Executive Summary / Key Takeaways

• Differentiated Market Position: The Chefs' Warehouse (CHEF) stands out as a premier distributor of high-end specialty and center-of-the-plate products, serving an affluent and resilient culinary customer base that is less susceptible to broader economic headwinds.
• Robust Financial Performance: The company delivered strong third-quarter 2025 results, with net sales growing 9.6% to $1.02 billion and adjusted EBITDA increasing 19.4% to $65.1 million, driven by organic growth, strategic acquisitions, and operational efficiencies.
• Strategic Investments Yielding Returns: Decades of investment in infrastructure, technology, and a highly trained sales force are translating into significant market share gains, improved operating leverage, and enhanced profitability, particularly through its digital platform and "total solution" go-to-market strategy.
• Technological Moat: CHEF's digital platform is a key differentiator, with over 60% of domestic specialty orders placed online, boosting sales force efficiency, driving unique item placements, and contributing to margin enhancement.
• Positive Outlook with Prudent Management: Management's raised full-year 2025 guidance reflects confidence in sustained momentum and strategic execution, supported by a healthy liquidity position and a disciplined approach to capital allocation and M&A.

A Culinary Niche: The Chefs' Warehouse's Differentiated Strategy

The Chefs' Warehouse, Inc., founded in 1985, has carved out a unique and resilient position within the vast food distribution industry. Unlike broadline distributors, CHEF focuses intently on the specific, discerning needs of chefs in independent restaurants, fine dining establishments, country clubs, hotels, and other high-end culinary venues across the United States, the Middle East, and Canada. This specialized approach, offering over 88,000 stock-keeping units (SKUs) from artisan charcuterie and specialty cheeses to custom-cut beef and hormone-free poultry, positions the company as a premium, high-touch partner to the culinary elite.

The company's overarching strategy is to be "where the chef shops," providing a "total solution" go-to-market model that integrates specialty, protein, and fresh offerings. This strategy has been meticulously built over 40 years, involving strategic acquisitions to gain territory and category expertise, followed by a deliberate process of "Chefs' sizing" these businesses. This transformation often includes shedding lower-margin, non-core commodity programs to create capacity for higher-value specialty growth and improve overall profitability, a process successfully demonstrated with past integrations like Sid Wainer and currently underway with Hardie's in Texas.

In a highly competitive landscape, where "anybody that has a truck is a competitor," CHEF differentiates itself significantly from the larger, public broadliners like Sysco Corporation (SYY), US Foods Holding Corp. (USFD), and Performance Food Group Company (PFGC). While these larger players prioritize broad market coverage and cost efficiency for bulk distribution, CHEF thrives in niche product innovation and deep customer relationships within the fine-dining segments. This focus on premium, artisanal items, coupled with personalized service, allows CHEF to command greater customer loyalty and pricing power in its targeted markets. The company's diverse product portfolio, including over 130 types of olive oils, provides a natural advantage in substitution and alternatives, enhancing supply chain resilience.

Technological Edge: Driving Efficiency and Customer Engagement

A critical differentiator for The Chefs' Warehouse is its ongoing investment in technology, particularly its robust digital platform. This platform is not merely an ordering portal; it's a strategic tool designed to enhance sales force efficiency, improve profitability, and deepen customer relevance. By the first quarter of 2025, approximately 58% of domestic specialty customers were placing orders online, a figure that has steadily climbed from 48% at year-end 2023 and 20% at year-end 2019. This adoption rate has continued to grow, reaching over 60% for specialty orders by the third quarter of 2025.

The tangible benefits of this digital transformation are clear. The platform supports a "do more with less" philosophy, allowing the sales force to transition from order-takers to solution-oriented consultants. This shift is crucial for driving "unique item placements" and expanding category penetration, as customers can more easily discover the company's extensive catalog of gourmet and solution items online. The digital footprint has also expanded to international operations, including Chefs' Warehouse Middle East and Hardie's in Texas, further integrating and streamlining operations across the network.

Beyond its current platform, CHEF is actively investing in advanced technologies like Artificial Intelligence (AI). While management acknowledges that AI will become ubiquitous, they believe its strategic application within their specialized model will continue to provide a competitive edge. These technological advancements, combined with investments in training and recruiting a diverse, highly skilled sales force, are foundational to CHEF's competitive moat. They enable the company to maintain its premium market positioning, enhance financial performance through improved margins and lower operating costs, and support its long-term growth strategy by fostering deeper customer relationships and operational excellence.

Financial Strength and Operational Momentum

The Chefs' Warehouse has demonstrated robust financial performance, reflecting the successful execution of its differentiated strategy and strategic investments. For the thirteen weeks ended September 26, 2025, net sales increased 9.6% year-over-year to $1.02 billion, contributing to a 10% increase in gross profit, which reached $247.19 million. Operating income saw a significant jump of 22.1% to $38.94 million, while net income rose 35.8% to $19.15 million, translating to diluted earnings per share of $0.44. Adjusted EBITDA for the quarter was $65.1 million, an impressive 19.4% increase over the prior year.

These results were driven by strong organic growth, particularly in the specialty category, where case growth (excluding the impact of the Texas produce processing and packaging program attrition) was 5.4% in the third quarter of 2025. Unique customers and placements in the specialty category also increased by 2.6% and 5.3%, respectively. In the center-of-the-plate category, pounds sold (excluding the non-core commodity poultry program attrition) grew 9.6% in the third quarter of 2025, demonstrating strong underlying demand despite the strategic shedding of low-margin business.

