mean, right now everybody is talking about eggs exits I think the biggest.
Speaker Change: The biggest headwind we have had from the AVN fluids cause <unk> to go up but when you really think about.
Speaker Change: Eggs are up even if they are up 50 cents in AG.
Speaker Change: How much of that goes into a recipe to our average customer who's charging $20 $30 $40 for an entree. So.
Speaker Change: There is an effect, but it's not something that.
Speaker Change: It keeps me up at night.
Speaker Change: Great. Thanks, so much good luck guys.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Alex Slagle with Jefferies. Please go ahead.
Alex Slagle: Hi, guys.
Speaker Change: <unk> on the quarter.
Speaker Change: One day, so I'll ask on the margin opportunities for 2025, and when you look at the implied mid points for gross margin and Opex I mean, where do you think you see the greater opportunity to get more favorability.
Speaker Change: That just because your adjusted Opex percentage and <unk> started to flatten out and lever year over year for the first time in seven to eight quarters.
Speaker Change: So from the outside it looks like a solid place this season.
Upside opportunity, but curious on your perspective.
Alex: Yeah. Thanks for the question Alex in terms of.
Alex: 2024, we were we were pretty early upfront in our guidance that are off the operating leverage is going to be heavily weighted to the back half of the year, especially the fourth quarter given that we didn't lap some of the big four.
Alex: Facility investments and rent impacts until the fourth quarter. So that kind of played out how we expected we had very little operating leverage the first three quarters of the year and then a lot in the fourth quarter and that resulted in the kind of 15% to 20 basis points of EBIT margin improvement versus 23 in.
Alex: In 'twenty five the guidance.
Alex: It is obviously a range.
Our goal is is once again to incrementally over the next four years improve.
Alex: Operating leverage in EBIT margin by kind of that 20% to 25 basis point range that we were close to executing in 'twenty four.
Alex: And really there is a lot of but if you look at the.
Alex: The chart that we put up about our 2008 financial goals all of those things.
Alex: The projects that are below them are all going into both driving gross profit dollar growth and improvement as well as improvement in adjusted operating leverage.
Alex: Opex so.
Alex: Really it's just just doing the work and the team is executing.
Alex: And then getting there incrementally.
Alex: Okay and on the food cost inflation outlook do you think that <unk> cross sell impact will continue through 25% to the same degree.
Alex: Well I think I think we will continue to grow the cross sell.
Alex: With Hardie is it's similar to new England.
Alex: We're trading out of some lower margin kind of what we called chunky corporate business and replacing it with what we call Street sales, which are independent restaurants in the core customer that we're really good at serving.
Alex: That will continue.
Alex: And if it continues to have a bit of an outsized impact on the reported inflation number.
Alex: We'll call it out but product mix changes.
Alex: Impact the inflation versus volume number and we'll continue to call things out that are having.
Alex: Somewhat of an outsized impact one quarter versus another.
Jim Leddy: Fortunately, Alex I think that it makes your job a little harder triangle.
Jim Leddy: Look at us over the past 10 years and I think we continue to say you're really.
Jim Leddy: Yes.
Jim Leddy: To understand <unk> you have to understand our goal was to become a complete solution company.
Jim Leddy: Every market. So we have our our protein offerings and we have our now our fresh offerings combined with the specialty broad line. So the numbers are going to continue to evolve because our goal is to be that solution company in every market.
Jim Leddy: It's going to fluctuate depending of proteins growing faster than fresh or fresh is growing faster it depends on the maturity of each market, but we're very very happy with.
Jim Leddy: How our teams are growing.
Jim Leddy: Continually growing and we called it a hybrid sell for a long time, I think I'm going to start maybe using a different phrase it goes.
Jim Leddy: Maybe it's our total solution.
Jim Leddy: Go to market strategy that continues to evolve and succeed and I think youre seeing the success of <unk>.
Jim Leddy: The teams are doing.
Jim Leddy: Continue to get leverage on our overhead.
Jim Leddy: Especially where we've invested heavily in people and technology in our new facilities and as we start to grow the volume you'll start to see us get that leverage that we keep talking about 20 basis points a year for the next few years and where we're marching towards our goals.
Jim Leddy: Got it thanks, Congrats again, thank you Alex.
Jim Leddy: Thank you.
Speaker Change: The next question comes from the line of <unk> with <unk>. Please go ahead.
