Title

Presentation

The Chefs’ Warehouse, Inc. beats earnings expectations. Reported EPS is $0.55, expectations were $0.51.

Operator: Greetings, and welcome to The Chefs’ Warehouse Fourth Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary and Chief Government Relations Officer. Please go ahead, sir.

Alexandros Aldous: Thank you, operator. Good morning, everyone. With me on today’s call are Chris Pappas, Founder, Chairman and CEO and Jim Leddy, our CFO. By now, you should have access to our fourth quarter 2024 earnings press release. It can also be found at www.chefswarehouse.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial measures, including among others, historical and estimated EBITDA, adjusted EBITDA, adjusted net income, adjusted earnings per share, adjusted operating expenses, net debt leverage and free cash flow. These measures are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies.

Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today’s press release and fourth quarter 2024 earnings presentation. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today’s release. Others are disclosed in our annual report on Form 10 K and quarterly reports on Form 10-Q, which are available on the SEC website.

Today, we are going to provide a business update and go over our fourth quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on The Chefs’ Warehouse website under the Investor Relations section titled Fourth Quarter 2024 Earnings Presentation. Please note that these slides are disclosed at this time for illustration purposes only. Then we will open up the call for questions. With that, I will turn the call over to Chris Pappas. Chris?

Christopher Pappas: Thank you, Alex. Thank you all for joining our fourth quarter 2024 earnings call. Business activity and demand remained consistently strong through the fourth quarter amidst a healthy environment for our core upscale casual to higher end dining customer base. Our teams across domestic and international markets provided excellent product and service amidst a busy holiday season and delivered the first $1 billion plus revenue quarter in Chefs’ Warehouse history and strong growth in gross profit dollars in March. During the quarter, we continued growing market share, both in the year with strong year-over-year growth in unique item placement and new customer acquisition. I’d like to thank the entire Chefs’ Warehouse team for their dedication and commitment in delivering a strong 2024 for our team members, our customers and supply partners and our shareholders.

Now please refer to Slide 3 of the presentation. A few highlights from the fourth quarter include 8.7% growth in net sales. Specialty sales were up 11.5% over the prior year, which was driven by unique customer growth of approximately 4.5%, placement growth of 12.3% and specialty case growth of 6.1%. Pounds in center-of-the-plate were approximately 3.6% higher than the prior year fourth quarter. Gross profit margins increased approximately 23 basis points. Gross margin in the specialty category increased approximately 22 basis points as compared to the fourth quarter of 2023 while gross margin in the center-of-the-plate category decreased approximately seven basis points year-over-year. Jim will provide more detail on gross profit margins in a few moments.

Now please refer to Slide 4. Chart one provides a full-year 2024 update to gross profit dollars per route as compared to 2019. Chart two provides full-year 2024 adjusted operating expense as a percentage of gross profit dollar improvement by 24 basis points versus 2023 and 92 basis points versus 2019. Full-year 2024 adjusted EBITDA per employee increased 13% versus 2023 and 18% versus 2019. Now please refer to Slide 5. The charts here display the progression of customer orders coming via our digital platform, which include orders coming via mobile and website. Investments in our digital platform continue to contribute to margin enhancement as our team drives both online order adoption growth, enhancements to customer facing functionality and improved real time data and app analytics, supporting our sales teams.

As of the fourth quarter of 2024, approximately 56% of customers ordering through our domestic specialty locations are online versus 48% in 2023 and 20% at year end 2019. Now please refer to Slide 6. Slide 6 plays the five key areas that our teams are focused on in order to deliver our expectation of continued above industry average top line gross profit dollar and adjusted EBITDA growth as well as targeted incremental adjusted EBITDA margin improvement over the next four years. We look forward to expanding more on each of these areas at our Investor Day this coming March. With that, I’ll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?

James Leddy: Thank you, Chris, and good morning, everyone. I’ll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity. Please refer to Slide 7. Our net sales for the quarter ended December 27, 2024 increased approximately 8.7% to $1.034 billion from $950.5 million in the fourth quarter of 2023. Net inflation was 3.8% in the fourth quarter consisting of 5.1% inflation in our specialty category and inflation of 1.8% in our center-of-the-plate category versus the prior year quarter. Reported inflation was impacted by two primary factors in the fourth quarter versus the prior year quarter. Prices in the chocolate category continued to remain elevated versus the prior year and specialty product cross sell growth in Texas.

