The Chefs' Warehouse (NASDAQ:CHEF) Q1 2020 Earnings Call

0:00 Ladies and gentlemen, greetings and welcome to the Chefs' Warehouse first quarter 2020 earnings conference call. As a reminder, this conference is being recorded. I'd now like to turn our conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please go ahead, sir.

0:31 Good afternoon, everyone. With me on today's call are Chris Pappas, founder, chairman, and CEO, and Tim Leddy, our CFO. By now, you should have access to our first quarter 2020 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, and adjusted EBITDA, as well as both historical and estimated adjusted net income and adjusted earnings per share. These measurements are not calculated in accordance with GAAP and may be calculated differently from similarly titled non-GAAP financial measures used by other companies. Quantitated reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release. 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.

1:35 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 have actual results that differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our annual report on Form 10-8, and quarterly reports on Form 10-Q, which are available on the FTC website. Today, we are going to provide a business update and go over our first quarter results in detail. Then we will open up the call for questions. With that, I will turn the call over to Chris Pappas. Chris?

2:13 Thank you, Alex, and thank you all for joining our first quarter 2020 earnings call. First, let me begin by saying that All of us at the Chefs' Warehouse hope that everyone on this call and the entire investor community remains safe and healthy during this time. As a company, our primary focus is the health and safety of our team members, customers, and supplier partners. Our thoughts and prayers are with those impacted by this unprecedented economic crisis. This is a tough time for our industry, but I am confident we will get through this together. First quarter started off with strong organic revenue and gross profit growth in both January and February, in addition to solid growth from Sid Wehner and Cambridge Packing, both acquired in the period.

3:02 The COVID-19 pandemic started to impact our business slightly in late February and early March. The most material impact began in the final two weeks of March following the government shutdown of dining and restaurant bars, cafes, and events. During the quarter, organic net sales were 6.6% lower versus the prior year quarter. Specialty sales were down 7% organically over the prior year, which was driven by a reduction in unique customers of approximately 1.9%, lower placements of approximately 9.6%, and specialty cases lower by 5%. Organic Pounds and Center of the Plate was approximately 10% lower than the prior year quarter.

3:49 Although we do not typically disclose monthly metrics, we feel it is important to communicate the path the company was on prior to the impact of COVID-19. Year-over-year volume metrics were particularly strong during the first two months of 2020. as specialty cases grew 10.8% organically versus the same period in 2019. March specifically, cases declined 28.4% versus March of 2019. Center of the plate pounds were down slightly at .07 in January and February combined versus the same two-month period the prior year and declined 22.6% in March due to significant impact of the shelter-in-place orders in our key markets.

4:39 Gross profit margins decreased approximately 105 basis points during the quarter. Gross margin in the specialty category decreased 311 basis points as compared to the first quarter of 2019, while gross margin in the center of the plate category increased 156 basis points year-over-year. Excluding the impact of one-time inventory reserve estimates due to COVID-19 impact, total gross profit margins decreased 17 basis points and specialty margins decreased 154 basis points. Jim will provide more detail on margins in a few moments. Now to move on to our current priorities and actions. Many of our customers have remained open for takeout service and delivery, and we are committed to supplying and supporting them during this unprecedented time.

5:32 We have also partnered with multiple retail food outlets to supply both specialty and center-of-the-plate products, and we have successfully launched Shop Like a Chef, our direct-to-consumer delivery site that we now operate alongside our Allen Brothers Great Steakhouse premium steak and seafood online platform. Like so many of our partners and customers, we have made the difficult decision to temporarily furlough certain employees such that they can take advantage of the government support. We are providing health benefits for the period of furlough and expect to allocate 10% of the profits from our new Shop Like a Chef online store to our frontline furloughed employees and others in the food service industry who have been impacted.