Speaker Change: Great Thanks, and congrats on a great year.
Speaker Change: I wanted to ask maybe first on just.
Speaker Change: If you could give us a little bit of an update Chris you mentioned labor costs, and maybe you could just give us an update on what youre thinking for labor availability and.
Speaker Change: Inflation in 2025.
Speaker Change: You think that's going to be in line with historical or outside and then just on general commodity inflation I know in the past you've mentioned.
Speaker Change: Optimal.
Speaker Change: Scenario is 2% to 3% commodity inflation was a little bit of volatility just any thoughts on what you're expecting in <unk>.
Speaker Change: 2025, it would be helpful. And then I've got a quick follow up thanks sure well, let me get the Crystal ball out again the theater, but.
Speaker Change: Sure.
Speaker Change: I think if you back out the.
Speaker Change: What we're seeing right now with.
Speaker Change: Mainly I mean eggs is really what's got people going crazy at this point.
Speaker Change: They are talking to the chocolate market is better, but its still inflated but we.
Speaker Change: We back out those those two big Kat.
Speaker Change: Category.
Speaker Change: We're kind of seeing that 2% to 3%.
Speaker Change: So I don't see anything.
Speaker Change: That really would.
Speaker Change: Change that drastically.
Speaker Change: Let's talk about <unk>, Paris, Paris, but.
Speaker Change: <unk>.
Speaker Change: I don't know.
Speaker Change: See today I see the 2% to 3% that we've talked about and probably with a little volatility.
Speaker Change: Well hopefully the.
Speaker Change: The AG market.
Speaker Change: We get over there.
Speaker Change: <unk> of the avian flu.
Speaker Change: The AG prices start to come down give give people relief.
Speaker Change: But yes, the meat market I mean, we all talk about.
Speaker Change: Not enough capital for the next two to three years. So I don't think we're going to get much relief on that but we're seeing stabilization we're not seeing we're.
Speaker Change: We're not seeing anything crazy besides.
Speaker Change: The big headwind on the AG market so.
Speaker Change: Our category managers are really doing a great job right now.
Speaker Change: I think youll see the results.
Speaker Change: Okay.
Speaker Change: Great and then just can I ask on the on the sales force can you give us an update on how.
Speaker Change: The investments you guys have made in the sales force.
Speaker Change: Maybe the growth rate and where are you getting most of this town from are they coming from outside the industry within the industry any insight there would be helpful. Thank you.
Speaker Change: Well it didn't answer your labor question before I mean.
Speaker Change: Labor.
Speaker Change: It is a hard job working night shifts then.
Speaker Change: Driving.
Speaker Change: Big trucks in cities and delivering it.
Speaker Change: Up and down stairs.
Speaker Change: These people work really really hard it's a hard job.
Speaker Change: We'd like to think we pay.
Speaker Change: A very fair.
Speaker Change: Other than most of our competitors we try to.
Speaker Change: Because we are delivering.
Speaker Change: Great expensive product to do that.
Speaker Change: Restaurants in the world So.
Speaker Change: We need to have the best team.
Speaker Change: I don't think that that is the issue was.
Speaker Change: Obviously coming out of Covid, where we really challenge I think it's really stabilized we are a stabilizer.
Speaker Change: Labor for us so.
Speaker Change: I don't I don't see that as the headwind that we had before.
Speaker Change: And what was the second part of your question I'm sorry.
Speaker Change: Oh, the Salesforce, yes.
Speaker Change: We hire from the kitchens, we hire from the front of the house and we also hire people that.
Speaker Change: Have a passion for food.
Speaker Change: Perseverance and.
From all walks of life, it's a very diverse sales force.
Speaker Change: It continues to get even more diverse I think what's really been paying off dividends as our investments in training.
Speaker Change: Investments in HR investments in recruiting spending a lot of time energy and.
Speaker Change: More and more investment and trying to recruit the best people because it does take time to become I call. It to become a real CW person, who can sell all our books.
Speaker Change: That takes a few years, so hiring the wrong people, who leave after a year or two.
Speaker Change: Big cash strength, so I think the efforts in making sure that we're doing our best to reach people that are going to stay and I would say the people at more than two or three years, it becomes probably the best job.
Speaker Change: They're going to have because we don't cap people, we allow them to keep growing.