As we combine our legacy specialty and protein sales with our Hardie’s produce operation, average revenue per case in Hardie’s increased approximately 15% versus the fourth quarter of 2023 as the mix of higher dollar specialty cases increased. Excluding the impact of the Texas cross sell growth, aggregate specialty inflation was approximately 3.6% and overall inflation for the company was approximately 3%. Gross profit increased 9.8% to $251 million for the fourth quarter of 2024 versus $228.6 million for the fourth quarter of 2023. Gross profit margins increased approximately 23 basis points to 24.3%. And our procurement, sales, pricing and operating teams delivered strong gross profit dollar growth across categories during the quarter. Selling, general and administrative expenses increased approximately 8.9% to $206.8 million for the fourth quarter of 2024 from $190 million for the fourth quarter of 2023.

The increase was primarily due to higher depreciation and amortization driven by facility investments and costs associated with compensation, facilities and distribution to support sales growth. Adjusted operating expenses increased 7.7% versus the prior year fourth quarter and as a percentage of net sales, adjusted operating expenses were 17.7% for the fourth quarter of 2024. Operating income for the fourth quarter of 2024 was $46.5 million compared to $38.2 million for the fourth quarter of 2023. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general and administrative expenses versus the prior year quarter. Our GAAP net income was $23.9 million or $0.55 per diluted share for the fourth quarter 2024 compared to net income of $16 million or $0.38 per diluted share for the fourth quarter of 2023.

On a non-GAAP basis, we had adjusted EBITDA of $68.2 million for the fourth quarter of 2024 compared to $59 million for the prior year fourth quarter. Adjusted net income was $23.9 million or $0.55 per diluted share for the fourth quarter of 2024 compared to $20.2 million or $0.47 per diluted share for the prior year fourth quarter. Turning to the balance sheet and an update on our liquidity, please refer to Slide 8. At the end of the fourth quarter, we had total liquidity of $261.4 million comprised of $114.7 million in cash and $146.7 million of availability under our ABL facility. For the full fiscal year 2024, we prepaid $14 million principal on our 2029 term loan. We settled the December 2024 maturity convertible notes in a combination of cash and shares due to the partial conversion by certain holders.

This resulted in $39.7 million of debt reduction and an increase in share count by 696,000 shares net of 162,000 shares repurchased shortly following the conversion. Share repurchases under our authorized $100 million plan totaled $17.4 million for the full-year of 2024. Timing of any future repurchases under our plan will continue to be dependent on share price, market conditions and free cash flow generation. As of December 27, 2024 total net debt was approximately $557.8 million net of all cash and cash equivalents. Net debt to adjusted EBITDA was approximately 2.5x as compared to approximately 3.4x as of year-end 2023. Due to the timing of certain payments at year end, we estimate that net debt to adjusted EBITDA will be in the range of 2.5x to 2.8x for the foreseeable future.

Turning to our full-year guidance for 2025. Based on the current trends in the business, we are providing our full-year financial guidance as follows. We estimate that net sales for the full-year of 2025 will be in the range of $3.94 billion to $4.04 billion. Gross profit to be between $951 million and $976 million and adjusted EBITDA to be between $233 million and $246 million. Please note for the full-year 2025, we expect the convertible notes maturing in 2028 to be dilutive and therefore we expect the fully diluted share count to be approximately 46.3 million to 47 million shares. Thank you. And at this point, we will open it up for questions. Operator?

Operator: Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions]. The first question comes from the line of Mark Carden with UBS. Please go ahead.

Mark Carden: Good morning. Thanks so much for taking the questions. So to start, you guys called out strength across the quarter. Did you see any impact from the softer industry traffic that we’ve heard about in December? Or did the higher income consumer just simply activated differently? And then how much of an impact have you guys seen quarter-to-date from the Southern Winter storms and the California wildfires?

Christopher Pappas: No, I would say that the cadence during the fourth quarter was just pretty evenly solid or strong. And I think a lot of people were anticipating maybe some impact from the shorter period from Thanksgiving to Christmas, but we really didn’t see that. Those three weeks were really typically strong for a holiday season. So there’s really nothing to call out on the fourth quarter in terms of weather impacts or anything that we saw from a demand perspective. In terms of January and some of the weather impacts, the fires in LA did not really have a hugely material impact on us. We only had a handful of customers that actually got lost their properties. And LA is a very big wide market, geographically for us. So there was a little bit of an impact, but it’s not going to have a material impact.

