CHEF Q2 2025: Gross Margins Rise 50bps to Six-Year High
- Robust Restaurant-Level Fundamentals: The management highlighted that despite industry headwinds, their customer base remains resilient and they are steadily taking market share, indicating a strong and growing demand in their core market.
- Cross-Selling and Hardee’s Integration Benefits: The team emphasized successful cross-selling initiatives with the Hardee’s integration, which is expected to drive long‐term profitable growth in Texas, positioning the company for enhanced revenue mix and scalability.
- Digital and Operational Efficiency Enhancements: Initiatives such as increased digital ordering (with around 60% of specialty orders coming through the platform) and ongoing cost-saving measures are contributing to improved operating margins and overall profitability.
- Hardee's Program Attrition Impact: The exit of high-volume, low-margin commodity programs (e.g., the Texas commodity protein and produce programs) is negatively affecting reported case growth and volume metrics, potentially hurting future revenue growth and profitability.
- Tariff and Inflation Uncertainty: There is uncertainty around ongoing tariff increases and inflation variability in various product lines. These factors could have a material drag on margins if the negative impacts are sustained.
- Seasonality and Guidance Concerns: The company's reliance on seasonality—with a strong first half contrasted by typically slower performance in the second half—raises concerns that achieving the optimistic full-year guidance may be challenging, especially if operational improvements do not materialize as planned.
| Metric | YoY Change | Reason |
|---|---|---|
Revenue Q1 2024 | 21.5% | Strong organic sales growth with an 8.8% increase (adding $63.3 million) driven by a 4.6% rise in organic case count and improvements in unique customers (10.1%) and placements (12.0%), supported by acquisitions contributing 12.7% (or $91.5 million) and moderate inflation effects (1.2%-4.6% across categories). |
Revenue Q1 2025 | 8.7% | Continued organic growth in the specialty category (5.7% increase in case count, 4.5% in unique customers, 7.7% in placements) combined with robust price inflation of 5.2% overall (with category-specific rates of 4.8% and 5.9%, plus double-digit gains in some products) and a 12% rise in revenue per case via cross-selling in Texas, offset by a strategic reduction of low-margin business (-0.7%). |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Sales | FY 2025 | $3.96B to $4.04B | $4.00B to $4.06B | raised |
Gross Profit | FY 2025 | $954M to $1.04B | $964M to $979M | lowered |
Fully Diluted Share Count | FY 2025 | 46.3M to 47M shares | 46M to 47M shares | lowered |
Adjusted EBITDA | FY 2025 | no prior guidance | $240M to $250M | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Digital Adoption and Online Ordering Growth | Mentioned as 48–56% online adoption in Q4 2024 and 54% in Q3 2024 , with Q1 2025 showing 58% adoption. | Q2 2025 reported approximately 60% of specialty orders coming digitally with 40% year‐over‐year growth. | Digital adoption is steadily increasing, with higher adoption rates and notable digital order growth. |
Tariff, Inflation, and Commodity Price Volatility | Discussed in Q1 2025 with modest tariff impacts and varied inflation (5.2% net inflation, commodity volatility in chocolate and eggs) ; Q4 2024 addressed manageable tariff exposure, inflation around 3.8% and commodity challenges ; Q3 2024 highlighted “massive” chocolate inflation and volatility. | Q2 2025 noted increased EU tariffs (rate rising from 10% to 15%), an aggregate inflation of 7.2% (adjusted lower with program transitions) and deflation in select commodities (chocolate, olive oil). | Mixed sentiment: While inflation and commodity pricing remain variable, tariff concerns have grown. |
Hardee’s Integration and Cross-Selling Initiatives | Addressed in Q1 2025 in terms of cross-selling benefits and attrition of noncore programs ; Q4 2024 highlighted a 15% revenue-per-case increase and strategic offboarding ; Q3 2024 discussed margin dilution and incremental margin gains through integration. | Q2 2025 detailed strategic integration in Texas with merging of Hardee’s operations, cross‐selling successes, and ongoing attrition of non‐core programs for improved profitability. | Consistent progress with continued transformation, especially in Texas, driving long-term profitability. |
Operational Efficiency and Margin Expansion Efforts | Q1 2025 reported a 7.9% gross profit increase but an 18‐bp margin decline along with cost management efforts ; Q4 2024 noted a 23‐bp margin improvement through digital and automation investments ; Q3 2024 highlighted route consolidation, digital investments, and a 58‐bp margin increase. | Q2 2025 showed strong improvements with an 11.1% gross profit increase, margin up 59 bps, and enhanced operational metrics. | Overall efficiency and margin expansion have improved consistently, with Q2 2025 reflecting a rebound. |
Robust Core Demand and Restaurant-Level Fundamentals | Q4 2024 explicitly mentioned robust core demand and strong restaurant fundamentals ; Q3 2024 noted healthy demand with new restaurant openings ; Q1 2025 referenced resilient demand in upscale dining. | Q2 2025 confirmed robust core demand with market share gains and customer resilience in a diverse restaurant base. | Core demand remains strong and consistent, supporting long‐term resilience. |
Seasonal Demand Variability and Guidance Challenges | Q3 2024 noted seasonal softness in July–early August and weather impacts like Hurricane Beryl, complicating guidance ; Q4 2024 showed strong holiday performance with clear seasonal patterns ; Q1 2025 discussed predictable April trends and conservatism in guidance. | Q2 2025 acknowledged seasonal summer slowdowns in major cities with strong July performance and guidance challenges due to strong prior-year comparisons. | Seasonal variability remains a challenge; management is cautious but maintains optimistic guidance. |
