Chefs' Warehouse Inc

NASDAQ:CHEF

Earnings Call Transcript 2024-Q3

[Operator]

Greetings, ladies and gentlemen, and welcome to The Chefs' Warehouse Third Quarter 2024 Earnings Conference Call. As a reminder this conference is being recorded.

I'd now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary and Chief Government Relations Officer. Please go ahead, sir.

[Alexandros Aldous, executive]

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman and CEO; and Jim Leddy, our CFO. By now you should have access to our third quarter 2024 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 measures are not calculated in accordance with GAAP and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative 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. 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 cause actual results to 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-K and quarterly reports on Form 10-Q, which are available on the SEC website.

Today, we are going to provide a business update and go over our third quarter results in detail. For a portion of our discussion this morning, we will refer to a few slides posted on The Chefs' Warehouse website under the Investor Relations section titled Third Quarter 2024 Earnings Presentation. Please note that these slides are disclosed at this time for illustration purposes only. Then we will open up the call for questions.

With that, I will turn the call over to Chris Pappas. Chris?

[Christopher Pappas, executive]

Thank you, Alex, and thank you all for joining our third quarter 2024 earnings call. Business and demand trends improve sequentially through the third quarter. Continued seasonal increase in international travel among the higher income demographic led to a slightly softer season in July and early August. Customer activity accelerated into the latter half of the quarter and momentum and demand continued into October.

Our operating divisions across domestic and international markets delivered strong growth in gross profit dollars and margin as well as continued progress increasing relevance with our customer base, with strong year-over-year growth in unique item placements.

I would like to thank the entire CW team for their dedication and commitment to delivering our diverse and highly -- high-quality product and service in partnership with our suppliers and customers and the communities we serve.

Please refer to Slide 3 of the presentation. A few highlights from the third quarter includes 5.6% organic growth in net sales. Specialty sales were up 7.5% organically over the prior year, which was driven by unique customer growth of approximately 4.7%. Placement growth of 10.8% and Specialty Case growth of 3.1%. Organic pounds and center-of-the-plate were approximately 1% higher than the prior year third quarter. The year-over-year percentage pounds growth was partially impacted by attrition related to noncore lower margin business in certain markets.

Gross profit margins increased approximately 58 basis points. Gross margin in the specialty category increased approximately 50 basis points as compared to the third quarter of 2023, while gross margin in the center-of-the-plate category increased approximately 45 basis points year-over-year. Jim will provide more detail on gross profit margins in a few moments.

As we progress in the growth and capital allocation plan announced during the fourth quarter of 2023, we wanted to take this opportunity to provide more detail on certain commercial and operational metrics that we expect to contribute to achieving our targeted range of financial goals by year-end 2028. In addition, we have engaged a global consulting firm to assist our teams in driving both top line and bottom line improvements as we target annual incremental margin gains.

Please refer to Slide 4. Chart 1 displays trailing 12-month gross profit dollars per route as of third quarter 2024 as compared to full year 2019. Chart 2 displays adjusted operating expense as a percentage of gross profit dollars as well as the progression of adjusted EBITDA per employee for full year 2023 and estimated 2024, based on the midpoint of our current full year guidance as compared to 2019.

Across our locations, our teams continue work to improve distribution costs via multiple initiatives, which include route consolidation and internal transfer reductions in certain key markets. During 2024, we've eliminated routes and transfers in the Southwest as we opened our Arizona facility. In Northern California, as we integrated recent acquisitions with our specialty operations and in the Northwest with our Seattle facility coming online. The consolidation of 4 protein processing and distribution operations in Northern California continues to progress and we expect completion by the first quarter of 2025.

Now please refer to Slide 5. The charts here display the progression of customer orders coming via our digital platforms, which include orders coming via mobile and website. Investments in our digital platform continue to contribute to margin enhancement as our team drives both online order adoption growth, enhancements to customer-facing functionality and improved real-time data and analytics supporting our sales teams. As of the third quarter of 2024, approximately 54% of customers ordering through our domestic specialty locations are online versus 48% in 2023 and 20% at the end of 2019.

Now if you could please refer to Slide 6. This slide provides the 5 primary areas our teams are focused on in order to deliver our 2028 financial targets. While we will not go into detail of every initiative on this call, we do expect to provide more color during future presentations. In addition to the metrics just discussed, we have highlighted here a number of growth and efficiency-related areas of focus.

