OREANDA-NEWS. In the press release issued earlier today by The Chefs’ Warehouse, Inc. under the same headline, please note that this version corrects some discrepancies in the footnotes in the fourth and fifth financial tables. The corrected release follows:

The Chefs’ Warehouse, Inc., a premier distributor of specialty food products in the United States and Canada, today reported financial results for its second quarter ended June 24, 2016.

Financial highlights for the second quarter of 2016 compared to the second quarter of 2015:

  • Net sales increased 3.7% to $291.2 million for the second quarter of 2016 from $280.9 million for the second quarter of 2015.
  • GAAP net loss was $(8.5) million including a $13.0 million after-tax loss on the early extinguishment of debt, or $(0.33) per diluted share, for the second quarter of 2016 compared to net income of $3.4 million, or $0.13 per diluted share, in the second quarter of 2015.
  • Modified pro forma earnings per diluted share1 was $0.15 for the second quarter of 2016 compared to $0.21 for the second quarter of 2015.
  • Adjusted EBITDA1 decreased to $15.3 million for the second quarter of 2016 compared to $18.7 million for the second quarter of 2015.

“Our core specialty business remained reasonably strong throughout the second quarter, despite a softening restaurant backdrop, with organic growth of 4.6%. Our customers have continued to navigate well through this challenging consumer environment,” said Chris Pappas, chairman and chief executive officer of The Chefs' Warehouse, Inc. “The Del Monte system conversion proved more challenging than we originally anticipated, which significantly impacted margins during the quarter. However, the conversion of the Del Monte meat facilities is substantially complete and while it will take longer than originally expected to return protein margins to historic levels, we believe we have a great business that we are very excited about and a very solid infrastructure for continued growth.”

Second Quarter Fiscal 2016 Results
Net sales for the quarter ended June 24, 2016 increased 3.7% to $291.2 million from $280.9 million for the quarter ended June 26, 2015.  Organic growth contributed $6.3 million, or 2.3% to sales growth in the quarter.  The remaining sales growth of $4.0 million, or 1.4% represents one week of Del Monte sales and resulted from the acquisition of Del Monte during the second week of the quarter ended June 26, 2015. Compared to the second quarter of 2015, the Company’s case count grew approximately 5.9%, while the number of unique customers and placements grew 5.3% and 5.4%, respectively, in the core specialty business in the second quarter of 2016.  Pound growth in our protein division was 3.3% for the second quarter of 2016 compared to the prior year quarter.  Deflation was approximately 1.2% during the quarter, consisting of 0.9% deflation in our specialty division and deflation of 1.8% in our protein division.

Gross profit increased approximately 0.1% to $71.8 million for the second quarter of 2016 from $71.7 million for the second quarter of 2015. Gross profit margin decreased approximately 88 basis points to 24.7% from 25.5%. Gross profit margins decreased approximately 44 basis points in the Company’s specialty division compared to very strong margins in the second quarter of the prior year. Gross profit margins decreased approximately 175 basis points in the protein division due to challenges passing through beef prices as well as continued integration challenges at Del Monte.

Total operating expenses decreased by approximately 2.8% to $60.6 million for the second quarter of 2016 from $62.4 million for the second quarter of 2015. As a percentage of net sales, operating expenses were 20.8% in the second quarter of 2016 compared to 22.2% in the second quarter of 2015. The decrease in the Company’s operating expense ratio is largely attributable to lower transaction costs related to the Company’s acquisition of Del Monte in 2015, a reduction in the estimated fair value of earn-out obligations, offset in part by higher warehouse labor and occupancy related costs associated with the Company’s new warehouse.

Operating income for the second quarter of 2016 was $11.2 million compared to $9.3 million for the second quarter of 2015.  As a percentage of net sales, operating income was 3.8% in the second quarter of 2016 compared to 3.3% in the prior year’s second quarter.  The increase in operating income as a percentage of net sales was driven primarily from the improvement in the Company’s operating expense ratio discussed above, partially offset by a decrease in gross profit margins.

Interest expense increased to $25.7 million for the second quarter of 2016 compared to $3.6 million in the second quarter of 2015 due to a $22.3 million loss on the extinguishment of debt as a result of the Company’s previously disclosed refinancing completed on June 22, 2016.

The net loss for the second quarter of 2016 was $8.5 million, or $0.33 per diluted share, compared to net income of $3.4 million, or $0.13 per diluted share, for the second quarter of 2015.

On a non-GAAP basis, adjusted EBITDA1 was $15.3 million for the second quarter of 2016 compared to $18.7 million for the second quarter of 2015. For the second quarter of 2016, modified pro forma net income1 was $3.9 million and modified pro forma EPS1 was $0.15 compared to modified pro forma net income of $5.7 million and modified pro forma EPS of $0.21 for the second quarter of 2015.

Full Year 2016 Guidance
Based on second quarter results as well as current trends in the business, the Company is updating its financial guidance for fiscal year 2016, which includes a 53rd week.  The Company now expects the following:

  • Net sales between $1.18 billion and $1.20 billion
  • Net loss between $3.0 million and $1.0 million
  • Net loss per diluted share between $0.09 and $0.01
  • Adjusted EBITDA between $53.0 million and $58.5 million
  • Modified pro forma net income per diluted share between $0.38 and $0.46

This guidance is based on an effective tax rate of approximately 41.0% to 41.5% and fully diluted shares of approximately 27.25 million shares.  For purposes of calculating the modified pro forma diluted EPS the Company has assumed that the convertible debt will be dilutive for the full year and as such the Company added back $537,000 of interest, after tax, to net loss and assumed conversion into 1,237,374 shares and included these in the diluted weighted average shares.