Q2 2024 Earnings Summary
- The company's largest customer, US Foods, has been experiencing declining sales over multiple quarters, and management acknowledges the challenge in returning this business to growth.
- Despite growth in other areas such as Artisan Specialty Foods and the airline catering business, the net effect on revenue remains negative, indicating that growth in smaller segments is insufficient to offset declines in major segments.
- New initiatives, like the 10-store test with a large national retailer for gourmet cheese, are still in early stages and may take significant time to become material contributors to revenue, introducing uncertainty in near-term growth prospects.
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US Foods Revenue Decline
Q: Is lowering dependence on US Foods while growing its dollars feasible?
A: Management agrees it's ideal to decrease reliance on one customer while still growing the US Foods business. However, their business with US Foods has been shrinking over recent quarters. Despite efforts to strengthen it, US Foods remains their biggest customer, yet its revenues are declining. -
Gourmet Cheese Retail Pilot
Q: Can you elaborate on the 10-store gourmet cheese test with a national retailer?
A: They've been working for 12 months to build a relationship with a large retailer. The pilot involves taking ownership of inventory, cutting and wrapping cheese, and delivering to 10 stores. This focused assortment leverages capabilities from the igourmet business without the high marketing expenses of e-commerce. Previously, igourmet carried over 600 varieties of cheese; now the focus is much narrower. -
M&A Strategy and Chicago Model
Q: How unique is the Chicago model, and can it be replicated in other cities?
A: The Chicago-based Artisan business has doubled from $10 million to $20 million, split equally between the local market and drop-ship business. Their M&A strategy focuses on acquiring small regional distributors to leverage synergies and replicate this model elsewhere. -
Impact of PFG Acquiring Cheney Brothers
Q: How does PFG's acquisition of Cheney Brothers affect you?
A: Management notes that PFG's prior acquisition of Reinhart enhanced their relationship with PFG. They hope a similar positive effect occurs with Cheney Brothers but need to assess the implications as they just learned about it. -
Sub-Business Growth Rates
Q: Can you elaborate on growth rates in your sub-businesses and revenue contributions?
A: While hesitant to disclose detailed figures, they mention that both Artisan and airlines businesses are growing in the high single digits. Despite this growth, the overall net effect remains negative due to the size of their largest customers. They're rethinking revenue segmentation in public filings as e-commerce diminishes.
Research analysts covering INNOVATIVE FOOD HOLDINGS.