One key focus to highlight is the ongoing integration of our specialty produce and protein businesses in Texas. We are taking steps to improve operational efficiency, merge our sales teams and incrementally grow the cross-sell of our diverse and high-quality specialty produce and protein products across our platform. Year-to-date 2024 EBITDA margin for our combined Texas operations has improved approximately 110 basis points versus the same period in 2023.

With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter and an update on our liquidity. Jim?

[James Leddy, executive]

Thank you, Chris, and good morning, everyone. I'll now provide a comparison of our current quarter operating results versus the prior year quarter and provide an update on our balance sheet and liquidity.

Please refer to Slide 7. Our net sales for the quarter ended September 27, 2024, increased approximately 5.6% to $931.5 million from $881.8 million in the third quarter of 2023. We estimate that softer demand during July, including the impact of Hurricane Beryl, impacted third quarter revenue growth by approximately 1%. Net inflation was 3.2% in the third quarter, consisting of 4.3% inflation in our specialty category and inflation of 1.4% in our center-of-the-plate category versus the prior year quarter.

Aggregate specialty inflation was primarily driven by significant year-over-year price increases in chocolate and certain dairy products. Excluding these products, remaining aggregate specialty product inflation was in the 2% to 3% range. Gross profit increased 8.2% to $224.7 million for the third quarter of 2024 versus $207.7 million for the third quarter of 2023.

Gross profit margins increased approximately 58 basis points to 24.1% and our procurement sales, pricing and operations teams delivered strong gross profit dollar growth across categories during the quarter.

Selling, general and administrative expenses increased approximately 7.4% to $192.9 million for the third quarter of 2024 from $179.6 million for the third quarter of 2023. The increase was primarily due to higher depreciation and amortization driven by facility investments and costs associated with compensation, facilities and distribution to support sales growth in the current quarter.

Adjusted operating expenses increased 8.2% versus the prior year third quarter. And as a percentage of net sales, adjusted operating expenses were 18.3% for the third quarter of 2024. Our operating income for the third quarter of 2024 was $31.9 million compared to $25.5 million for the third quarter of 2023. The increase in operating income was driven primarily by higher gross profit, partially offset by higher selling, general and administration expenses versus the prior year quarter.

Our GAAP net income was $14.1 million or $0.34 per diluted share for the third quarter of 2024, compared to net income of $7.3 million or $0.19 per diluted share for the third quarter of 2023. On a non-GAAP basis, we had adjusted EBITDA of $54.5 million for the third quarter of 2024 compared to $50.3 million for the prior year third quarter. Adjusted net income was $15.4 million or $0.36 per diluted share for the third quarter of 2024 compared to $13.7 million or $0.33 per diluted share for the prior year third quarter.

Turning to the balance sheet and an update on our liquidity. Please refer to Slide 8. At the end of the third quarter, we had total liquidity of $221.3 million, comprised of $50.7 million in cash and $170.6 million of availability under our ABL facility. During the third quarter, we continue to make progress toward achieving our year-end 2025 capital allocation goals of 2.5 to 3x net debt leverage and repurchasing $25 million to $100 million of equivalent outstanding shares.

Timing of repurchases will continue to be dependent on share price, market conditions and free cash flow generation. As of September 27, 2024, year-to-date, we have repurchased $10 million shares dollars of our outstanding common shares, resulting in a reduction of approximately 264,000 shares outstanding, and repaid $18.5 million of outstanding debt.

As of September 27, 2024, total net debt was approximately $651 million, inclusive of all cash and cash equivalents and net debt-to-adjusted EBITDA was approximately 3.1x as compared to approximately 3.4x as of year-end 2023. Post-third quarter end, on October 22, 2024, we repriced our $262 million term loan maturing in 2029, reducing the coupon from SOFR plus a fixed spread of 4% to SOFR plus a fixed spread of 3.5%.

Turning to our full year guidance for 2024. Based on the current trends in the business, we are updating our full year financial guidance as follows. We estimate that net sales for the full year of 2024 will be in the range of $3.71 billion to $3.775 billion. Gross profit to be between $890 million and $906 million and adjusted EBITDA to be between $210 million and $219 million.

