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    Chefs' Warehouse (CHEF)

    CHEF Q3 2024: Hardie cuts 25bp, eyes 20-25bp annual margin gain

    Reported on Jul 30, 2025 (Before Market Open)
    Pre-Earnings Price$41.22Last close (Oct 29, 2024)
    Post-Earnings Price$40.96Open (Oct 30, 2024)
    Price Change
    $-0.26(-0.63%)

    What went well

    • Margin Expansion & Efficiency Gains: Management is actively rationalizing its lower-margin, non-core business and driving cost efficiencies—for example, by integrating Hardie’s operations and achieving 20–25 basis points of margin dilution that they expect to recapture—indicating a sustainable path toward improved EBITDA margins.
    • Robust Core Demand & Market Share Growth: Leadership highlighted strong, resilient performance among core customers and consistent market share gains driven by effective cross‐selling and disciplined customer attrition strategies, supporting a durable sales base even amid softer periods.
    • Resilient Booking Trends & Adaptability: The evolving customer booking behavior, with a shift toward last-minute orders leading to significant upticks in holiday and event bookings, underscores the company’s agile response to new market dynamics and its potential for continued revenue growth.

    What went wrong

    • Seasonal weakness and demand softness: The quarter experienced a 1% drag on top-line revenue due to softer performance in July and early August, which might indicate recurring seasonal challenges affecting revenue growth.
    • Margin pressure from non-core business and integration challenges: The integration of Hardie’s, which currently dilutes overall EBITDA margins by approximately 20 to 25 basis points, along with efforts to shed low-margin non-core business, may continue to pressure margins.
    • Rising operational and labor costs: Increased costs—from labor to facility expenses—are straining profitability, and while investments in digital and route consolidation are underway, there is uncertainty if these measures will fully offset the higher costs.

    Q&A Summary

    1. Margin Impact
      Q: How much does Hardie dilute margins?
      A: Management explained that Hardie currently dilutes overall EBITDA margins by about 20–25 basis points, but expects integration to fully recapture this over the next couple of years.

    2. Margin Build
      Q: What annual margin improvement is targeted?
      A: They are targeting an organic incremental margin improvement of roughly 20–25 basis points per year, acknowledging variability with economic cycles.

    3. Acquisition Strategy
      Q: Will acquisitions drive future margins?
      A: Management clarified that the 2028 margin targets are based strictly on organic growth, with acquisitions being opportunistic and not factored into the plan.

    4. Low-Margin Rationalization
      Q: How does shedding low-margin business help?
      A: They noted that discontinuing noncore, low-margin business has contributed to gross profit margin expansion, even though exact figures weren’t provided.

    5. Inflation Outlook
      Q: What is the near-term inflation expectation?
      A: The team anticipates similar inflation trends in Q4 as seen in Q3 — roughly 3.2% overall with minor product-specific variations, supporting their organic revenue guidance.

    6. Demand Trends
      Q: Were there extra pockets of sales softness?
      A: Management acknowledged some softness in July — approximately a 1% hit on top line — but highlighted robust recovery into September and October.

    7. Hiring Trends
      Q: Is competition affecting salesperson hiring?
      A: They continue proactive hiring, emphasizing the need for extensively trained relationship managers, which is viewed as key to long‐term success.

    8. Order Cadence
      Q: How did later quarter orders perform?
      A: Trends improved steadily, with September and October showing better performance than early-quarter softness, reflecting a normalization in ordering patterns.

    9. Investment Necessity
      Q: Are digital and consolidation investments required?
      A: Investments in digital platforms, route consolidations, and facility enhancements are already fully integrated into their operational model.

    10. Margin Drivers
      Q: What key initiatives drive margin expansion?
      A: Enhanced pricing, route consolidation, and improved digital capabilities are all contributing to better margin profiles across their segments.

    11. New Openings
      Q: How might new restaurant openings evolve?
      A: There is an expectation of healthy growth in new restaurant openings as landlords offer appealing spaces, sustaining the business’s core customer base.

    12. Consulting Role
      Q: What is the consulting firm expected to do?
      A: The external consultants are tasked with identifying further efficiencies and potential revenue-driving strategies, complementing internal initiatives.

    13. Holiday Bookings
      Q: What’s the trend with holiday bookings?
      A: Early feedback indicates a notable uptick, with some clients posting last-minute bookings showing increases of 30–40%, reflecting a dynamic change in timing post-COVID.

    14. Market Usage
      Q: How do mature and new markets differ?
      A: In mature markets, they offer a complete range including protein and produce, whereas newer markets predominantly focus on specialty items, aligning with local demand.

    15. Margin Discipline
      Q: Are margins maintained via selective customer focus?
      A: The approach remains unchanged; they deliberately shed lower-margin business to preserve a premium service model, ensuring a high-margin profile.

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