Noncore Customer and Program Attrition Impact | Q1 2025 discussed attrition of noncore programs (e.g. commodity poultry) impacting sales and margins ; Q3 2024 explained that shedding low-margin business aided margin expansion ; Q4 2024 did not mention this topic. | Q2 2025 reiterated noncore program attrition in Texas (commodity protein and produce processing) with clear measurement impacts on reported metrics. | Attrition remains strategically managed to improve margins, though its mention was absent in Q4. |
Capital Investments, Strategic Expansion, and Supply Chain Resilience | Q1 2025 detailed moderated CapEx, new facility projects, and supply chain diversification ; Q4 2024 emphasized major facility projects, consolidation in Northern California, and expansion in Florida and New England ; Q3 2024 discussed facility investments and route consolidation. | Q2 2025 did not provide specific information on capital projects or strategic expansion, with the focus shifting to other areas. | This topic is no longer mentioned in Q2 2025, indicating a diminished focus in the current period. |
Labor, Wage, and Operational Cost Pressures | Q3 2024 highlighted rising labor, facility, and service costs impacting margins ; Q4 2024 discussed competitive wages, automation, and investments in recruiting to offset pressures ; Q1 2025 noted increased SG&A due to higher compensation and facilities costs. | Q2 2025 provided only a brief reference with increased SG&A expenses attributed partly to cost pressures, without detailed discussion. | Cost pressures persist, though the detailed focus on labor and wage issues has lessened in Q2 2025. |
Market Transformation in Key Growth Areas | Q4 2024 discussed transformative efforts in Texas, Northern California consolidations, and performance in Florida and other markets ; Q3 2024 mentioned integration progress in Texas leading to margin gains ; Q1 2025 did not specifically address this topic. | Q2 2025 focused on transforming Hardee’s operations in Texas into a Chef’s Warehouse model and expanding cross-selling initiatives. | Transformation continues, particularly in Texas, though Q1 had no mention – Q2 shows a renewed emphasis. |
Evolving Customer Booking Trends and Adaptability | Q3 2024 noted a shift to last-minute and closer-to-event bookings post-COVID ; Q4 2024 emphasized digital ordering adoption as part of evolving booking trends ; Q1 2025 discussed seasonal trends and regional adaptability in customer bookings. | Q2 2025 did not mention evolving customer booking trends, indicating less emphasis on this topic. | This topic appears to have diminished in Q2 2025 compared to earlier periods. |
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Margin Outlook
Q: What drove gross margin improvement?
A: Management explained that gross margins improved by about 50bps, marking the best level in nearly six years. This result is driven by initiatives in pricing, digital enhancements, and operational efficiencies as they streamline Hardee’s integration. -
Hardee's Attrition
Q: What’s the impact of Hardee’s attrition?
A: Management noted that the attrition, particularly in the commodity protein program, led to reported center-of-plate volume declining 4%, though excluding that, growth was nearly 6%. The program, which covered almost the entire quarter, will be phased out to boost profitability. -
Inflation Environment
Q: How is inflation affecting results?
A: According to management, reported inflation was 7.2%, but when excluding the Hardee’s-related mix changes, overall inflation came in at about 3%, with 2.3% in specialty and 4% in center-of-plate, setting the tone for the year. -
Second Half Outlook
Q: What are expectations for H2 performance?
A: Management expects H2 to deliver approximately 6% revenue growth with strong operating leverage leading to full-year growth rates at the top of their guidance of 6.5–7%, driven largely by seasonal trends. -
M&A Strategy
Q: Will there be more acquisitions?
A: Management remains opportunistic with smaller tuck-in deals that complement their organic growth, while ensuring they optimize the newly built capacity rather than overextending it. -
2028 Goals
Q: How do 2028 goals reflect current performance?
A: Management linked their 2028 targets to current initiatives—such as improved pricing, digital sales, and procurement strategies—which are already positively influencing H1 results and setting a strong foundation for the future. -
Hardee's Cross-Selling
Q: How is cross-selling performing in Hardee’s?
A: Management highlighted that cross-selling efforts within Hardee’s are bolstering placement growth and helping to shift towards more profitable, higher-quality routes, even as the mix undergoes transitional changes. -
Restaurant Health
Q: Are restaurant markets resilient?
A: Management affirmed that while minor fluctuations occur, the overall restaurant business remains resilient with strong market share gains and consistent performance across channels. -
Office Dining
Q: Has return-to-office boosted dining?
A: Management noted that the trend toward returning to office has modestly uplifted business dining, particularly supporting increased lunch activity in major cities. -
Summer Travel
Q: How is summer travel impacting demand?
A: Management observed that although summer in key cities tends to be slow, growth in shore-related business helped offset some reduced tourism from overseas, ensuring stable demand during the season.
Research analysts covering Chefs' Warehouse.