Why Chef's Warehouse (CHEF) Is Falling Today

NEW YORK (TheStreet) -- Chef's Warehouse (CHEF) fell 13.9% to $23.50 Tuesday following lowered guidance and a downgrade from BB&T Capital.

The specialty food distributor announced that it now expects revenue of $670 million to $673 million for fiscal year 2013, which is in line with expectations of analysts surveyed by Thomson Reuters. Chef's Warehouse also expects adjusted net income between 80 cents and 81 cents a share, below analyst estimates of 90 cents a share. The net income is even with the net income of the year before despite a 40% increase in revenue.

In a press release, CEO Christopher Pappas said "Top-line performance of our core business for 2013 was toward the lower end of our expectations, due in part to adverse weather." December was also much weaker than the company expected according to Pappas' statement.

Following the lowered guidance BB&T Capital downgraded Chef's Warehouse to "hold" from "buy." The firm also removed its price target for the company, which was previously set at $29.

TheStreet Ratings team rates CHEFS' WAREHOUSE INC as a "buy" with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate CHEFS' WAREHOUSE INC (CHEF) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share, increase in net income and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 6.4%. Since the same quarter one year prior, revenues rose by 36.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • CHEFS' WAREHOUSE INC has improved earnings per share by 11.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, CHEFS' WAREHOUSE INC increased its bottom line by earning $0.69 versus $0.37 in the prior year. This year, the market expects an improvement in earnings ($0.90 versus $0.69).
  • The net income growth from the same quarter one year ago has exceeded that of the Food & Staples Retailing industry average, but is less than that of the S&P 500. The net income increased by 9.1% when compared to the same quarter one year prior, going from $3.82 million to $4.16 million.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 78.09% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • The gross profit margin for CHEFS' WAREHOUSE INC is currently lower than what is desirable, coming in at 26.88%. Regardless of CHEF's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 2.43% trails the industry average.

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