Mark Carden: Great. That’s helpful. And then in terms of I know it’s a fluid situation, but there’s a potential for tariffs coming back to play with Mexico, Canada and Europe. If that occurs, how much exposure do you have to these markets from an import perspective? And could you pass through the inflation in most cases? Or do you look to pivot sourcing?

Christopher Pappas: Yes. I mean, historically, we went through a period of some tariff wars back years ago. I remember that we were dealing with some of the products that come from Italy and France and Spain, I believe. We have over 4,000 suppliers right now throughout our system at Chef’s Warehouse. A tremendous amount of our products are domestic and we’ve always been able to navigate it, find other solutions and pass on. I mean, again, I think the largest sector, I think are the product lines are fruits and vegetables from Mexico. A lot of these are $20 boxes. So you’re talking about a few bucks a case. I think our market; our customer base is kind of used to the ups and downs. We do sell a more high end type of operation and it’s more labor cost that drives a lot of the costs.

I mean, right now everybody’s talking about eggs. Eggs is I think the biggest headwind we have had from the avian fluids cause eggs to go up. But when you really think about, eggs are up even if they’re up $0.50 an egg, how much of that goes into a recipe to our average customer who’s charging $20, $30, $40 for an entree. So there’s an effect, but it’s not something that really keeps me up at night.

Mark Carden: Great. Thanks so much. Good luck guys.

Christopher Pappas: Thank you.

Operator: Thank you. The next question comes from Alex Slagle with Jefferies. Please go ahead.

Alex Slagle: Thanks. Hi guys. Congrats on the quarter. I wanted to ask on the margin opportunities for 2025 and when you look at the implied midpoints for gross margin and OpEx, I mean, where do you think you see the greater opportunity to get more favorability? And I asked that just because your adjusted OpEx percentage in 4Q started to flatten out and lever year-over-year for the first time in seven, eight quarters. So from the outside looks like a solid place to see some upside opportunity, but curious on your perspective.

James Leddy: Yes. Thanks for the question, Alex. In terms of 2024, we were pretty early upfront in our guidance that our — the operating leverage was going to be heavily weighted to the back half of the year, especially the fourth quarter, given that we didn’t lap some of the big facility investments and rent impacts until the fourth quarter. So that kind of played out how we expected. We had very little operating leverage the first three quarters of the year and then a lot in the fourth quarter. And that resulted in the kind of 15 to 20 basis points of EBITDA margin improvement versus ’23. In ’25, the guidance is obviously a range. Our goal is once again to incrementally over the next four years improve operating leverage and EBITDA margin by kind of that 20 to 25 basis point range that we’re close to executing in ’24.

And really, there’s a lot of if you look at the chart that we put up about our ’28 financial goals, all of those things and the projects that are below them are all going into both driving gross profit dollar growth and improvement as well as improvement in adjusted operating leverage on the OpEx. So really it’s just doing the work and the teams executing and then getting there incrementally.

Alex Slagle: Okay. And on the food cost inflation outlook, do you think that Hardee’s cross sell impact will continue through ’25 to the same degree?

James Leddy: Well, I think we’ll continue to grow the cross sell. With Hardee’s, it’s similar to New England. We’re trading out of some lower margin kind of what we call chunky corporate business and replacing it with what we call street sales, which are independent restaurants and the core customer that we’re really good at serving. So that will continue. And if it continues to have a bit of an outsized impact on the reported inflation number, we’ll call it out. But product mix changes impact the inflation versus volume number and we’ll continue to call things out that are having somewhat of an outsized impact one quarter versus another.

Christopher Pappas: Yes. Unfortunately, Alex, I think that it makes your job a little harder trying to look at us over the past 10 years. And I think we continue to say, you really got to understand Shaft, you have to understand our goal was to become a complete solution company in every market. So we have our protein offerings and we have our — now our fresh offerings combined with the specialty broad line. So the numbers are going to continue to evolve because our goal is to be that solution company in every market. And it’s going to fluctuate depending if protein is growing faster than fresh or fresh is growing faster. It depends on the maturity of each market. But we’re very, very happy with how our teams are growing, continually growing.