6:18 We hope to bring back as many furloughed employees as possible as the macro environment improves over the coming months. I would also like to express my deep thanks to the Chefs' Warehouse team for their flexibility and dedication to their team members and our customers and suppliers during this challenging time. Our team quickly pivoted to service food retail outlets and rapidly developed and executed a fast-growing online platform direct to consumers. While we expect to continue to innovate and develop new business lines, we are focused on being ready to supply and support our chefs and all food service customers as they begin to fully open over the coming weeks and months. And finally, as mentioned in recent public announcements, we have taken steps to strengthen our liquidity. Before I turn it over to Jim, I'd like to express our deepest sadness for those impacted during this unprecedented time.

7:13 Our industry at its heart is about community. In times of happiness and success and in more trying times like today, we are committed to being partners to chefs across the country and providing them with the highest quality ingredients and specialty food products. We are being diligent about finding creative solutions to support the restaurant industry in the coming weeks and months and know we will emerge from these trying times stronger than ever. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter. and an update on our liquidity and cost-related actions. Jim?

7:47 Thank you, Chris, and good afternoon, everyone. Our net sales for the quarter ended March 27, 2020, increased approximately 5.2% to $375.4 million from $357 million in the first quarter of 2019. The increase in net sales was the result of a decline in organic sales of approximately 6.6% as well as the contribution of sales from acquisitions which added approximately 11.8% to sales growth for the quarter. Net inflation was 0.2% in the first quarter consisting of 2.1% deflation in our specialty category and inflation of 3.1% in our center of the play category versus the prior year quarter.

8:35 Gross profit increased 0.8% to $90.9 million for the first quarter of 2020 versus $90.2 million for the first quarter of 2019. Gross profit margins decreased approximately 105 basis points to 24.2%. Specialty deflation was driven by above average decreases in dairy and specialty ingredient categories, partially offset by inflation in the cheese category. First quarter inflation in center of the plate category was primarily driven by a higher percentage of overall sales attributed to our prime and other premium cut sales in our Allen Brothers division. Gross profit dollar growth and margin was significantly impacted by a one-time reserve for inventory obsolescence of approximately $3.3 million due to the estimated impact of the forced shutdown due to COVID-19.

9:27 Total operating expense increased approximately 28.4% to $107.9 million for the first quarter of 2020 from $84 million in the first quarter of 2019. An increase in reserves related to bad debt of approximately $15.8 million due to the COVID-19 shutdown was the primary driver of operating expenses in the quarter. On an adjusted basis, and as a percentage of net sales, operating expenses were 27.9% for the first quarter of 2020, compared to 21.6% for the first quarter of 2019. Excluding the estimated impact of the shutdown on first quarter revenue and bad debt reserve, we estimate adjusted operating expenses as a percentage of net sales would have been relatively unchanged versus the prior year quarter.

10:20 Operating loss for the first quarter of 2020 was $17 million compared to operating income of $6.2 million for the first quarter of 2019. The decrease in operating income was driven primarily by increased operating expenses, offset in part by higher gross profit. Income tax benefit was $8.1 million for the first quarter of 2020, compared to expense of $0.4 million for the first quarter of 2019. Our GATT net loss was $14.1 million, or negative $0.48 loss per diluted share for the first quarter of 2020. compared to net income of $1.1 million or $0.04 per diluted share for the first quarter of 2019. On a non-GAAP basis, adjusted EBITDA was a loss of $13.8 million for the first quarter of 2020 compared to income of $13.2 million for the first quarter of prior year.

11:22 Adjusted net loss was $17.7 million 60 cents lost per diluted share for the first quarter of 2020 compared to adjusted net income of $1.4 million or 5 cents per diluted share for the prior year first quarter. Turning to our liquidity and cost-related actions taken to manage working capital through this unprecedented period. As mentioned in our March press release, we borrowed $100 million on our asset-based Loan Facility, and as of April 30, 2020, we have approximately $200 million in cash on the balance sheet and approximately $33 million in availability on our asset deck loan facility. We are working closely with both our customers and supplier partners on actively managing receivables, payables, and inventory as we navigate this challenging near-term period for all involved. Going forward, we expect to manage working capital via flexible arrangements help ensure success for all stakeholders as we return to a more normal business environment.

