2025 Q3 Earnings Call: Contradictions Emerge in Sales Growth, Inflation Strategy, Middle East Recovery, Digital Ordering, and Labor Costs

Date of Call: October 29, 2025

Financials Results

• Revenue: $1.021B for Q3, up ~9.6% YOY (from $931.5M in Q3 2024)
• EPS: $0.44 per diluted share (GAAP), up from $0.34 in prior-year quarter; adjusted EPS $0.50, up from $0.36 prior-year
• Gross Margin: 24.2%, up ~7 basis points YOY

Guidance:

• Full-year 2025 net sales expected to be $4.085B to $4.115B.
• Full-year gross profit expected to be $987M to $995M.
• Full-year adjusted EBITDA expected to be $247M to $253M.
• Fully diluted share count expected to be ~46 million shares (2028 convertible notes dilutive).

Business Commentary:

* Revenue and Sales Growth: - The Chefs' Warehouse reported a 9.6% increase in net sales for Q3 2025, reaching $1.021 billion, up from $931.5 million in Q3 2024. - Growth was driven by a 7.7% increase in specialty sales, attributed to a 5.3% increase in unique placement growth and 3.2% reported specialty case growth.

• Market Share and Customer Base Expansion:
• The company experienced 1.1% lower center-of-the-plate pounds but reported a 9.6% increase in center-of-the-plate pounds when excluding Texas attrition.

• The expansion is attributed to investments in capacity expansion and market penetration, particularly in Middle East markets.

• Operating Efficiency and Margins:

• Gross profit margins increased by approximately 7 basis points, reaching 24.2%.

• The improvement is due to better gross profit dollars per route, an increase in adjusted EBITDA per employee, and a reduction in adjusted operating expenses as a percentage of gross profit.

• Digital Penetration and Sales Effectiveness:

• Digital adoption rates in specialty sales exceeded 60%.
• The increase in digital penetration supports the sales force, enhancing efficiency and enabling better customer engagement.

Sentiment Analysis:

Overall Tone: Positive

• Management raised full-year guidance and reported Q3 net sales +9.6% YOY and gross profit +10% YOY. CEO: momentum continued into October and acquisition of Italco completed; CFO: adjusted EBITDA increased to $65.1M from $54.5M prior-year. Comments repeatedly described cautious optimism and strong market-share gains.

Q&A:

• Question from Alexander Slagle (Jefferies LLC): It sounds like case growth trends and volume improved sequentially through 3Q; can you expand on these trends?
  Response: Q3 saw a sequential improvement with a strong September and continued momentum into October; Q4 currently looks strong.

• Question from Alexander Slagle (Jefferies LLC): Any thoughts on the potential impact of the U.S. government shutdown and an update on Middle East business?
  Response: Management is cautiously optimistic: minimal observed impact from a shutdown so far; Middle East mixed (Qatar saw a hit) but Dubai/Abu Dhabi/Oman are performing strongly.

• Question from Mark Carden (UBS Investment Bank): The midpoint of updated guidance implies slower adjusted EBITDA growth and little margin expansion—is guidance conservative or are there other considerations?
  Response: Guidance is conservative but raised; management is comfortable with mid-to-high end given October trends and expects healthy flow-through to adjusted EBITDA.

• Question from Mark Carden (UBS Investment Bank): Does the Italco acquisition solve capacity needs in the Rockies and have you seen shifts in the M&A backdrop?
  Response: Italco is a small, high-quality fit for Rockies expansion; M&A is frothy so the company is being selective and prioritizing organic momentum.

• Question from Brian Harbour (Morgan Stanley): Have you seen accelerating share gains recently and how has market share trended?
  Response: Yes—investments in capacity and markets have driven share gains, with high-growth markets up mid-to-high single digits to low double digits while mature markets remain healthy.

• Question from Brian Harbour (Morgan Stanley): Is the acceleration broad-based across customer types (non-restaurant vs restaurants)?
  Response: The customer base is deliberately diverse and resilient; Chefs' wins are across segments and driven by differentiated, premium offerings.

• Question from Peter Saleh (BTIG): What are you seeing on beef/protein inflation and its margin impact going forward?
  Response: Protein inflation has been elevated (~5% excluding Texas attrition); protein margins were down YOY but gross profit dollars grew as the team managed pricing and supply effectively.

• Question from Peter Saleh (BTIG): Has the Chefs' Middle East business recovered heading into Q4?
  Response: Yes—temporary disruptions in Qatar have mostly normalized; expanded facilities in Dubai, Qatar and near-complete Oman site support continued double-digit growth.

• Question from Kelly Bania (BMO Capital Markets): How did the recent acceleration split between mature and high-growth markets or categories?
  Response: Bigger markets drive absolute results; smaller markets show higher percentage growth, and the company is accelerating across many categories and territories.

• Question from Kelly Bania (BMO Capital Markets): How much of the acceleration is due to salesforce training and tools?
  Response: Significant—ongoing investment in sales training, digital tools and AI has improved salesforce effectiveness and provided strong ROI, but salesperson relationships remain critical.