Speaker Change: I think that story resonates, it's either success people have had at chefs warehouse and I think that really helps us recruit the best people best talent, that's out there and I think you've seen the results of that.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: Next question comes from Todd Brooks with Benchmark Company. Please go ahead.
Todd Brooks: Hey, good morning, and congrats on a great 2024.
Speaker Change: Thanks, Todd coupled.
Speaker Change: Couple of follow up questions here the strength that we saw in gross margin you pointed to some specific drivers around the digital.
Speaker Change: Ordering mix.
Speaker Change: Beneficial inflationary experience the higher.
Speaker Change: Doug.
Speaker Change: Case value and profitability at <unk> as we're looking forward for <unk>.
Speaker Change: Gross margin outlook for 'twenty five just thoughts on kind of key drivers of continued improvement maybe if we can boil that into a magnitude that would be great.
Todd Brooks: Thanks for the question Todd.
Todd Brooks: I really go back to what I I guess, what I alluded to earlier is that.
The guidance implies.
Todd Brooks: <unk>.
Todd Brooks: Kind of very similar kind of gross profit margins.
Todd Brooks: As we delivered for the full year of 24.
Todd Brooks: And Thats really because gross profit margins are now put in are affected by.
Todd Brooks: Things like product mix changes.
Todd Brooks: Federer as well as obviously inflation and deflation.
Todd Brooks: So once again, we're focused on driving gross profit dollars and gross profit dollar growth. So that Texas is a good example, as we get more expensive boxes on hard these trucks.
Todd Brooks: Our goal is to drive more gross profit dollars per drop for case average.
Todd Brooks: For the Opco as a whole as we go through the year and then the operating team is focused on managing operating expense. So.
Todd Brooks: I think when we build our guidance we kind of just.
Todd Brooks: Built in unexpected gross profit range, it's not going to it's not going to be perfect.
Todd Brooks: And then and then we our goal is to execute to gross profit dollar growth. So that's how we think about it yes.
Todd Brooks: Again, I think we've.
Todd Brooks: We've been saying.
Todd Brooks: Focused on.
Todd Brooks: On our spread between.
Todd Brooks: Overhead what it costs to run the business and the GP dollars because.
Todd Brooks: We're seeing.
Todd Brooks: We're seeing a marketplace that didn't exist before and in my 40 years in foodservice where you.
Todd Brooks: Do you have a case of eggs that was say $30 a case and now it's $200 a case.
Todd Brooks: Don't need to make.
Todd Brooks: 25% right, because youre, making the GP dollars because your input cost is so high so.
Todd Brooks: The overhead is up it does cost drivers costs more rent costs more but.
Todd Brooks: It didn't go up double and triple costs, So youre able to operate in this environment.
Speaker Change: A case of <unk>.
Brian: Brian <unk>.
Speaker Change: I'd say it was.
Speaker Change: It was $80 a piece and now is $160.
Speaker Change: Yes, you have the same mathematical dynamic so.
Speaker Change: The margin, we're a margin company, we focus on it but when you get crazy increases in certain categories. It can kind of model. The number again, that's why we're so focused on saying our focus is delivering that 20 basis point improvement.
Speaker Change: Every year.
Speaker Change: And it's really the spread between the operating cost to run the business and the GP dollars coming in because our mixes are changing.
Speaker Change: We are a company that's focused on selling the best products in the world a lot of them are a more expensive our customers use more expensive ingredients. So it's not like we're stuck with a $20 box type of food distribution business and trying to make a $1 95, a case, that's not who shops warehouses thats why we gave up.
Speaker Change: Sometimes 50, 60, 70 or $100 million of volume that comes in from some of these acquisitions that doesn't fit who we are and as we kind of rightsize the market as we talk about Texas. It starts to become more of a chefs warehouse and start to look and operate more like a chef warehouse in the numbers.
Speaker Change: To become more like a chef warehouse.
Speaker Change: That's very helpful. Thanks, Chris and just one quick follow up with inflation being kind of a key topic on this call.
Speaker Change: How are you guys looking about potential issues as you go down the supply chain from labor availability, whether its migrant labor on the produce side of the business or maybe.
Speaker Change: Labor on the meat processing and packaging side.
Speaker Change: Incremental pressure to inflation and your 25 outlook. Thanks.
Speaker Change: Yes, I think we got way ahead of it the past two years I mean, we.
Speaker Change: We raised.
Speaker Change: Raised a lot of the wages.