12:29 We have reduced costs considerably through multiple actions, including, but not limited to, temporary furloughs of certain employees, layoffs, and the reduction of volume-driven operational hours and costs. Temporary salary reductions across multiple work groups, including a 50% reduction and salaries of the executive leadership team, renegotiation and termination of certain lease contracts and general reductions in G&A spend. We feel the actions we have taken to date on cost and liquidity will allow us to manage the business for an extended period during this unprecedented time. We may take additional actions depending on how the business environment develops over the coming weeks and months and we continue to evaluate potential additional sources of capital that we may deem appropriate at some point in the future.

13:24 As mentioned in our press release dated March 18, 2020, we have suspended our 2020 full-year guidance due to the uncertain economic environment created by the COVID-19 forced shutdown. We hope to provide more color as we gain more clarity on the length of the economic downturn. Thank you, and at this point, we will open it up to questions. Operator? Thank you. Ladies and gentlemen, if you'd like to ask a question today, it is star 1 on your telephone keypad. Again, if you'd like to ask a question, it is star 1 on your telephone keypad. We'll take our first question from Chris Manville from Jefferies.

14:15 Hey, good afternoon, guys. Jim, I appreciate the color on the maneuvers made to reduce costs in the near term, in the immediate term, for that matter. But can we step back and try and review your cost structure, maybe give us a better sense of really your split between fixed versus variable? And one of the last comments you just made about how you feel comfortable with your liquidity over an extended period of time, I guess I'm just curious if you could put a finer point on that in regards to what you're really expecting and what does an extended period of time really translate into? I'll start there.

14:59 Sure. So, Chris, the first part of your question, I think similar to what you've heard and seen from the other distributors that are public, we have a similar cost structure, basically two-thirds variable cost. and a third fixed. So not materially different from other people, our competitors, etc. In terms of the near-term cost actions, we have considerably ramped down the variable cost structure to the extent about 60% reduction in our variable cost, which translates to about a 40% reduction in our overall operating spend. Now, The way we look at the rest of the year, obviously we don't know, but we would expect to layer in additional variable costs that are volume-related as the business environment starts to open up.

15:55 But once again, we're not predicting anything. That's just how we're modeling it. In terms of liquidity, you can see from our prepared remarks in the release, Between cash on the balance sheet, the remaining availability on our ABL, we're at about 14% of prior year revenue, which I think is a fairly strong liquidity position. And we expect to be able to manage through this crisis. You know, we've noted in our 10-Q that... We expect to be able to manage the business for the 12-month period, kind of our standard disclosure. And so we're staying with that disclosure.

16:43 I think we can manage beyond that. And that's based on a number of different models that we've run. So I'll leave it there.

16:55 Okay, that's helpful. And then I guess just in terms of that pulling back of Your variable costs, and I think you said that equated to something about a 40% reduction of hotbacks. I mean, how much of that was actually captured within Q1 versus what we should be anticipating in Q2? And then I guess just thinking about generally trying to find ourselves a bottom year, are you expecting, based on what you're seeing today, that Q2 is the most severe in terms of sales and EBITDA at this point?

17:28 Yeah, virtually none of it was captured in Q1. You know, the ramp down in costs, you know, we probably had a little bit in terms of volume-based, you know, hours and operations, but the significant actions that we took primarily started to impact in April. So I wouldn't put too much of that in Q1 at all. And then I think, you know, look, we can't obviously predict the future, but we've seen incremental increases in volume and weekly revenue on a weekly basis.

18:14 So I think you could extrapolate as things start to open up that we would expect Q2 to be the low point.

18:26 Okay, just the last one for me, and I'll hop back into the queue. In terms of having found that maybe most severe of sales bottoms in the latter portion of March, can you just help size that up for us on really where you guys trough relative to where we might be sitting today in early May?

