IPO Preview: Chefs Warehouse

Jul.26.11 | About: Chefs' Warehouse (CHEF)

Based in Ridgefield, Connecticut, Chefs Warehouse (NASDAQ:CHEF) schedule a $120 million IPO with a market capitalization of $311 million at a price range mid-point of $15 for Thursday, July 28, 2011. The full IPO calendar for the week of July 25th includes 12 IPOs scheduled to raise $2 billion.

SUMMARY -- CHEF is a well-established specialty food distribution company with good historical growth.

Sales for the March 2011 quarter compare to the March 2010 quarter were up 19% to $8 3 million and earnings increased 87% to $2.8 million. Distribution, however, is a low P/E multiple business.

CHEF believes it has a distinct competitive advantage as a result of its extensive selection of distinctive and hard-to-find specialty food products, our product knowledge and our customer service.

VALUATION -- On a valuation basis CHEF seems perhaps a little overpriced at 28 times March quarter 2011 earnings.

On the other hand, CHEF should be watched to see if it can continue its recent sales and earnings momentum.

Use of proceeds is to redeem preferred stock and repay debt. We prefer for a IPO company to have a strong enough balance so that IPO proceeds can be allocated to working capital and general corporate purposes.

CHEF Valuation Metrics

BUSINESS -- CHEF is a premier distributor of specialty food products in the United States. CHEF is focused on serving the specific needs of chefs who own and/or operate some of the nation’s leading independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools and specialty food stores.

PLUS’s -- CHEF believes it is a leading distributor of specialty food products in many of the key culinary markets. In particular CHEF believes it is the largest distributor of specialty food products in the New York, Washington, D.C., San Francisco and Los Angeles metro markets as measured by net sales.

CHEF also believes these markets, along with a number of other markets it serves, including Las Vegas, Miami, Philadelphia, Boston and Napa Valley, create and set the culinary trends for the rest of the United States and provide us with valuable insight into the latest culinary and menu practices.

GROWTH PLAN -- As of December 24, 2010, CHEF served more than 7,000 customer locations in the United States. CHEF plans to expand its market share in the fragmented specialty food distribution industry by cultivating new customer relationships within existing markets through the continued penetration of independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools and specialty food stores.

CHEF believes it can improve its operating margins by continuing to leverage inventory management and logistics as well as general and administrative functions to yield both improved customer service and profitability. Utilizing its fleet of delivery trucks, CHEF fills an average of 11,000 customer orders each week, usually within 12-24 hours of order placement.

CHEF has 189 hourly and 382 salary- or commission-based employees.

COMPETITION -- The foodservice distribution industry is highly competitive. CHEF competes with numerous smaller distributors on a local level, as well as with a limited number of national broadline foodservice distributors.

USE OF PROCEEDS -- Shareholders intend to sell 3.3 million shares for $46.5 million. CHEF intends to sell 4.7 million shares to net $63 million. IPO proceeds are allocated to redeem preferred stock and repay debt.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.