Speaker Change: <unk>.
Speaker Change: I think that.
Speaker Change: We.
Speaker Change: We realized to get the best talent out there we would have to pay.
Speaker Change: In each market to be the most competitive to look for the best people and again.
Speaker Change: Be successful you can afford to pay more right. So I think we're doing that.
Speaker Change: So I don't Im not sure that we're go.
Speaker Change: Going to see.
Speaker Change: A tremendous headwind.
Speaker Change: Coming from the labor front, because we're already paying I think.
Speaker Change: At the upper end of the market and I think to attract to keep attracting that talent I think it's built into our market. So I think I think we're good there, but I would just add.
Speaker Change: On the processing side, given the facility investments that we've made over the last couple of years, we've put in a lot of.
Speaker Change: Processing automation and Thats allowed us to.
To hire fewer butchers and so that will help mitigate as well as we go forward.
Speaker Change: And all of our systems into warehouses, making us more efficient.
Speaker Change: We know that that's the key to the success going forward is.
Speaker Change: You have to be able to figure out how to do more with less and I think our teams are doing a phenomenal job of that.
Speaker Change: Okay, great. Thank you both.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Elliot neighborhood with Lake Street Capital markets. Please go ahead.
Speaker Change: Hey, guys. This is bill on for Ben <unk>, Congrats on a strong quarter and thanks for taking my question first could you provide an update on the utilization levels.
Speaker Change: Texas, California, and Florida locations.
Speaker Change: How do these compare to your initial expectations and are you seeing any regional trends going forward.
Speaker Change: Well, we thanks for the question.
Speaker Change: We don't really disclose utilization levels by operating company.
Speaker Change: Or by market, but in general.
Speaker Change: In Northern California, we completed the consolidation of four processing facilities into one we completed that move in December.
Speaker Change: 2024, and so we're in the early innings of that of that operation that is.
Speaker Change: Really exciting I mean, we have a lot of room for growth.
Speaker Change: In that in that facility and we're starting to realize the benefits of removing four separate processing facilities and getting the synergies on the operating.
Speaker Change: Cost side in Texas.
Speaker Change: We've taken some additional space in Houston, we are in the process of.
Speaker Change: As I mentioned earlier.
Speaker Change: <unk> out of some.
Speaker Change: Chris mentioned earlier as well as trading out of some non core business that will free up space.
Speaker Change: In order to continue to grow the specialty and protein side of the business selling to the.
Speaker Change: The large <unk> customer base that we that we acquired with the with the acquisition.
Speaker Change: Getting those routes was critical too.
Speaker Change: To that part of the strategy. So we.
Speaker Change: We're doing that in a number of different markets, maybe on different levels of scale, but hopefully that gives you a sense of where we are.
Speaker Change: And in a multiyear path.
Speaker Change: Driving the improvements in those markets from those investments.
Speaker Change: Yes, that's great. Thanks.
Speaker Change: And then the second question and then I'll hop back in queue could you breakdown your capex expectations for this year in terms of growth versus maintenance spending.
Speaker Change: How should we think about your capital allocation strategy between expansion initiatives and sustaining existing operation.
Speaker Change: Yes, sure so we guided.
Speaker Change: Got it.
Speaker Change: Capex of $40 million to $50 million.
Speaker Change: For 25, very similar to what we're doing in 'twenty four and our goal is to gradually get that down towards 1% of our revenue I think we'll be closer to that.
Speaker Change: Versus I think we were at one 3% and 24 in general because we are a growth company.
Speaker Change: 80% of our Capex is basically investing in facility expansion. So we have two major projects that we're doing in 'twenty five and that is our.
Speaker Change: Philadelphia, Southern New Jersey facility retrofit that will optimize our distribution footprint between the New York Metro area or the mid Atlantic in Pennsylvania, and that's underway and then our Portland.
Speaker Change: Oregon facility build out that will allow us to.
Speaker Change: Consolidate multiple facilities that we have in Portland as a result of an acquisition that we did over a couple of years ago.
Speaker Change: And so that will that will that's taking place this year as well, we anticipate to complete that either at the end of this year or early Q1 of 26. So those are the two major facility projects and really the rest of our Capex is investments in technology and our digital platform build out and then and then the rest is.
Speaker Change: Maintenance Capex.