18:49 Yeah, well, obviously, you know, when everything shut down, Chris, You know, there really was no business. It hit us, you know, like a nuclear bomb. So, you know, every week gets better. I think, you know, if I have to see a, you know, I'm looking for the sunshine. at this point, you know, we're a business that we specialize in independent restaurants and in the major cities, you know, California, New York, Chicago. You know, everybody was ordered to shelter home. And, you know, here we are with our clients really, you know, nobody's serving.

19:38 You know, it's just takeout. And we made a tremendous pivot recently. to create a business that I've always wanted to create really. I've always said that Chef Warehouse is not your typical distributor. We're more of a food marketing company that always distributes. We represent almost 2,000 of these incredible artisan producers from around the world and I've always wanted to create more of a hybrid model. You know, we're so much different than your typical large road liners, everything from the size of our trucks to how do we go to the market to our chefs as salespeople. And it was a really unbelievable opportunity to kind of launch Shop Like a Chef. So, you know, incredible how our IT department and our leadership team were able to pivot really within a week, and we went out and we created a whole new business during this pandemic that continues to grow, and we're getting better at it every day, and we're really optimistic for the future of that business of being a sister business to CW. I mean, this week we've actually had a day of 50% of last year's volume, which when you think about it, I find that incredible with, you know, our customers basically all closed.

21:04 Our just incredibly talented team was able to go out and do new business and creating business and helping our customers do takeout, you know, get up to 50% day. So, you know, obviously we're all anxious to get our regular business up and going and, you know, Hopefully, you know, our incredible medical society comes up with a cure. But, you know, we're starting to see cities open. You know, we're starting to, you know, we're waiting for southern Florida to start to get going at least 25%. Obviously, New York is closed. California is still closed. Chicago is still closed.

21:49 So we can't help but be optimistic about, you know, and how much more business we can do even in an environment that's going to be challenging.

22:01 Chris, I think maybe I could put one more point in there based on that comment there and how we are reopening the country on a state-by-state basis. Can you just remind us a little bit in terms of what your sales exposure is by region or just size up kind of the top two or three markets and give us some perspective on Diversification today versus what we saw back in the 08-09 timeframe?

22:27 Yeah, well, back in 08-09, obviously New York was a much larger part of our business, and today it's still our biggest business, but we're much more diversified. Throughout New England, throughout the whole West Coast, throughout the middle of the country, So it's a much more balanced portfolio of customers and business volume.

22:56 Okay. I'll leave it there. Thanks, Jackson. Thanks, Chris. And our next question comes from Joshua Long from Piper Sandler.

23:12 Great. Thank you for taking the question. I wanted to see if you might be able to – First, provide some context around what we're hearing in terms of the potential disruption here on the protein side. I mean, you guys having your own house brands there, I think you have a unique perspective on that, and I wanted to see if that was something that is starting to work its way through to your system now, given that you're at the higher end and a lot of the commentary has been focused maybe on more of the lower end on the beef protein in particular. And then, Expanding more globally as we think about all of those goods that you bring into your warehouses and then connect with your chef partners from around the world, what kind of disruption do you expect as we start to open things up and admittedly we're on the front end of this reopening cycle?

24:01 Should we start thinking about or having that conversation around potential disruptions in all of those products and items you're sourcing from artisan partners around the world going forward?

24:14 Sure. Well, amazingly, our producers, you know, overall, all stayed open. So, you know, we import, obviously, a lot from Italy and France, and our category management team, you know, the daily call I have said, basically, they're all producing, and they have products. So, you know, I think it's more logistically, you know, I think there's been some disruption, you know, maybe with obviously air freight got very expensive. The good news is that we didn't really need a lot of that product, you know, during this pandemic. The bad news is that the freight got expensive and obviously that will keep coming down as there's more and more flights and more and more ships that are coming in. But that hasn't really been, you know, something that's did a real issue for us. I mean, on the protein side, I know it's been in the papers a lot. I know that the pork side, which is not a huge part of our business, was really disrupted.

