The Chefs’ Warehouse Reports Fourth Quarter 2020 Financial Results

RIDGEFIELD, Conn., Feb. 10, 2021 (GLOBE NEWSWIRE) -- The Chefs’ Warehouse, Inc. (NASDAQ: CHEF) (the “Company” or “Chefs’”), a premier distributor of specialty food products in the United States and Canada, today reported financial results for its fourth quarter ended December 25, 2020.

Financial highlights for the fourth quarter of 2020:

  • Net sales decreased 34.0% to $281.7 million for the fourth quarter of 2020 from $426.5 million for the fourth quarter of 2019. On a sequential quarter basis, net sales grew 10.9% or $27.6 million compared to the third quarter of fiscal 2020.
  • GAAP net loss was $37.1 million, or $(1.02) per diluted share, for the fourth quarter of 2020 compared to net income of $10.9 million, or $0.36 per diluted share, in the fourth quarter of 2019.
  • Adjusted EPS1 was $(0.52) for the fourth quarter of 2020 compared to $0.39 for the fourth quarter of 2019.
  • Adjusted EBITDA1 was $(10.5) million for the fourth quarter of 2020 compared to $28.2 million for the fourth quarter of 2019.
  • The Company had approximately $193.6 million of cash and cash equivalents on the balance sheet and $38.6 million of availability on its asset-based loan facility as of February 5, 2021.

“October and November sales trends remained relatively steady at approximately 70% of prior year, on a fiscal comparison basis, as sequential growth in certain markets was offset by declining outdoor dining in the Northeast and colder-weather regions.” said Chris Pappas, Chairman and Chief Executive Officer of the Company. “Post-Thanksgiving, sales trended lower as in-door dining restrictions were re-instated in a number of key markets. December sales remained above 60% of 2019 as customers pivoted to more take-out and delivery and limited outdoor dining continued despite the change in season. Pent-up demand was evident in markets with more favorable weather and restaurant capacity allowances such as Florida and Texas and we continue to be encouraged by our customer acquisition trends. Our balance sheet and liquidity positions us for future growth as COVID-related conditions improve.”

Reclassifications

The Company has reclassified its food processing costs, previously included in operating expenses, to cost of sales and has split its historical presentation of operating expenses between selling, general and administrative expenses and other operating expenses. These reclassifications have no impact on the Company’s net income, cash flows or EBITDA.

Transition of Trademarks

During the fourth quarter of fiscal 2020, the Company committed to a plan to shift its brand strategy to leverage its Allen Brothers brand in the west coast region and determined that its Del Monte, Ports Seafood and Bassian Farms trademarks did not fit its long-term strategic objectives. As a result, the Company recorded a $24.2 million non-cash charge to write-down the value of its Del Monte and Bassian Farms trademarks.

_______
1EBITDA, Adjusted EBITDA, adjusted net income (loss) and adjusted EPS are non-GAAP measures. Please see the schedules accompanying this earnings release for a reconciliation of EBITDA, Adjusted EBITDA, adjusted net income (loss) and adjusted EPS to these measures’ most directly comparable GAAP measure.

Fourth Quarter Fiscal 2020 Results

Net sales for the quarter ended December 25, 2020 decreased 34.0% to $281.7 million from $426.5 million for the quarter ended December 27, 2019. Organic sales declined $177.4 million, or 41.7% versus the prior year quarter. Sales growth of $32.6 million, or 7.7%, resulted from acquisitions. Organic case count declined approximately 47.4% in the Company’s specialty category with unique customers and placements declines at 29.2% and 45.8%, respectively, compared to the prior year quarter. Pounds sold in the Company’s center-of-the-plate category decreased approximately 41.4% compared to the prior year quarter. Estimated deflation was 0.4% in the Company’s specialty categories and estimated inflation was 1.6% in the center-of-the-plate categories compared to the prior year quarter.

Gross profit decreased approximately 42.5% to $58.9 million for the fourth quarter of 2020 from $102.4 million for the fourth quarter of 2019. Gross profit margin decreased approximately 311 basis points to 20.9% from 24.0%. Gross margins in the Company’s specialty category decreased 648 basis points and gross margins increased 87 basis points in the Company’s center-of-the-plate category compared to the prior year quarter. Gross profit results include a charge of approximately $4.8 million related to estimated inventory losses from obsolescence due to impacts of the COVID-19 pandemic.

