Chefs’ Warehouse (CHEF) Reports Q1 Earnings
Chefs’ Warehouse (CHEF) reported last night and the results were just fine. Revenue was up 12.1% to $357 million (beating by $8.7 million) while adjusted EPS of $0.05 missed by a penny. Management guided for fiscal year 2019 revenue to be ahead of consensus, to a range of $1.56 billion to $1.61 billion (versus $1.56 billion consensus), and for EPS to be up to $0.97 to $1.07 (versus $0.98 consensus).
It was a perfectly good quarter and management talked about the operating efficiencies it continues to roll out and the acquisition of Bassian Farms, a specialty protein processor and distributor in San Francisco. But I’m going to drop coverage of the company, and as a result recommend you sell your position for a roughly 10% gain.
Why? The bottom line is that we need a little more sizzle on our steak. I got us into Chefs’ stock last summer when I expected the market to enter a rough path. That eventually happened, and we’ve never suffered stress or big paper losses with Chefs’. In fact, at the peak we had a paper gain of 30%!
But this type of GARPy stock (that’s an acronym for Growth at a Reasonable Price) doesn’t fit in our more aggressive portfolio right now, especially with the portfolio at 15 positions. I think the stock can outperform the small-cap index in future years, so if it’s a company you like and want to tuck away for the long haul, that’s a perfectly acceptable thing to do. I see nothing wrong with the company. It just doesn’t fit our portfolio any longer. So we’ll take the modest gain and move on. SELL.