And we called it a hybrid sell for a long time. I think I’m going to start maybe using a different phrase, because maybe it’s our total solution go to market strategy that continues to evolve and succeed. And I think you’re seeing the success of how the teams are doing as we continue to get leverage on our overhead, especially where we’ve invested heavily in people and technology and on our new facilities. And as we start to grow the volume, you start to see us get that leverage that we keep talking about 20 basis points a year for the next few years and we’re marching towards our goals.

Alex Slagle: Got it. Thanks. Congrats again.

Christopher Pappas: Thank you, Alex.

Operator: Thank you. The next question comes from the line of Peter Sarra with BTIG. Please go ahead.

Peter Sarra: Great. Thanks and congrats on a great year. I wanted to ask maybe first on just, if you give us a little bit of an update. Chris, you mentioned labor costs and maybe you could just give us an update on what you’re thinking for labor availability and inflation in 2025, if you think that’s going to be in line with historical or outsized? And then just on general commodity inflation, I know in the past you’ve mentioned optimal scenario is 2% to 3% commodity inflation with a little bit of volatility. Just any thoughts on what you’re expecting in 2025 would be helpful. And then I’ve got a quick follow-up? Thanks.

Christopher Pappas: Sure. Well, let me get the crystal ball out again, Peter. But I think if you back out the — what we’re seeing right now with mainly, I mean, eggs is really what’s got people going crazy at this point. The chocolate market is better, but it’s still inflated. But we back out those two big categories. We’re kind of seeing that 2% to 3%. So I don’t see anything that really would change that drastically. I mean, everyone’s talking about tariffs, tariffs, tariffs, but I don’t know from my seat today, I see the 2% to 3% that we talk about and probably with a little volatility and we’ll hopefully the egg market, we get over the control of the Avan flu and the egg prices start to come down, give people relief. But, yes, the meat market, I mean, we all talk about the beef, not enough cattle for the next two, three years.

So I don’t think we’re going to get much relief on that. But we’re seeing stabilization. We’re not seeing anything crazy besides the big headwind on the ag market. So our category managers are really doing a great job right now and I think you see the results.

Peter Sarra: Great. And then just can I ask on the sales force. Can you give us an update on how the investments you guys have made in the sales force, maybe the growth rate? And where are you getting most of this talent from? Are they coming from outside the industry, within the industry? Any insight there would be helpful. Thank you.

Christopher Pappas: Yes. Well, I didn’t answer your labor question before. I mean, labor it’s a hard job, working night shifts and driving big trucks in cities and delivering it up and downstairs. I mean, these people work really, really hard. It’s a hard job and we like to think we pay a very fair better than most of our competitors. We try to, because we’re delivering great expensive product to the best restaurants in the world. So we need to have the best team. And I don’t think that that is the issue. It was obviously coming out of COVID where we really challenged. I think it’s really stabilized. We have a stabilized labor force. So I don’t see that as the headwind that we had before. And what was the second part of your question?

I’m sorry. Oh, the sales force? Yes. I mean, we hire from the kitchens, we hire from the front of the house and we also hire people that have a passion for food, perseverance and I think from all walks of life. It’s a very diverse sales force and I think it continues to get even more diverse. I think what’s really been paying us off dividends is our investments in training, investments in HR, investments in recruiting, spending a lot of time, energy and more and more investment in trying to recruit the best people, because it does take time to become, I call it, to become a real CW person who could sell all our books. That takes a few years. So hiring the wrong people who leave after a year or two is a big cash drain. So I think the efforts in making sure that we’re doing our best to recruit people that are going to stay.

And I would say, the people that stay more than two, three years, it becomes probably the best job that they’re going to have, because we don’t cap people, we allow them to keep growing. And I think that story resonates. They see the success people have had at Chefs’ Warehouse and I think that really helps us recruit the best people, best talent that’s out there. And I think you’re seeing the results of that.

Peter Sarra: Thank you very much.

Operator: Thank you. The next question comes from Todd Brooks with Benchmark Company. Please go ahead.

Todd Brooks: Hey, good morning and congrats on a great 2024.

Christopher Pappas: Thanks, Todd.