Selling, general and administrative expenses decreased by approximately 0.5% to $82.9 million for the fourth quarter of 2020 from $83.4 million for the fourth quarter of 2019. As a percentage of net sales, operating expenses were 29.4% in the fourth quarter of 2020 compared to 19.5% in the fourth quarter of 2019. Lower costs associated with compensation and benefits and lower general and administrative related costs, partially offset by impacts of recent acquisitions were the primary drivers of the decrease in operating expenses in the quarter.

Other operating expenses increased by approximately $23.6 million primarily due to a $24.2 million impairment of Del Monte and Bassian trademarks.

Operating loss for the fourth quarter of 2020 was $48.3 million compared to operating income of $18.4 million for the fourth quarter of 2019. The decrease in operating income was driven primarily by lower gross profit and higher other operating expenses, as discussed above. As a percentage of net sales, operating loss was 17.1% in the fourth quarter of 2020 as compared to operating income of 4.3% in the fourth quarter of 2019.

Total interest expense increased to $5.3 million for the fourth quarter of 2020 compared to $4.4 million for the fourth quarter of 2019. The increase was primarily due to higher average long-term debt balances, partially offset by lower effective interest rates charged on the Company’s outstanding debt.

Net loss for the fourth quarter of 2020 was $37.1 million, or $(1.02) per diluted share, compared to net income of $10.9 million, or $0.36 per diluted share, for the fourth quarter of 2019.

Adjusted EBITDA1 was $(10.5) million for the fourth quarter of 2020 compared to $28.2 million for the fourth quarter of 2019. For the fourth quarter of 2020, adjusted net loss1 was $19.0 million, or $(0.52) per diluted share compared to adjusted net income of $12.1 million, or $0.39 per diluted share for the fourth quarter of 2019.

As of February 5, 2021, the Company had approximately $232.2 million of available liquidity comprised of $193.6 million in cash and cash equivalents and $38.6 million of availability under the Company’s ABL Credit Facility. Net debt as of January 29, 2021 was approximately $210.2 million, inclusive of cash and cash equivalents.

Full Year 2021 Guidance

Due to the continued uncertainty regarding the pace of economic recovery and the lifting of in-door dining restrictions across our markets, the Company will not be providing guidance for 2021 at this time. The Company will look to provide guidance as it gains more clarity on the expected length of the economic downturn and the outlook for customer re-openings.

Fourth Quarter 2020 Earnings Conference Call

The Company will host a conference call to discuss fourth quarter 2020 financial results today at 8:30 a.m. EST. Hosting the call will be Chris Pappas, chairman and chief executive officer, and Jim Leddy, chief financial officer. The conference call will be webcast live from the Company’s investor relations website at http://investors.chefswarehouse.com/. An online archive of the webcast will be available on the Company’s investor relations website.

Forward-Looking Statements

Statements in this press release regarding the Company’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. The risks and uncertainties which could impact these statements include, but are not limited to the following: our sensitivity to general economic conditions, including disposable income levels and changes in consumer discretionary spending; our ability to expand our operations in our existing markets and to penetrate new markets through acquisitions; we may not achieve the benefits expected from our acquisitions, which could adversely impact our business and operating results; we may have difficulty managing and facilitating our future growth; conditions beyond our control could materially affect the cost and/or availability of our specialty food products or center-of-the-plate products and/or interrupt our distribution network; our increased distribution of center-of-the-plate products, like meat, poultry and seafood, involves increased exposure to price volatility experienced by those products; our business is a low-margin business and our profit margins may be sensitive to inflationary and deflationary pressures; because our foodservice distribution operations are concentrated in certain culinary markets, we are susceptible to economic and other developments, including adverse weather conditions, in these areas; fuel cost volatility may have a material adverse effect on our business, financial condition or results of operations; our ability to raise capital in the future may be limited; we may be unable to obtain debt or other financing, including financing necessary to execute on our acquisition strategy, on favorable terms or at all; interest charged on our outstanding debt may be adversely affected by changes in the method of determining London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative rate; our business operations and future development could be significantly disrupted if we lose key members of our management team; and significant public health epidemics or pandemics, including COVID-19, may adversely affect our business, results of operations and financial condition. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. A more detailed description of these and other risk factors is contained in the Company’s most recent annual report on Form 10-K filed with the SEC on February 24, 2020 and other reports filed by the Company with the SEC since that date. The Company is not undertaking to update any information until required by applicable laws. Any projections of future results of operations are based on a number of assumptions, many of which are outside the Company’s control and should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. The Company may from time to time update these publicly announced projections, but it is not obligated to do so.