Speaker Change: That's great. Thanks, guys. That's it for me.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Kelly Bania with BMO capital markets. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Thanks for taking my question I was wondering if you could just talk a little bit more about 47.
Speaker Change: 1% organic growth and just help us break that down between how much high growth markets are contributing versus more mature.
Speaker Change: Markets, and obviously tie in Texas into that conversation and just what you're learning about the Texas market and the receptivity to the.
Speaker Change: And the categories as you integrate kind of protein and specialty there.
Speaker Change: So thanks, Kelly I'll start with a little bit about the high growth markets in the mature markets and then I'll turn it over to Chris to add some color on Texas and the strategy there, but just on the 4% to 7%.
Speaker Change: We have a.
Speaker Change: And we will talk more about this at our Investor day.
Speaker Change: But we have.
Speaker Change: <unk> like Dubai in Florida, and Seattle, even southern California, and Northern California, Texas, New England, where we've made.
Speaker Change: Significant acquisitions.
Speaker Change: That are aimed at growth and invested in capacity and all of these markets that I'm mentioning or are kind of in that in that group.
Speaker Change: And they are growing.
Speaker Change: I'm not going to call out specific markets, but most of them are growing double digits anywhere between 10 and 20%.
Speaker Change: And then our mature markets are still growing but obviously, if you're in a market like San Francisco or la or where we've been in a long time, it's a very big market, we're growing through category growth.
Speaker Change: Growing through penetration and continuing to add customers in the outer buying markets, where people are working given hybrid work et cetera, and many of those dynamics are still playing out and so there is still growing mid single digits.
Speaker Change: That kind of that kind of tight.
Speaker Change: Type of growth.
Speaker Change: I'll, hopefully that frames kind of the 4% to 7% growth and then I'll ask Chris to just comment on your comment on Texas and the strategy there.
Chris Pappas: Thanks Kelly.
Speaker Change: Texas again.
Speaker Change: I think it's going to be a top three market.
Speaker Change: But yes, we have to look at it over the next four or five years.
Speaker Change: We've been through this drill before we acquire some businesses. They are not exactly what we call chefs warehouse and it takes time to get the buildings Ray in the technology and the mix and training our salespeople so.
Speaker Change: Couldn't be prouder of our team in Texas and all they are accomplished.
Speaker Change: Trying to create.
Speaker Change: Chef warehouse Formula and I think it is going to be a little bit at a time and then you get the giant waterfall like we've done a lot of other markets, where we do get everything aligned we get.
Speaker Change: We build the sales force Thats trained understands all the categories.
We get the customers that we're really looking for that fit who CW is right.
Speaker Change: Off-board not.
Speaker Change: Not purposely, but theres a lot of business that comes with some of these acquisitions that really better served by maybe a chain distributor.
Speaker Change: Thats not what we what we really focus on and we really build that.
Speaker Change: The independents the small groups.
Speaker Change: And Texas is just booming with.
Speaker Change: The culinary scene.
Speaker Change: More typical of New York and San.
Speaker Change: San Francisco L. A Chicago a lot of our operators are opening up in Texas.
Speaker Change: And that's why we were so excited to get in that market and we're just being patient now will be call. It transformation, we bought some really great businesses, but we make an inventory shape warehouse. It takes some time.
Speaker Change: Right now, they're probably in the second inning I think we got through the first.
Speaker Change: We're making great headway and that team is just going to continue to March.
Speaker Change: Over the next four or five years and then.
Speaker Change: Looking further out I think it starts to look more and more like New York and that's really our goal.
Speaker Change: Okay.
Speaker Change: Helpful.
Speaker Change: Another follow up I think the slide.
Speaker Change: Slide deck mentioned, 56% of specialty customers ordering via digital.
Speaker Change: Just wondering if you could talk about that a little bit more or your smaller.
Speaker Change: <unk> competitors really ramping with this type of service and just how is this favorably impacting gross margin and gross profit growth and where do you see that penetration of digital going kind of overtime.
Speaker Change: Yes, I mean, I think that over time 80, 90% of the customers.
Speaker Change: Not going to pick up the phone right. So.
Its email its tax and then it's using our online capabilities as we get better and better as that team continues to build.
Speaker Change: I think we have tremendous upside still in improving our website and.
Speaker Change: Improving our capabilities, even though we've come we've come a long long way.
It just creates a more dynamic addition to dealing with chefs warehouse, we have over 55019 on some markets 80000 items that go through the system. So.