Todd Brooks: Couple follow-up questions here. The strength that we saw in gross margin, you pointed at some specific drivers around the digital ordering mix, some beneficial inflationary experience, the higher kind of case value and profitability at Hardee’s. As we’re looking forward for gross margin outlook for ’25. Just thoughts on kind of key drivers of continued improvement and maybe if we can boil that into a magnitude that would be great.

James Leddy: Thanks for the question, Todd. I really go back to what I guess what I alluded to earlier is that the guidance implies kind of very similar kind of gross profit margins as we delivered in for the full-year of 2024. And that’s really because gross profit margins are now put and are affected by things like product mix changes, et cetera, as well as obviously inflation and deflation. So once again, we’re focused on driving gross profit dollars and gross profit dollar growth. So that Texas is a good example as we get more expensive boxes on Hardee’s trucks. Our goal is to drive more gross profit dollar per drop per case on average and for the OpCo as a whole as we go through the year. And then the operating team is focused on managing operating expense.

So I think when we build our guidance, we kind of just build in an expected gross profit range. It’s not going to be perfect. And then our goal is to execute to gross profit dollar growth. So that’s how we think about it.

Christopher Pappas: Yes. And again, Todd, I think we’ve been staying focus on our spread between overhead, what it costs to run the business and the GP dollars because we’re seeing a marketplace that didn’t exist before in my 40 years of foodservice where you have a case of eggs that was say $30 a case and now it’s $200 a case. You don’t need to make 25%, right, because you’re making the GP dollars because your input cost is so high. So the overhead is up. It does cost drivers cost more, rent cost more, but it didn’t go up double and triple costs. So you’re able to operate in this environment. A case of prime fillets that say was $80 a piece and now it’s $160 a piece. You have the same mathematical dynamics. So the margin, we are a margin company, we focus on it, but when you get crazy increases in certain categories, it can kind of muddle the number.

And again, that’s why we’re so focused on saying, our focus is delivering that 20 basis point improvement every year. And it’s really the spread between the operating cost to run the business and the GP dollars coming in because our mixes are changing. We are a company that’s focused on selling the best products in the world. A lot of them are more expensive. Our customers use more expensive ingredients. So it’s not like we’re stuck with a $20 box type of food distribution business and trying to make $1.95 a case. That’s not who Chefs’ Warehouse is. That’s why we give up sometimes $50 million, $60 million, $70 million, $100 million of volume that comes in from some of these acquisitions that doesn’t fit who we are. And as we kind of right size the market, as we talk about Texas, it starts to become more of a Chefs’ Warehouse and start to look and operate more like a Chefs’ Warehouse and the numbers start to become more like a Chefs’ Warehouse.

Todd Brooks: That’s very helpful. Thanks, Chris. And just one quick follow-up with inflation being kind of a key topic on this call. How are you guys looking about potential issues as you go down the supply chain from labor availability, whether it’s migrant labor on the produce side of the business or maybe labor on the meat processing and packaging side as an incremental pressure to inflation in your ’25 outlook? Thanks.

Christopher Pappas: Yes. I think we got way ahead of it the past few years. I mean, we raised a lot of the wages. I think that we realized to get the best talent out there, we would have to pay in each market to be most competitive to look for the best people and again be successful, you can afford to pay more, right. So I think we’re doing that. So I don’t — I’m not sure that I’m we’re going to see a tremendous headwind coming from the labor front because we’re already paying, I think at the upper end of the market. And I think to attract to keep attracting that talent, I think it’s built into our market. So I think we’re good there.

AlexandrosAldous: Todd, I would just add that on the processing side. Given the facility investments that we’ve made over the last couple of years, we put in a lot of processing automation and that’s allowed us to hire fewer butchers and so that will help mitigate as well as we go forward.

Christopher Pappas: Yes. And all our systems in the warehouse is making us more efficient. So we know that that’s the key to the success going forward is you have to be able to figure out how to do more with less and I think our teams are doing a phenomenal job of that.

Todd Brooks: Okay, great. Thank you both.

Christopher Pappas: Thank you, Todd.

Operator: Thank you. The next question comes from the line of Eli Niebuhr with Lake Street Capital Markets. Please go ahead.

Eli Niebuhr: Hi guys, this is Eli on for Ben Klieve. Congrats on a strong quarter and thanks for taking my questions. First, could you provide an update on the utilization levels in the new Texas, California and Florida locations? How do these compare to your initial expectations? And are you seeing any regional trends going forward?