25:18 Our team did a great job, you know, getting ahead on the beef side. So, we went into the shortage really well prepared. I think better than most. A lot of the products, as you said, you know, our high-end cuts, our prime and our Wagyu and our are real premium beef cuts. We were pretty prepared with a good amount of inventory, so I give the credit to our talented protein team for really getting ahead of it. I don't have a crystal ball, but I don't think it's going to be a disruption for a very, very long time, so I think we're fine with it.

26:05 I know that you hear Wendy's has no hamburger and there's a shortage on the shelves in the supermarkets, but I think we did a great job for the current outlook. We're well positioned for that.

26:25 Great. Thank you for that. I wanted to also then dig into some of the integration work that had been going on with the recent acquisitions and Clearly, I think it's probably no understatement that the integration process during a crisis like this has got to be even more challenging. But as you think about what you've been able to accomplish and then just the high-quality brands and teams that you've now got as part of your family, how do you expect that integration process to go forward? Just looking out over the next quarter or two, obviously it will help as things start to reopen. But just from a back-of-house piece that we don't typically get to see, Was this period particularly disruptive, or was a lot of the work behind the scenes more or less flowing as expected?

27:13 Yeah. Well, again, you know, we've all been working, you know, most people remotely, continuing to work on, you know, upgrading the systems and getting prepared for, you know, the reopening of the country. So I think... It's something that was not on the top of the list right now as far as, you know, what certain deadlines we're going to meet for integrating. The companies are operating fine. So, you know, doing more of the integration is a nice to have, but I think more of a focus, you know, during the pandemic was getting up our B2C business, which the team was really focused on and did an incredible job and actually we created a new business during the most horrendous time I've ever experienced in my business career and with human tragedy. So I think we're starting now to get back to focusing on the reopening and back on scheduling of getting the companies integrated and I think we'll get back to a certain timeline.

28:23 I would not put that on the top of our list right now. It's the most important thing that we have to get done. We have to get reopened and get our customers reopened and get people back to work. The focus was on protecting our people, protecting our balance sheet, and making sure that we were ready when the light switch gets turned on, hopefully in a very short period of time.

28:53 Thank you for that. And maybe pivoting a little bit to that last piece where we're getting to the reopening and having things come back online, a common theme that we've been talking about and hearing is just the kind of accelerated adoption of digital or technological tool sets. Obviously, you've been able to build out a A very fun, interesting, and meaningful piece here on that B2C side, but curious on how you think about technology going forward and maybe just a recap of where it was heading into the current period and if there's an opportunity to lean into that as it was turned back on.

29:32 Sure. So I think what we've learned during this time is we've learned a lot more about online and I think the Chefs' Warehouse customer base and relationships we have with our customers is pretty unique. If you're going to put us into the group of the other broadliners, we call ourselves a specialty broadliner. I think our customer base Overall is different because we do sell so many smaller independent restaurants as well as obviously the best restaurants in the world and hotels. I think we're going to make big strides in our ability to improve our online order systems.

30:23 I think our Our go-to-market strategy has always been, you know, we kind of have a team sell, so we have very, very talented people that are experts in categories because we cover so many in seafood, meat, specialty, and groceries, and dairy. So I think everything's pushed. You know, I think the amount of time it would have taken us to focus, just like, you know, more and more restaurants were going to do takeout anyway. You know, they already started. I think it's accelerated. I don't think that's going to go away. and I think it's going to accelerate our ability to do more business online, be able to take orders from customers. It was happening anyway, but I think this pandemic has also made me realize that we are still in the people business and even though, yes, we do need the technology and we're scanning in the warehouses and we're, you know, hoping for better robotics and Freeing up our sales staff, which really, really we have because we have a really different model than most of the larger broadliners where we have an incredible customer service team, which is more part of the sales team.

31:31 And they do free up our sales team to go out to see customers more and present new products. And I think that's why we have such a rate of cross-selling. And, you know, our numbers, you know, the first two months, we have over 10% organic growth, okay, in our specialty sales team. we were firing on all pistons so we were seeing all the we were reaping the rewards of all our investments in people and processes and we hope to get back to that as soon as the lights get turned on and it will be a combination of continuing to invest in technology increasing our customers that do order online at the same time it's expanding our category sales to our customers because At the end of the day, it's all about the GP dollars and that's what you take to the bank.