Profitability metrics also showed positive trends. Gross profit margin increased by approximately 7 basis points in the third quarter of 2025, primarily due to improved inventory management and favorable production cost leverage. While center-of-the-plate gross margins saw a slight decrease of 49 basis points due to elevated protein inflation, specialty category gross margins increased by 59 basis points. The company also achieved improved fixed cost leverage, with selling, general, and administrative expenses as a percentage of net sales decreasing by 30 basis points. These operational efficiencies are further highlighted by the trailing 12-month gross profit dollars per route, which were 4% higher than full-year 2024 and 37.8% higher than 2019, and adjusted EBITDA per employee, which increased 9% versus full-year 2024 and 28% versus 2019.

From a liquidity standpoint, CHEF maintains a healthy position. As of September 26, 2025, total liquidity stood at $224.6 million, comprising $65.1 million in cash and cash equivalents and $159.5 million in availability under its asset-based loan (ABL) facility. The company's net debt to adjusted EBITDA was approximately 2.3x, indicating a manageable debt load. Management believes its current liquidity is sufficient to cover working capital needs, capital expenditures, and debt service for the next twelve months. Strategic financing activities, such as the extension of the ABL facility maturity to August 2030 and the reduction of interest rate spreads on its senior secured term loan, further enhance financial flexibility.

Strategic Initiatives and Future Outlook

The Chefs' Warehouse's growth trajectory is underpinned by ongoing strategic initiatives and a clear vision for the future. The company continues to invest in its physical footprint, with capital expenditures for fiscal 2025 projected to be between $40 million and $50 million, with approximately 80% allocated to facility expansion. Key projects include the Philadelphia/Southern New Jersey facility retrofit and the Portland, Oregon facility build-out, aimed at optimizing distribution and consolidating operations.

The integration of acquired businesses remains a core strategic pillar. The transformation of Hardie's in Texas, for instance, is described as being in its "second inning," with the company actively repurposing routes and growing its specialty and protein offerings to align with the Chefs' Warehouse model. This process, while sometimes impacting reported volume metrics due to the shedding of low-margin business, is expected to significantly enhance long-term profitability and market penetration in a booming culinary scene. Similarly, the recent acquisition of Italco Food Products in Denver, Colorado, on October 1, 2025, for $16.5 million, represents a strategic entry into a dynamic growth market, where CHEF plans to leverage its go-to-market and supply chain model.

Management's outlook for the remainder of 2025 is optimistic, with updated full-year guidance reflecting strong momentum. The company now estimates net sales for fiscal 2025 to be in the range of $4.085 billion to $4.115 billion, gross profit between $987 million and $995 million, and adjusted EBITDA between $247 million and $253 million. This guidance implies a healthy 7% to 7.5% year-over-year revenue growth for the fourth quarter and a robust 10% flow-through to adjusted EBITDA. The company expects a fully diluted share count of approximately 46 million shares for the full year.

Underlying these projections are several key assumptions: moderate inflation, generally in the 2% to 3% range, excluding volatile categories like eggs and chocolate; stabilization in the meat market despite ongoing supply constraints; and effective management of labor costs through competitive wages and processing automation. Demand trends, particularly from CHEF's resilient upscale customer base, are expected to remain strong, with positive indications for the holiday season. The Chefs' Middle East business continues to exceed expectations, demonstrating strong double-digit growth and expanding its facilities in Dubai, Qatar, and Oman.

Risks and Competitive Dynamics

Despite a compelling growth story, investors should consider several risks. General economic conditions, including disposable income levels and consumer discretionary spending, remain a significant factor, although CHEF's customer base is considered more insulated. The relatively low margins inherent in the food distribution business are sensitive to inflationary and deflationary pressures, as well as intense competition. While CHEF has demonstrated an ability to pass on costs, fluctuations in commodity prices (e.g., beef, eggs, chocolate) can impact gross profit margins.

The company also faces risks associated with its substantial indebtedness and the potential for interest rate increases, which could impact after-tax earnings. The successful integration of future acquisitions and the realization of anticipated synergies are crucial for continued growth. Furthermore, information technology system failures or cybersecurity incidents pose a risk to operations.

However, CHEF's strategic positioning offers a degree of insulation. Its focus on high-end, independent restaurants means it is less exposed to the broader traffic challenges faced by the general industry. The company's diverse supply chain and long-standing relationships with over 4,000 suppliers, including domestic artisan producers, mitigate risks from potential tariffs or supply disruptions. Historically, major industry consolidations have often benefited CHEF, as customers seek to diversify their suppliers, presenting opportunities for new business.

Conclusion

The Chefs' Warehouse presents a compelling investment thesis rooted in its specialized market focus, strategic operational enhancements, and a proven ability to execute. By consistently catering to the discerning needs of high-end culinary professionals, CHEF has cultivated a resilient customer base and a differentiated business model that thrives on product quality, personalized service, and technological innovation. The company's strong financial performance in 2025, marked by robust revenue and adjusted EBITDA growth, underscores the effectiveness of its strategic investments in infrastructure, digital platforms, and a highly skilled workforce.

With a clear roadmap for organic growth, disciplined M&A, and continued operational leverage, CHEF is well-positioned to expand its market share and enhance profitability. The company's commitment to leveraging technology to drive efficiency and customer engagement, coupled with its proactive management of market dynamics and competitive pressures, reinforces its long-term growth potential. As CHEF continues to "Chefs' size" its markets and deepen its relationships with the culinary community, it is poised to deliver sustained value for investors, making it a savory opportunity in the food distribution sector.