The Chefs' Warehouse (CHEF 30.92, -0.29, -0.93%) is a name worth keeping on the
radar in 2019. The company is a distributor of specialty food products in the U.S.
and Canada that focuses on serving the specific needs of chefs who own and
operate some of the nation's leading restaurants, fine dining establishments,
country clubs, catering businesses, hotels, culinary schools, chocolatiers, bakeries,
patisseries, cruise line kitchens, casinos, and specialty food stores.
CHEF believes that its broad selection of distinctive and hard-to-find specialty and center-of-the-plate food products differentiates it from larger, more traditional broadline foodservice distributors that thus gives it a competitive advantage in meeting the needs of its culinary customer base. By simultaneously offering high-quality staples as well as specialty foods, Chefs’ Warehouse can provide its customers with cost-effective and efficient foodservice distribution solutions. The company’s products include extensive offerings of center-of-the-plate products like beef, seafood and hormone-free poultry, as well as of broadline food products such as various cooking oils, butter, eggs, milk, and flour.
CHEF posted solid Q3 results in early November as sales rose 11.2% year/year to $361.5 mln. The momentum seen in the first half of 2018 continued into Q3; CHEF delivered strong organic case and gross profit dollar performance amidst a deflationary price environment and unseasonably wet weather.
Of note, CHEF has been pushing customers to place orders online or via mobile devices, as according to management, online orders typically consist of more items with better margins that are more easily processed by salespersons than orders made, for example, by telephone. Customer adoption of e-commerce continued to grow, and during Q3, CHEF reached its targeted 2018 milestone of more than $100 mln of annualized revenue being gathered via its online and mobile platforms, and approximately 20% of all online sales in the third quarter came specifically through the company’s mobile app.
Looking ahead, expect CHEF to report Q4 results around February 20, as is typical timing for the company. For all of 2018, CHEF expects sales of $1.425-1.445 bln with adjusted EPS of $0.71-0.80 and adjusted EBITDA of $75.0-78.5 mln.
The stock was in a nice and steady uptrend for much of 2018, rising from $20 in mid-February to $38.65 on December 12. However, the stock has pulled back to around the $30 area since then. As such, the pullback makes us think CHEF is a name to keep on the radar. However, be sure to use a 10-20% stop loss limit to protect on the downside.
CHEF seems to be doing pretty well despite what has been a difficult time for the restaurant industry. It seems that their focus on hard-to-find food items coupled with center-of-the-plate offerings is helping them navigate a tough competitive landscape. CHEF has also been developing its mobile and online platform to boost online sales, which is acting as a nice tailwind. CHEF also sees an opportunity to take advantage of the fragmented nature of its industry. It has been active on the M&A front, having completed eight acquisitions since 2013, making smart choices in an industry that is ripe for consolidation.
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