32:25 Thank you. Our next question comes from Kelly Vanna of BMO Capital.

32:36 Hi, thanks. Kelly Vanna here. I wanted to just ask a couple questions about your customer base and just how they're managing through this and If you have any anecdotal or metrics to share about what percent are kind of operating and doing takeout or delivery of some sort. And then also, have these states open back up? So, obviously, Texas, I think, capacity restrictions of 25%. I guess we'll see what happens in New York and California, but and other parts, but what are you hearing from your customers? Are they going to be opening up as soon as they can? Do they feel like they need to wait until they can operate at full capacity?

33:23 Just, you know, what are you hearing from your customer base?

33:27 Yeah, Kelly, I think it's a tale of many cities. So, you know, what we're hearing in California, who obviously they're blessed with much better weather than we have on the East Coast, This past month or two, you know, it's different than what we're starting to see from, you know, places that the weather is so cold. So some customers will open up at 25%. You know, what always impresses me, and, you know, not that this is a typical, you know, storm. Obviously, we've lived through 9-11 and financial crashes and hurricanes and you name it, is the – Our customer base is unbelievable entrepreneurial.

34:14 And, you know, people say, well, you know, a lot of restaurants aren't going to close. I say, you know, a lot of restaurants always close. And a lot of restaurants open. That's what restaurateurs do. I mean, not everyone's going to become a financial analyst and an investment banker. This is what these people do. So, you know, I look at what happened after the crash is rents went down. Restaurants went out of business and new restaurants opened with a more inexpensive cost structure. And I think the people that have a, you know, I think everybody's negotiating their leases right now. And the ones that have a cost structure that allows them to make money at 25%, I think will open. Plus, I think it's, you know, prepping to open up at 100%. So I think what was great about takeouts had allowed a lot of restaurants. Initially, they all closed.

35:09 And then as they started to open as takeout, you know, meet your dinner outside. It's really incredible the way they were able to do it safely, okay, non-contact. And I think it got them going to open. So I think a lot of those restaurants, those will probably open first for the 25%. and then go to 50 and then hopefully completely open. What we're also seeing is the creativity of some of the areas that have opened of adding tremendous amount of seats outside. So if there's one good thing is that it is late, it is springtime or it's really warm say in Florida and in California where they're adding Lots of seats in parking lots. They're renting tents.

36:01 They're putting canopies. So I think all our country clubs are adding, you know, many more chairs and seats available outside. So it's a much safer environment, okay, for their clientele to feel. You know, you're outside, you've got fresh air, and you're spaced apart. So I think those type of restaurants and clubs, will be the first to start to, you know, do the 25%. And I think the larger restaurants will probably wait a little bit, you know, unless it's more like a prep. So imagine if you were opening a brand-new 300-seat restaurant, you'd probably have, you know, a week or two of friends and family and warming up the staff. So they might use that, you know, as a time to start to just get ready and, you know, I think it's all over the place.

36:56 So I think, again, our huge base of small independent restaurants I think will probably open first at 25% because I think they can find ways to still make money because they can control their costs. A lot of them are family businesses, and I think that's what I'm hearing, and I think that's what we're seeing in the little parts that are opened already.

37:21 Okay, thanks. That's really helpful. and I guess on the direct-to-consumer initiative, can you help us think about how that's going, what you're seeing and it sounds like this is more not only just a temporary strategy but could be a longer-term part of the company and so as we think about that, what do you think could be the EBITDA margin profile of that business longer-term?

37:51 Yeah, I think that's a little early to give such a forecast because right now we're seeing... Number one, it really was able to allow us to keep a lot of people on the payroll and get the creative juices going in the leadership team and the entrepreneurship and ideas that will help the B2B, but... The response that we've received has been overwhelming. And I've been wanting to do this forever. Not that I want a tragic pandemic to launch it, but when we named the company Chefs' Warehouse, we always had Shop Like a Chef and knew it would be some sort of consumer business, whether we were going to open up Shop Like a Chef outlets which is probably still a good possibility in the long term. But, you know, the intricacies of delivering to people's houses, we're still in the process of figuring out.