About The Chefs’ Warehouse

The Chefs’ Warehouse, Inc. (http://www.chefswarehouse.com) is a premier distributor of specialty food products in the United States and Canada focused on serving the specific needs of chefs who own and/or operate some of the nation’s leading menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores. The Chefs’ Warehouse, Inc. carries and distributes more than 50,000 products to more than 34,000 customer locations throughout the United States and Canada.

Contact:
Investor Relations
Jim Leddy, CFO, (718) 684-8415

THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share amounts and per share data)

 Thirteen Weeks Ended Fifty-Two Weeks Ended
 December 25,
2020
 December 27,
2019
 December 25,
2020
 December 27,
2019
Net sales$281,674   $426,507  $1,111,631   $1,591,834 
Cost of sales222,799   324,081  863,480   1,205,266 
Gross profit58,875   102,426  248,151   386,568 
        
Selling, general and administrative expenses82,914   83,351  336,394   329,542 
Other operating expenses24,229   678  14,417   6,359 
Operating (loss) income(48,268)  18,397  (102,660)  50,667 
        
Interest expense5,344   4,351  20,946   18,264 
(Loss) income before income taxes(53,612)  14,046  (123,606)  32,403 
        
Provision for income tax (benefit) expense(16,555)  3,158  (40,703)  8,210 
        
Net (loss) income$(37,057)  $10,888  $(82,903)  $24,193 
        
        
Net (loss) income per share:       
Basic$(1.02)  $0.37  $(2.46)  $0.82 
Diluted$(1.02)  $0.36  $(2.46)  $0.81 
        
Weighted average common shares outstanding:       
Basic36,281,698   29,595,723  33,716,157   29,532,342 
Diluted36,281,698   31,134,821  33,716,157   30,073,338 
              

THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 25, 2020 AND DECEMBER 27, 2019
(in thousands)

 December 25, 2020 December 27, 2019
 (unaudited)  
Cash and cash equivalents$193,281   $140,233  
Accounts receivable, net96,383   175,044  
Inventories, net82,519   124,056  
Prepaid expenses and other current assets33,479   13,823  
Total current assets405,662   453,156  
    
Equipment, leasehold improvements and software, net115,448   92,846  
Operating lease right-of-use assets115,224   127,649  
Goodwill214,864   197,743  
Intangible assets, net111,717   138,751  
Deferred taxes, net7,535     
Other assets3,875   3,534  
Total assets$974,325   $1,013,679  
    
    
Accounts payable$57,515   $94,097  
Accrued liabilities27,924   29,847  
Short-term operating lease liabilities17,167   17,453  
Accrued compensation9,401   8,033  
Current portion of long-term debt6,095   721  
Total current liabilities118,102   150,151  
    
Long-term debt, net of current portion398,084   386,106  
Operating lease liabilities109,133   120,572  
Deferred taxes, net   10,883  
Other liabilities4,416   10,034  
Total liabilities629,735   677,746  
    
Preferred stock     
Common stock373   304  
Additional paid in capital303,734   212,240  
Cumulative foreign currency translation adjustment(2,051)  (2,048) 
Retained earnings42,534   125,437  
Stockholders’ equity344,590   335,933  
    
Total liabilities and stockholders’ equity$974,325   $1,013,679  
          

THE CHEFS’ WAREHOUSE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 25, 2020 AND DECEMBER 27, 2019
(unaudited, in thousands)

 December 25,
2020
 December 27,
2019
Cash flows from operating activities:   
Net (loss) income$(82,903)  $24,193  
    