James Leddy: Well, we don’t — thanks for the question, Eli. We don’t really disclose utilization levels by operating company or by market. But in general, in Northern California, we completed the consolidation of four processing facilities into one. We completed that move in December of 2024. And so we’re in the early innings of that operation. That is really exciting. I mean, we have a lot of room for growth in that facility, and we’re starting to realize the benefits of removing four separate processing facilities and getting the synergies on the operating cost side. In Texas, we’ve taken some additional space in Houston. We’re in the process of, as I mentioned earlier, trading out of some and Chris mentioned earlier as well, trading out of some non-core business that will free up space in order to continue to grow the specialty and protein side of the business, selling to the large Hardie’s customer base that we acquired with the acquisition.

Getting those routes was critical to that part of the strategy. So we’re doing that in a number of different markets, maybe on different levels of scale, but hopefully that gives you a sense of where we are in a multiyear path to driving the improvements in those markets from those investments.

Eli Niebuhr: Yes, that’s great. Thanks. And then a second question, and then I’ll hop back in queue. Could you break down your CapEx expectation for this year in terms of growth versus maintenance spending? How should we think about your capital allocation strategy between expansion initiatives and sustaining existing operations?

Christopher Pappas: Yes, sure. So we guided to CapEx of $40 million to $50 million for ’25, very similar to what we’re doing in ’24. And our goal is to gradually get that down towards 1% of revenue. I think we’ll be closer to that versus I think we were at 1.3% in ’24. In general, because we’re a growth company, 80% of our CapEx is basically investing in facility expansion. So we have two major projects that we’re doing in ’25 and that is our Philadelphia, Southern New Jersey facility retrofit that will optimize our distribution footprint between the New York Metro Area, the Mid-Atlantic and Pennsylvania, and that’s underway. And then our Portland, Oregon facility build out that will allow us to consolidate multiple facilities that we have in Portland as a result of an acquisition that we did over a couple of years ago.

And so that will — that’s taking place this year as well. We anticipate to complete that either at the end of this year or early Q1 of ’26. So those are the two major facility projects. And really, the rest of our CapEx is investments in technology, in our digital platform build out and then the rest is maintenance CapEx.

Eli Niebuhr: That’s great. Thanks, guys. That’s it for me.

Christopher Pappas: Thank you.

Operator: Thank you. Our next question comes from Kelly Bania with BMO Capital Markets. Please go ahead.

Kelly Bania: Good morning. Thanks for taking my questions. I was wondering if you could just talk a little bit more about the 4% to 7% organic growth and just help us break that down between how much high growth markets are contributing versus more mature markets and obviously tie in Texas into that conversation and just what you’re learning about the Texas market and the receptivity to the categories as you integrate kind of protein and specialty there?

James Leddy: So thanks, Kelly. I’ll start with a little bit about the high growth markets and the mature markets, and then I’ll turn it over to Chris to add some color on Texas and the strategy there. But just on the 4% to 7%, we have a and we’ll talk more about this at our Investor Day, but we have markets like Dubai and Florida and Seattle, even Southern California, Northern California, Texas, New England, where we’ve made either significant acquisitions that are aimed at growth and invested in capacity. And all of these markets that I’m mentioning are kind of in that group. And they’re growing, I’m not going to call out specific markets, but most of them are growing double-digits, anywhere between 10% and 20%. And then our mature markets are still growing, but obviously, if you’re in a market like San Francisco or L.A. or where we’ve been a long time, it’s a very big market.

We’re growing through category growth. We’re growing through penetration and continuing to add customers in the outer lining markets where people are working given hybrid work, et cetera. And many of those dynamics are still playing out. And so they’re still growing mid-single-digits or that kind of type of growth. So hopefully that frames kind of the 4% to 7% growth. And then I’ll ask Chris to just comment on your comment on Texas and the strategy there.

Christopher Pappas: Yes. Thanks, Kelly. Yes, I mean, Texas again, I mean, I think it’s going to be a top three market. But yes, we have to look at it over the next four, five years. I mean, we’ve been through this drill before where we acquire some businesses. They’re not exactly what we call Chefs’ Warehouse and it takes time to get the buildings right in the technology and the mix and train the salespeople. So couldn’t be prouder of our team in Texas and all their accomplished trying to create the Chefs’ Warehouse formula. And I think it’s going to be a little bit at a time and then you get that giant waterfall like we’ve done in a lot of other markets where we do get everything aligned. We get we build the sales force that’s trained, understands all the categories.