Speaker Change: It's just such a great tool to support the sales team I think you've heard me say for a while now the sales force of the future our consultants they don't have to do.
Speaker Change: What they did years ago be stuck with their computer waiting to take orders I mean, I remember when we started the company was paper and pencil right. So.
Speaker Change: Laptops were great. They freed up salespeople. They can go on the road and then pull over and when they got Wi Fi They can take orders from the road.
Speaker Change: From hotels and now that I think the next big jump is.
Speaker Change: They are the customers are placing their orders.
Speaker Change: Our salespeople are checking in.
Speaker Change: Referring items, suggesting theyre becoming solution.
Speaker Change: Our solutions type of consultants and as that continues sales the customers are finding more items online that they didnt know, we carry or they're changing menus.
They're searching and.
Speaker Change: And that's where really our strength as you know we have the long tail, we have so many different types.
Speaker Change: Of gourmet items and solution items, and I think thats whats, helping the margins I think thats, helping placements we saw in.
Speaker Change: The year that all we heard about was the headwinds of the restaurant industry customer counts were down people spending a little less than we had a tremendous year I think because of the tools. We've added and have all the training and the salespeople were aligned with us and I think thats going to continue now and we.
Haven't even really.
Speaker Change: Implemented into our protein division and some of our new company. So I think we have tremendous upside.
Speaker Change: We continue to mature.
Speaker Change: Thank you.
Speaker Change: Thanks, Kevin Thank you.
Speaker Change: The next question comes from the line of Andrew Wolf with C. L. King. Please go ahead.
Andrew Wolf: Thanks, Good morning.
Andrew Wolf: On the Jack where you referenced the increase in EBITDA per employee.
Andrew Wolf: Really a big jump last year <unk>.
Andrew Wolf: <unk> percent year over year increase.
Chris Pappas: And I think Chris you referenced better training and HR practices, and so on but could.
Speaker Change: Could you could you give us a little more color or is that more on the gross profit line.
To break it down or more on the operating.
Speaker Change: Leverage line.
Speaker Change: And.
Speaker Change: Yeah.
Speaker Change: Is there sort of.
Speaker Change: Some catch up in there from sort of the Covid.
Speaker Change: Impact on productivity and people are finally learning their jobs and there's a big productivity search and what I'm really getting to is is this something that.
Speaker Change: Sustainable is it going to be a much better.
Speaker Change: As you guys look at the business through 2028.
Speaker Change: Much better.
Speaker Change: Employee productivity on.
Speaker Change: On the profit side I would imagine on the sales side as well.
Speaker Change: Yes.
Speaker Change: Start with the first part of your question Andy.
Speaker Change: The 13%, it's really it's really really aligned with our overall EBITDA and operating leverage improvement 24 over 'twenty three and as I mentioned earlier it was a little uneven.
Speaker Change: With a lot of that leverage coming in the fourth quarter and Thats really.
Speaker Change: Driven by.
Speaker Change: The cadence of the facility investments and when we when we lap them. So yeah.
Speaker Change: Yeah from a productivity perspective, I think our teams did a great job of managing head count and managing operating spend throughout the year and that shows up in the and the productivity that we that youre talking about on the chart. It came from both gross profit dollar growth and margin improvement.
Speaker Change: And as I mentioned, sometimes youll get gross profit dollar growth.
Speaker Change: With minimal margin improvement because you're selling more expensive boxes are you driving the product mix that.
Speaker Change: That Chris talked about with different markets like Texas et cetera.
Speaker Change: It's really just comes from.
Speaker Change: That.
Speaker Change: Our team is executing on that strategy.
And then I'm sorry, the last part of your question was.
Speaker Change: Well just the outlook.
Speaker Change: Your EBITDA is up 13% in the EBITDA per head count is up 13%.
Speaker Change: Just sort of back of the envelope. It implies you didn't add net new head count.
Speaker Change: Can't imagine that's the plan so.
Speaker Change: Is it going to be something like it moderates to 10% a year.
Speaker Change: Im not asking I don't know if you want to share that number but just I mean.
Speaker Change: This is a big improvement.
Speaker Change: And what the go forward look is like.
Andy: Yeah, Andy I think you got to look I mean I.
Speaker Change: I know, it's hard it's hard for you guys to model.
Speaker Change: It's kind of a goldilocks, it's a little bit of everything so I think you have to.