Please note, for the fourth quarter and full year of 2024, we expect the convertible notes maturing in 2028 to be dilutive and therefore, we expect the fully diluted share count to be approximately 45 million shares for the fourth quarter and full year reporting periods.

Thank you. And at this point, we will open it up to questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from Mark Carden of UBS.

[Mark Carden, analyst]

So to start, it sounds like trends improved as the quarter progressed, impacted by some of the summer travel at the beginning of the period. More broadly speaking, though, it sounds like traffic challenges were a bit more intense for the industry as a whole. I just want to see if any additional pockets of softness emerged for Chef in 3Q or if it was pretty steady as what you guys have been seeing in recent quarters?

[James Leddy, executive]

Thanks, Mark. Yes. No, I think you kind of summarized it. We had a little bit of a blip in July. I think -- last year, I think the industry thought that July was a bit of an anomaly, early August with the level of international travel. That repeated again this year. That may be the new normal where you have a softer July than kind of pre-COVID periods. And then you have a good strength going into the back half of the quarter and that's kind of how it played out.

So I would say, I think we mentioned in our prepared remarks that we think it cost us about 1% on top line in the quarter, but our teams did a really good job of driving really strong gross profit dollar growth, continue to take market share with unique item penetration to offset some of the softness in July. And as we mentioned, the trends which we're building into September kind of continued into October, so.

[Mark Carden, analyst]

Okay. Great. And then just have you guys seen any shifts in the salesperson hiring environment? And by this, just are you seeing any competition for top talent picking up at all? Or just any impact of applications just given some of the industry-wide declining traffic that we're seeing even if your customers are holding up a bit better?

[Christopher Pappas, executive]

Yes. I mean, we continue to hire. We're always looking to bring in the bench as we say it. You have to have that bench to grow. I think that sometimes it's underestimated how long it takes to train qualified people. I always use the example of, would you go see a doctor who just did 1 year medical school? I wouldn't. I'd like them -- to see them graduate and do their residency.

And it's the same with the sales team. It takes years to build really high-qualified, I call them, relationship manager at this point to understand, especially us, more complicated product lines. So our people are good performers. It's a job almost for life. It takes years to build those relationships and the portfolio of products that customers are relying on. So we don't have a lot of jumping around and we continue to hire.

[Operator]

Our next question comes from Alex Slagle of Jefferies.

[Alexander Slagle, analyst]

Congrats. I wanted to ask on Hardie's, you gave some color on your Texas business, the margin ramp there. And just wondering if you could update us on how much Hardie's is diluting the overall EBITDA margin at this point? And then just the progress, you talked about the progress integrating cross-selling. Maybe you could provide some examples of improvements you've seen in certain parts of the business as the early work there has been paying off.

[James Leddy, executive]

Yes. Sure. I'll start. Alex, thanks. Yes, I think we mentioned on one of the slides that we posted that -- and most of that is Hardie's, but we expect kind of 20 to 30 basis points of improvement in our overall EBITDA margins as we further integrate some of the acquisitions. And Hardie's is a big part of that because it's a big revenue company.

It's given us a big footprint in Texas that we were looking for. And the team is making progress. I mean, we've gotten our operations team in there to help them get more efficient operationally.

We've taken out some costs initially. And then building that business and integrating it with our CW specialty business and our Allen Brothers protein business in Texas is underway. It's going to take a couple of years to really ramp it up, but that's pretty normal when you're creating a true Chefs' Warehouse in a market where you're small and you're going to grow fast.

[Alexander Slagle, analyst]

So what's the margin compression?

[James Leddy, executive]

Yes, it hasn't really changed. It dilutes us by about 20 to 25 basis points overall and we look to get that back as we integrate the business over the next couple of years.

[Christopher Pappas, executive]

Yes. Alex, the -- what you're seeing from our performance is all the investments we've made over the many, many years that we're just taking market share. It's all the cross-selling that's working. And in a market -- I mean, we kind of built our system for environments like today where you do have traffic slowdown in restaurants. So I think all your reports and all your data that's coming out is that it's a little soft compared to last year.

And the only way really to grow and the reason you see our numbers performing so well is we're just taking market share from all our investments in people, in systems, in our warehouses. And it's a grind and you've got to be able to win the grind right now. And thank God, we're winning.