Adjustments to reconcile net (loss) income to net cash provided by operating activities:   
Depreciation and amortization19,774   13,328  
Amortization of intangible assets13,502   12,663  
Provision for allowance for doubtful accounts21,372   4,981  
Non-cash operating lease expense689   2,043  
(Benefit) provision for deferred income taxes(18,418)  2,063  
Amortization of deferred financing fees3,426   2,168  
Stock compensation9,292   4,399  
Change in fair value of contingent earn-out liabilities(11,479)  5,879  
Intangible asset impairment24,200     
Loss on asset disposal151   101  
Changes in assets and liabilities, net of acquisitions:   
Accounts receivable77,590   (13,213) 
Inventories49,050   (9,439) 
Prepaid expenses and other current assets(18,240)  (1,813) 
Accounts payable, accrued liabilities and accrued compensation(46,442)  3,775  
Other assets and liabilities1,317   (6,121) 
Net cash provided by operating activities42,881   45,007  
    
Cash flows from investing activities:   
Capital expenditures(7,036)  (16,077) 
Cash paid for acquisitions, net of cash received(60,932)  (28,077) 
Net cash used in investing activities(67,968)  (44,154) 
    
Cash flows from financing activities:   
Payment of debt, finance lease and other financing obligations(40,432)  (1,894) 
Proceeds from the issuance of common stock, net of issuance costs85,941     
Proceeds from debt issuance   150,000  
Payment of deferred financing fees(856)  (5,082) 
Proceeds from exercise of stock options   1,541  
Surrender of shares to pay withholding taxes(3,670)  (1,022) 
Cash paid for contingent earn-out liabilities(2,927)  (2,412) 
Borrowings under asset based loan facility100,000     
Payments under asset based loan facility(60,000)  (44,184) 
Net cash provided by financing activities78,056   96,947  
    
Effect of foreign currency translation on cash and cash equivalents79   23  
    
Net increase in cash and cash equivalents53,048   97,823  
Cash and cash equivalents at beginning of period140,233   42,410  
Cash and cash equivalents at end of period$193,281   $140,233  
          

THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF GAAP NET (LOSS) INCOME PER COMMON SHARE
(unaudited; in thousands except share amounts and per share data)

 Thirteen Weeks Ended Fifty-Two Weeks Ended
 December 25,
2020
 December 27,
2019
 December 25,
2020
 December 27,
2019
Numerator:       
Net (loss) income$(37,057) $10,888  $(82,903) $24,193 
Add effect of dilutive securities:       
Interest on convertible notes, net of tax  215    207 
Net Income available to common shareholders$(37,057) $11,103  $(82,903) $24,400 
Denominator:       
Weighted average basic common shares outstanding36,281,698  29,595,723  33,716,157  29,532,342 
Dilutive effect of unvested common shares  204,483    211,050 
Dilutive effect of convertible notes  1,334,615    329,946 
Weighted average diluted common shares outstanding36,281,698  31,134,821  33,716,157  30,073,338 
        
Net (loss) income per share:       
Basic$(1.02) $0.37  $(2.46) $0.82 
Diluted$(1.02) $0.36  $(2.46) $0.81 
                

THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA TO NET (LOSS) INCOME
(unaudited; in thousands)

 Thirteen Weeks Ended Fifty-Two Weeks Ended
 December 25,
2020
 December 27,
2019
 December 25,
2020
 December 27,
2019
Net (loss) income$(37,057) $10,888  $(82,903) $24,193 
Interest expense5,344  4,351  20,946  18,264 
Depreciation5,060  3,789  19,774  13,328 
Amortization3,391  3,178  13,502  12,663 
Provision for income tax (benefit) expense(16,555) 3,158  (40,703) 8,210 
EBITDA (1)(39,817) 25,364  (69,384) 76,658 
        
Adjustments:       
Stock compensation (2)4,367  1,488  9,292  4,399 
Other operating expenses (3)24,229  678  14,417  6,359 
Duplicate rent (4)700  698  2,795  1,503 
Moving expenses (5)      61 
        