• Question from Kelly Bania (BMO Capital Markets): What stood out about the Italco acquisition regarding margins and customer quality?
  Response: Italco is a small, boutique, high-quality specialty business with a similar premium catalog and customer base—high strategic fit with expected strong local growth.

• Question from Margaret-May Binshtok (Wolfe Research): Any progress on digital penetration and how it's affecting relevance with customers?
  Response: Digital adoption is just over 60% on the specialty side and is making the salesforce more efficient, supporting penetration and driving ROI.

• Question from Margaret-May Binshtok (Wolfe Research): Any weakness in business-related travel affecting demand?
  Response: Anecdotal softness in certain markets (e.g., Las Vegas, Canadian traffic) but overall domestic and Middle East tourism remain strong and results corroborate demand.

• Question from Todd Brooks (The Benchmark Company): Based on October momentum and customer conversations, is the holiday season trend locked in?
  Response: Management is cautiously optimistic—hearing strong holiday bookings that support a good Q4.

• Question from Todd Brooks (The Benchmark Company): Historically, how does industry consolidation (e.g., Performance and U.S. Foods) affect Chefs'?
  Response: Historically consolidation creates hedging opportunities as customers/salespeople reassess; management is cautiously optimistic that consolidation could create new wins for Chefs'.

• Question from Benjamin Klieve (Lake Street Capital Markets): Any operational surprises in Texas, Florida or California from organic investments ahead of the holidays?
  Response: No material issues—team execution strong; Texas remains early innings with significant long-term opportunity, Florida and LA expansions performing well.

Contradiction Point 1

Sales Growth and Market Share Gains

It involves differing statements about sales growth and market share gains, which are crucial for understanding the company's competitive position and financial performance.

Have share gains accelerated recently? - Brian Harbour (Morgan Stanley)

2025Q3: Our high-growth markets are seeing low double-digit to 20% growth, with more market share gains due to penetration in underpenetrated categories. - James Leddy(CFO & Assistant Secretary)

How is the restaurant business performing amid industry-wide traffic challenges? Are there specific channels with weakness or high closure rates? - Mark David Carden (UBS)

2025Q2: We're taking more market share due to our investments in infrastructure, salespeople, and technology. Our customers are a bit more resilient, benefiting from a Goldilocks scenario. - Christopher Pappas(Founder, Chairman, CEO, & President)

Contradiction Point 2

Inflation Management and Cost Control

It reflects differing views on the company's ability to manage inflationary pressures and control costs, which are critical for profitability and pricing strategy.

How is beef cost inflation affecting your margins? - Peter Saleh (BTIG, LLC)

2025Q3: Protein prices remain high, but we've effectively managed inflation through securing supply and holding prices, enabling good gross profit growth. - James Leddy(CFO & Assistant Secretary)

Have you experienced any tariff impacts and expect more by year-end? - Peter Mokhlis Saleh (BTIG)

2025Q2: We've seen an increase in certain categories due to EU tariffs, impacting costs like olive oil and chocolate. We've seen this hit and are modeling in moderate inflation. - Christopher Pappas(Founder, Chairman, CEO, & President)

Contradiction Point 3

Middle East Business Recovery

It involves the recovery timeline and current status of the Middle East business, which could impact regional sales and market strategy.

What is the potential impact of the government shutdown and the Middle East situation? - Alexander Slagle (Jefferies LLC)

2025Q3: The Middle East business, although impacted temporarily by conflicts, is now recovering and showing strong growth. - Christopher Pappas(CEO)

If tariffs are reintroduced, what is your exposure and strategy? - Mark Carden (UBS)

2024Q4: We did have some issues there, but we are very hopeful that as the situation stabilizes, we will get back to it. - Christopher Pappas(CEO)

Contradiction Point 4

Impact of Digital Ordering on Gross Margin

It involves the impact of digital ordering on gross margin, which is a critical aspect of financial performance and operational efficiency.

How much is sales force training contributing to growth? - Kelly Bania (BMO Capital Markets)

2025Q3: Digital penetration exceeds 60%. - Christopher Pappas(CEO)

Digital ordering's impact on gross margin and future trends? - Kelly Bania (BMO Capital Markets)

2024Q4: We expect 80-90% of customers to order online. - Christopher Pappas(CEO)

Contradiction Point 5

Labor Cost Stabilization

It involves the expected trajectory of labor costs, which directly impacts operating expenses and profitability.

Are you seeing accelerating share gains recently? - Brian Harbour (Morgan Stanley)

2025Q3: Labor is stable with competitive wages, and our teams are executing well. - Christopher Pappas(CEO)

How do you expect labor and commodity costs to evolve in 2025? - Peter Sarra (BTIG)

2024Q4: We see stabilization in commodity inflation, around 2-3%. Labor is stable with competitive wages. - Christopher Pappas(CEO)