39:02 And that's why, you know, trying to predict an EBITDA. We've learned from a lot of the business that have gone, you know, ahead of us to deliver to people's homes. You know, you have to give people a time slot and all the things, the packaging. So, Right now, I think we're in the raw stage. So even though we're having tremendous success, the model's going to have to evolve. Our packaging will be evolved. But what I always intrinsically, I think, knew just from being in the business for 35 plus years was a lot of our customers' customers would always ask, how can we shop all these incredible products? And there's really good value because it is bulk. You know, we don't want to compete with a Walmart or a supermarket or a Costco.

39:53 What really I always thought we could leverage was what was our advantage or what was already our platform, which was a talented staff. You know, nobody knows food like the Chef Warehouse team. Our ability to deliver with logistical experts and we know how to run warehouses. and we know the consumers we want to sell because they're our customers' customers. So it's kind of built in. So it's not like we're selling prison systems and hospitals and we're running all these different types of clientele where it would be impossible to pivot the way we did. We kind of knew we went into the neighborhoods where our customers' customers lived.

40:40 They were going to want to buy product and especially right now they're all doing a lot of cooking so selling our incredible stuffed tortellinis and raviolis from Northern Italy where the tortellini was created was going to be appealing. And having 178 olive oils, obviously we didn't put them all on the site because we had to create a site. So I would say we're in the first inning of something that's really interesting and intriguing and the team is really psyched to really take it to the next level. If there's any silver lining, you know, I think it was Isaac Newton that finished his theory of gravity during the plague, and I think Chef Warehouse created a shop like a chef during the corona pandemic.

41:35 And you mentioned, you know, just I think, you know, just alternative revenue streams in general. I mean, can you help us think about grocery and the opportunity there? And is there anything else that you're thinking about?

41:50 Well, right now we're really thinking that we'd like our 40,000 customers to reopen.

41:56 Yeah.

41:57 So, you know, I still find it amazing that, you know, this week we hit a 50% compared to last year. Thank you very much. I think our first store went out and sold almost 5,000 boxes I think it was about $200,000 worth of product to their customer base because obviously you see the lines that were going at supermarkets and the lines to get into Costco so I think we found all different outlets of I think a lot of people have copied it since then they call them groceries and stuff and a lot of that will go away but I think that what will not go away will be restaurants know that they need other avenues of income. And I think that, you know, if I had a crisper ball, you know, and I had to say, you know, business is not going to be great for a while. Tourism is going to be down.

43:18 What I do think is going to happen is, you know, restaurants are going to do volume, you know. They're not going to do what they were doing before until, obviously, there's a different world out there. But I think they're going to do a lot of takeout. which is going to make up a lot of what they are losing in sit-down. Not everybody, obviously not everyone who's maybe in the theater district and it's not a residential neighborhood or a typical place, but I think the tremendous amount of business that we serve and that we've seen open up for takeout, I think that's going to continue. I know just from my own experiences, I did a lot of cooking. and towards the last two weeks, I did a lot of takeout.

44:03 You know, you get tired of doing, you know, cleaning up and having to prepare meals and all that and obviously as most people start to get back to work and busy and busier, I think more of the norm will come back where people are just too busy to want to spend two, three hours, you know, putting together big meals. They will cook, obviously, but I think takeout is going to become a bigger part of the average restaurant. Catering meals. What's incredible is the restaurateurs, you know, a lot of them were immigrants, you know, when I started the business and a lot of their children are in the business and, like I said, I don't think they're going to go work at Wall Street or they're going to go back to medical school. These people, this is what they do. They're in the hospitality business and they're going to find ways to create revenue streams to make a living in hospitality.