We get the customers that we’re really looking for that fit who CW is right. We are off board, not purposely, but there’s a lot of business that comes with some of these acquisitions that’s really better served by maybe a chain distributor. That’s not what we really focus on and we really build that the independents, the small groups and Texas is just booming with the culinary scene that’s more typical of New York and San Francisco, L.A., Chicago. A lot of our operators are opening up in Texas and that’s why we were so excited to get in that market. And we’re just being patient now, what we call transformation. We bought some really great businesses, but we to make them into a shape warehouse takes some time. And I think right now they’re probably in the second inning.

I think we got through the first. We’re making great headway and that team is just going to continue to march over the next four or five years. And then looking further out, I think it starts to look more and more like New York and that’s really our goal.

Kelly Bania: Very helpful. Just another follow-up. I think the slide deck mentioned 56% of specialty customers ordering via digital. Just wondering if we could talk about that a little bit more. Are your smaller specialty competitors really ramping with this type of service? And just how is this favorably impacting gross margin and gross profit growth? And where do you see that penetration of digital going kind of over time?

Christopher Pappas: Yes. I mean, I think that over time 80%, 90% of the customers are not going to pick up the phone, right? So it’s email, it’s text and then it’s using our online capabilities. As we get better and better, as that team continues to build, I think we have tremendous upside still in improving our website and improving our capabilities, even though we’ve come a long, long way. And it just creates a more dynamic addition to dealing with The Chefs’ Warehouse. We have over 55,000, in some markets, 80,000 items that go through the system. So it’s just such a great tool to support the sales team. I think you’ve heard me say for a while now, the sales force of the future are consultants. They don’t have to do what they did years ago, be stuck at their computer waiting to take orders.

I mean, I remember when we started the company, it was paper and pencil, right? So laptops were great. They freed up salespeople. They couldn’t go on the road and then pull over. When they got Wi-Fi, they can take orders from the road, from hotels. And now that I think the next big jump is the customers are placing their orders. Salespeople are checking in, referring items, suggesting, they’re becoming solution more solution type of consultants. And as that continues, the customers are finding more items online that they didn’t know we carry or they’re changing menus and they’re searching. And that’s where really our strength is. We have the long tail; we have so many different types of gourmet items and solution items. And I think that’s what’s helping the margins.

I think that’s helping placements. We saw in a year that all we heard about was the headwinds of the restaurant industry, customer counts were down, people are spending a little less. And we had a tremendous year, I think, because of the tools we’ve added and of all the training and the salespeople were aligned with us. And I think that’s just going to continue now and we haven’t even really implemented into our protein divisions in some of our new companies. So I think we have tremendous upside as we continue to mature.

Kelly Bania: Thank you.

James Leddy: Thanks, Kelly.

Operator: Thank you. The next question comes from the line of Andrew Wolf with CL King. Please go ahead.

Andrew Wolf: Thanks. Good morning. Wanted to on the deck where you referenced the increase in EBITDA per employee, really a big jump last year, 13% year-over-year increase. And I think, Chris, you referenced better training and HR practices and so on. But could you give us a little more color? Is that more on the gross profit line, if you were to break it down or more on the operating leverage line? And is there sort of a bit of some catch up in there from sort of the COVID impact on productivity and people are finally learning their jobs and there’s a big productivity surge. And what I’m really getting to is, is this something that is sustainable? Is it going to be a much better as you guys look at the business through 2028, much better type of employee productivity on the profit side, I would imagine on the sales side as well.

James Leddy: Yes. I’ll start with the first part of your question, Andy. The 13% is really aligned with our overall EBITDA and operating leverage improvement ’24 over ’23. And as I mentioned earlier, it was a little uneven with a lot of that leverage coming in the fourth quarter and that’s really driven by the cadence of the facility investments and when we lap them. So, yes, from a productivity perspective, I think our teams did a great job of managing headcount and managing operating spend throughout the year, and that shows up in the productivity that we — that you’re talking about on the chart. It came from both gross profit dollar growth and margin improvement. And as I mentioned, sometimes you’ll get gross profit dollar growth with minimal margin improvement because you’re selling more expensive boxes or you’re driving the product mix that Chris talked about with different markets like Texas, et cetera.