Speaker Change: You have to remember that.
Speaker Change: We went from 300 million to a $4 billion company in the last 10 years.
Speaker Change: We've.
Speaker Change: And we've taken some hits right to stockpile, it up and down I think people may be misunderstood.
Speaker Change: Well we were doing.
Speaker Change: Because the numbers Werent always the numbers the street wants to see because we were buying companies for the right price and we had to transform them. So.
Speaker Change: The great thing about shifts warehouses, theres really nobody like us.
Speaker Change: The bad thing is there's no one exactly like us to buy so we have to buy companies and we have to transform them.
Speaker Change: And we.
Speaker Change: We made that big leap. So we're in a much different position now than we were 12 years ago.
Speaker Change: Sure we wanted to be acquisitive, we wanted to take advantage of opportunities, but we know we built.
Speaker Change: 30, 40 warehouses, we've hired thousands of people all of that took time a lot of training, we had and implement systems, we added transform systems and <unk>.
Speaker Change: Now youre starting to see more production I mean, we expect that we made the investment so as people get better as people get more highly trained like in any industry you go up the ladder.
Speaker Change: You get your your Bachelors and maybe your Master then you make their Phd and now you're becoming an expert in your field and that's why we don't want to train people that don't stay.
Speaker Change: So I think it's a lot of investment and everything and we're starting to get the we're starting to reap those rewards of course, you hit a hurricane.
Speaker Change: Everybody's numbers go backwards, but right now in a very tough market where.
Speaker Change: Less competition everywhere for restaurants, and maybe head count for downtown and a little spend the only way to put up the numbers, we're putting up is by taking market share.
Speaker Change: Our team is doing a great job.
Speaker Change: Thank you I got that and just one final one if I may.
Speaker Change: These integrated big distribution centers that you used to put one up.
Speaker Change: Northern California.
Speaker Change: I don't know, Florida is the longest tenured one but could you give us a sense of that.
Speaker Change: Yes.
Speaker Change: They may not be mature, yet and how they're performing.
Speaker Change: The ones that have been open a while.
Speaker Change: To either boost sales with more cross sell.
Speaker Change: Expanding the market with capacity in house.
Speaker Change: Returns are looking I know, it's early early early stages for Moshe.
Speaker Change: I mean, the newest ones I think we've been announcing.
Speaker Change: Florida is actually I think we've only been in there I don't even know if it's two years right in.
Speaker Change: They're they're doing Greg, we're really proud of them and we.
Speaker Change: They are they're firing on all pistons in Florida.
Speaker Change: Florida is going to be such a great market for us.
Speaker Change: I mean, that's a pretty new facility so.
Speaker Change: That facility was built to quadruple of the business. So we have lots of capacity Theyre doing great. So we're really excited about the future. The latest wanted to open was really a processing facility that Jim referred to earlier that we consolidated a bunch of facilities, we had in northern California and two.
Speaker Change: One of the most state of the art processing facilities in the country. So we're really excited about.
Speaker Change: They went through a lot I mean to consolidate those facilities is a lot of work. So they were very distracted I think it was a really rough time in the last few years and now they can really focus on growth again.
Speaker Change: Now that they're under one roof.
I'm sure. There's other markets. We've entered that we're still in the first inning small outposts that we develop going south.
Speaker Change: Tennessee and into Detroit.
Speaker Change: But.
Speaker Change: We've kind of slowed it down for everybody to catch up we have some new facilities, New England is going to need a new facility there operating out of multiple buildings. So we've seen that movie before we just opened up.
Speaker Change: What we call our Pennsylvania, South Jersey facility, it's not it's not completed but we're really excited about that so a lot of exciting things going on.
Speaker Change: Okay. Thank you for the color I appreciate it.
Thanks, Ed.
Speaker Change: Thank you.
Chris Pappas: Ladies and gentlemen, there are no further questions I would now like turn the conference over to Chris <unk> for closing comments.
Speaker Change: Sure well, we thank everybody for joining our call today.
Speaker Change: I think we're very proud of what the CW family of companies.
Speaker Change: Has accomplished in 'twenty four.
Speaker Change: We're looking forward to a great 25 and beyond.
Speaker Change: And we're looking forward for everyone joining our next earnings call. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Of the chefs warehouse has now concluded. Thank you for your participation you may now disconnect your lines. Thank you.
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