44:58 And when we think about the expense reductions that you've made so far in this quarter, I guess, you know, obviously a lot will just depend on where volume goes from here, but how do we think about as that as things do open up and ramp back up, how to think about what kind of expenses will need to be added back in that ramp and any help you can in kind of thinking through how to model that would be helpful.

45:26 Yeah, Kelly, you know, obviously it's going to depend on the pace and level of ramp, but, you know, as volume increases, as our routes increase, will layer in the volume-driven variable costs, relatively, and then things like commissions will increase. So it'll take more of a natural kind of cadence, depending on the cadence of business, which we don't have a whole lot of visibility into right now.

46:08 Yeah. Yeah, I think... You know, you've heard it from the other calls. We've all, you know, gotten down, you know, into the business at a deeper level. It was a chance to really understand. As much as we understand our business, it really gave us insights on where we could be more efficient and what costs we really don't need to add back. And I think, again, you look for silver lining in such a nightmare. And I think, Kelly, that's really... You know, another part of the silver lining is that we'll be able to actually come back, you know, and operate leaner, smarter, and be able to, you know, obviously claw our way back to where we were in a more efficient fashion, understanding, you know, where our inefficiencies might have existed before, you know, and obviously business was growing 7% or 10%, and obviously you always want to be as profitable as possible, but I think you always learn something when you're low to the ground and, you know, you're in a situation where you've got to squeeze every penny.

47:18 And I think as business comes on, I think we'll be smarter in how we add that cost.

47:27 Thank you. And our next question comes from Ben Cleave of National Securities.

47:38 All right, thanks for taking my questions. Just a couple quick ones here. First, I'm wondering if we can get a bit of granularity on the weekly improvements that you have described, you know, over the past few weeks. To what degree do you see the improved performance being attributable to your Emerging Shop Like a Chef initiative versus improvements from your, you know, your legacy business as restaurants, you know, beginning to increasingly be able to take, you know, to-go and delivery orders, things of that nature?

48:09 So, Ben, thanks for the question. So, just in terms of the cadence, you know, March 16th, when everything fell off a cliff, you know, we saw volume decrease, you know, as much as 60 to 70 percent. And then through April, you saw a gradual build to kind of a, you know, mid-30s, kind of 40 percent. And then, as Chris mentioned in the last couple of In the last week or so, you know, we've had days where we were in the high 40s or even a day or two at 50%. So that's been kind of the cadence that we've seen since March 16th. And I'm sorry, what was the second part of your question?

48:53 Really, what is driving that? Is that the Shop Like a Chef initiative that's beginning to materialize, or is it largely attributable to your legacy customers that are ramping back up?

49:08 Yeah, it was really materially driven by as our customers, as Chris mentioned, started to open up for takeout and delivery and curbside service. Obviously, our Shop Like a Chef and our Allen Brothers fake retail business really grew but was not the preponderance of that growth.

49:34 Got it. Perfect. And then the last one for me and I'll get back in queue, but I'm wondering if you can talk a bit about the growth initiative in Texas and L.A., how the COVID-19 area is impacting those and then your just kind of overall thoughts on CapEx for, you know, on a full-year basis, if you can provide any either, you know, quantitative or at least directional insight for the CapEx numbers.

50:02 Yeah, so we had originally guided in the kind of $40 million range, with the bulk of that being in the second half of the year, we expected to build out the L.A. facility that we've invested in. Given the COVID-19 situation, We have temporarily delayed that, so we brought our guidance down. I think you'll see in our 10Q to the kind of $10 to $12 million range right now, and that's mainly IT and maintenance CapEx and about $3 million of CapEx that we actually had in the first quarter. So right now, we still plan to expand in L.A., but... Given the situation, it's temporarily on hold.

50:51 Got it. Got it. Very good. Well, that does it for me. Thanks for taking my questions, and best of luck in the second quarter and the rest of the year here. Thanks. Thanks, sir. And that does conclude our question and answer session. Well, thanks, everybody, for joining. Ladies and gentlemen, that does conclude our call today. We do appreciate your participation. Have a great night, and at this time you may disconnect. Thank you.