So it’s all — it’s really just comes from that our teams executing on that strategy. And then I’m sorry, the last part of your question was?

Andrew Wolf: Just the outlook, I mean, your EBITDA is up 13%, the EBITDA per headcount is up 13%. Just sort of back in the envelope, it implies you didn’t add net new headcount. I can’t imagine that’s the plan. So is it going to be something like it moderates to 10% a year? I mean, I’m just and I’m not asking, I don’t know if you want to share that number, but just a sense of, I mean, this is a big improvement, and what the go-forward look is like?

Christopher Pappas: Yes. Andy, I think you got to look I mean, I know it’s hard for you guys to model, but it’s kind of a Goldilocks. It’s a little bit of everything. So I think you have to remember that we went from $300 million to a $4 billion company in the last 10 years. And we’ve taken some hits, right? The stock got up and down. And I think people may be misunderstood how well we were doing, because the numbers weren’t always the numbers the street wants to see, because we were buying companies for the right price and we had to transform them. So the great thing about Chefs’ Warehouse is there’s really nobody like us. The bad thing is there’s no one exactly like us to buy. So we have to buy companies and we have to transform them as Chefs.

And we made that big leap. So we’re in a much different position now than we were 12 years ago. Sure, we want to be acquisitive. We want to take advantage of opportunities, but we built, I don’t know, 30, 40 warehouses. We’ve hired thousands of people. All that took time, a lot of training, we had to implement systems, we had to transform systems and now you’re starting to see more production. I mean, we expect that, right? We made the investments. So as people get better, as people get more highly trained, like in any industry, you go up the ladder, you get your bachelor’s and maybe your master’s and you met your PhD and now you’re becoming an expert in your field and that’s why we don’t want to train people that don’t stay. So I think it’s a lot of investment in everything and we’re starting to get the — we’re starting to reap those rewards.

Of course, you hit a hurricane, everybody’s numbers go backwards. But right now in a very tough market where there’s competition everywhere for restaurants and maybe headcounts are down some and a little spend. The only way to put up the numbers where we’re putting up is by taking market share and I think our team is doing a great job.

Andrew Wolf: Thank you. I got that. And just one final one, if I may. These integrated big distribution centers that you just put one up in Northern California. I think I don’t know if Florida is the longest tenured one, but could you give us a sense of they may not be mature yet, but how they’re performing, the ones that have been open a while to either boost sales with more cross sell, just expanding the market with capacity and how the capital returns are looking? I know it’s early stages for most of them.

Christopher Pappas: Yes. I mean, the newest ones, I think, we’ve been announcing Florida is actually I think we’ve only been there. I don’t even know if it’s two years, right? And they’re doing great. We’re really proud of them and we think they’re firing on all pistons and that Florida is going to be such a great market for us. LA, I mean, that’s a pretty new facility. So that facility was built to quadruple the business. So we have lots of capacity. They’re doing great. So we’re really excited about their future. The latest one to open was really a processing facility that Jim referred to earlier that we consolidated a bunch of facilities we had in Northern California into one of the most state of the art processing facilities in the country.

So we’re really excited about they went through a lot. I mean to consolidate those many facilities is a lot of work. So they were very distracted. I think it was a really rough time in the last few years and now they could really focus on growth again. And now that they’re under one room. I’m sure there’s other markets we’ve entered that we’re still in the first inning, small outposts that we developed going south into Tennessee and into Detroit. But we’ve kind of slowed it down for everybody to catch up. We have some new facilities. New England is going to need a new facility. They’re operating out of multiple buildings. So we’ve seen that moving before. We just opened up what we call our Pennsylvania, South Jersey facility. It’s not completed, but we’re really excited about that.

So a lot of exciting things going on.

Andrew Wolf: Okay. Thank you for the color. Appreciate it.

James Leddy: Thanks, Andy.

Operator: Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Chris Papas for closing comments.

Christopher Pappas: Sure. Well, we thank everybody for joining our call today. I think we’re very proud of what the CW family of companies has accomplished in ’24 and we’re looking forward to a great ’25 and beyond, and we’re looking forward for everyone joining our next earnings call. Thank you very much.

Operator: Thank you. The conference of The Chefs’ Warehouse has now concluded. Thank you for your participation. You may now disconnect your lines. Thank you.