Adjusted EBITDA (1)$(10,521) $28,228  $(42,880) $88,980 
  1. We are presenting EBITDA and Adjusted EBITDA, which are not measurements determined in accordance with the U.S. generally accepted accounting principles, or GAAP, because we believe these measures provide additional metrics to evaluate our operations and which we believe, when considered with both our GAAP results and the reconciliation to net income, provide a more complete understanding of our business than could be obtained absent this disclosure. We use EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. The use of EBITDA and Adjusted EBITDA as performance measures permits a comparative assessment of our operating performance relative to our performance based upon GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
  2. Represents non-cash stock compensation expense associated with awards of restricted shares of our common stock and stock options to our key employees and our independent directors.
  3. Represents non-cash changes in the fair value of contingent earn-out liabilities related to our acquisitions, non-cash charges related to asset disposals, asset impairments, including intangible asset impairment charges, and certain third-party deal costs incurred in connection with our acquisitions or financing arrangements.
  4. Represents duplicate rent and occupancy costs for our Los Angeles, CA facility.
  5. Represents moving expenses for the consolidation and expansion of our Ridgefield, CT and Toronto, Canada facilities.

THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF ADJUSTED NET (LOSS) INCOME TO NET (LOSS) INCOME
(unaudited; in thousands except share amounts and per share data)

 Thirteen Weeks Ended Fifty-Two Weeks Ended
 December 25,
2020
 December 27,
2019
 December 25,
2020
 December 27,
2019
Net (loss) income$(37,057) $10,888  $(82,903) $24,193 
        
Adjustments to Reconcile Net (Loss) Income to Adjusted Net (Loss) Income (1):       
Other operating expenses (2)24,229  678  14,417  6,359 
Duplicate rent (3)700  698  2,795  1,503 
Moving expenses (4)      61 
Third party debt modification fees (5)    1,233   
Tax effect of adjustments (6)(6,855) (205) (5,072) (2,007)
        
Total adjustments18,074  1,171  13,373  5,916 
        
Adjusted net (loss) income$(18,983) $12,059  $(69,530) $30,109 
        
Diluted adjusted earnings (loss) per common share$(0.52) $0.39  $(2.06) $1.01 
        
Diluted shares outstanding - adjusted36,281,698  31,225,875  33,716,157  30,073,338 
  1. We are presenting adjusted net income and adjusted earnings per common share (EPS), which are not measurements determined in accordance with U.S. generally accepted accounting principles, or GAAP, because we believe these measures provide additional metrics to evaluate our operations and which we believe, when considered with both our GAAP results and the reconciliation to net income available to common stockholders, provide a more complete understanding of our business than could be obtained absent this disclosure. We use adjusted net income available to common stockholders and adjusted EPS, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. The use of adjusted net income available to common stockholders and adjusted EPS as performance measures permits a comparative assessment of our operating performance relative to our performance based upon our GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.

  2. Represents non-cash changes in the fair value of contingent earn-out liabilities related to our acquisitions, non-cash charges related to asset disposals, asset impairments, including intangible asset impairments, and certain third-party deal costs incurred in connection with our acquisitions or financing arrangements.

  3. Represents duplicate rent and occupancy costs for our Los Angeles, CA facility.

  4. Represents moving expenses for the consolidation and expansion of our Ridgefield, CT and Toronto, Canada facilities.

  5. Represents interest expense related to investment banking fees paid in connection with the modification of our senior secured term loan.

  6. Represents the tax effect of items 2 through 5 above.

THE CHEFS’ WAREHOUSE, INC.
RECONCILIATION OF ADJUSTED EARNINGS PER COMMON SHARE
(unaudited; in thousands except share amounts and per share data)

 Thirteen Weeks Ended Fifty-Two Weeks Ended
 December 25,
2020
 December 27,
2019
 December 25,
2020
 December 27,
2019
Numerator:       
Adjusted net (loss) income$(18,983) $12,059  $(69,530) $30,109 
Add effect of dilutive securities:       
Interest on convertible notes, net of tax  250    207 
Adjusted net income (loss) available to common shareholders$(18,983) $12,309  $(69,530) $30,316 
Denominator:       
Weighted average basic common shares outstanding36,281,698  29,595,723  33,716,157  29,532,342 
Dilutive effect of unvested common shares  204,483    211,050 
Dilutive effect of convertible notes  1,425,669    329,946 
Weighted average diluted common shares outstanding36,281,698  31,225,875  33,716,157  30,073,338 
        
Adjusted earnings (loss) per share:       
Diluted$(0.52) $0.39  $(2.06) $1.01 

 


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