[Alexander Slagle, analyst]

Yes, that's helpful. And I guess a follow-up, just kind of wondering about churn levels and where they're tracking. I know it's still tough out there, like you've been saying in the higher price levels. I'm sure more food service operators are shopping around, looking for better prices. And you think maybe this churn level would pick up, still impressive net customer growth, mid-single digits, but kind of curious what you're seeing there?

[Christopher Pappas, executive]

Yes. I mean, again, it's always been a very competitive industry, but you see that our -- actually our margin is up. So I keep going back to people that have followed our stock and have invested in us. We've been investing. We've constantly been investing into the systems and into the model. And we're kind of built for this environment where things are not optimal. You don't have a giant tailwind and big customer grow -- actually, we're winning with our customers.

New customer acquisition is helping us with the headwind right now of a little softness at the customer level. But business is pretty good. I mean, people still think that you're going to have COVID, that COVID rush that we [ swore ]. And I think it's just more normalizing. Our really good core customers are performing really well. A little softness maybe at the super high end still in the steakhouses. But we think that business has been coming back and it will get better.

Unfortunately, customers are going to get used to higher prices. And the more it costs to go out, the more consumers are going to want that great experience. And you better have great service and great food when customers are going to spend $100, $150 a head. So I think that's where Chefs' Warehouse, the reliability of what we sell and what we're able to deliver them and I think that's driving our cross-selling.

[Operator]

Our next question comes from Andrew Wolf of CL King.

[Andrew Paul Wolf, analyst]

I might have missed this, but could you kind of give us a sense of the cadence? I know you gave it qualitatively, but how much better has September and October been versus the 3.3% or so case growth -- Specialty Case growth for the quarter?

[James Leddy, executive]

Yes. I mean, I would say that the best way to frame it is really we think July and early August cost us about 1% on top line and that was primarily demand-driven. And then it just progressed nicely through the quarter. We don't have a breakout month by month. And then as I mentioned, trends continued into October coming out of September.

[Andrew Paul Wolf, analyst]

Okay. And just Cisco yesterday said late October was better because beginning of October was impacted by hurricanes, kind of suggested that late October is even was better maybe perhaps than September. Did you all see a similar kind of cadence?

[James Leddy, executive]

We don't operate a huge amount of business in a good portion of where the hurricane hit in Florida. It did impact us a little bit in early October, but nothing hugely material. So I don't have any commentary in October other than the trends were good coming out of September into October.

[Andrew Paul Wolf, analyst]

Got it. And thank you for the charts and the information on the bridge to the long-term guidance. I just did some simple math and with Hardie's, it's about 25 basis points of EBITDA margin expansion a year between now and [ 2008 ], without it, it's like 20. So you could tackle this either way, but it's kind of 2 questions.

Should we -- if we were building out a model to '08 in this way, would we look for margins to increase linearly like 20 bps a year or 25, including Hardie's getting better? Or is it something where the out-years, there's more improvement because you're adding digital, you're doing route expansion, facilities are getting increasingly productive? How do you suggest the margin build is going to play out?

[James Leddy, executive]

Yes. I mean, you can never predict exactly how it's going to play out. Nothing goes in a straight line. But I'll go back to the 3 or 4 years before COVID hit. We were coming off a big investment period and we were able to deliver kind of 20 to 25 basis points of EBITDA margin improvement -- adjusted EBITDA margin improvement for a couple of years there, then we got hit by the nuclear bomb.

And I think we're coming off of a similar type of investment period and we've talked about this before. And the goal will be to kind of get that 20, 25 basis points a year. Whether it happens in a straight line, well, a lot of that will depend on the macroeconomic environment, obviously. So you can model it either way I think, but that's our target.

[Andrew Paul Wolf, analyst]

Okay. So that's fair. So there's nothing in these plans that are like dependent on a lot of digital or internal -- I wouldn't call it consolidation like route, all of this stuff like just meat and potato can be executed on a day-to-day basis, there's no big investments or trainings that have to happen?

[Christopher Pappas, executive]

Yes. I think that's already baked in, Andy. We've made major, major investments in all departments. We're not 100% there yet, but we've added a lot of capacity. There are some markets that do need a more modernized consolidated setup. We have multiple warehouses in multiple markets that one day probably will be consolidated. And you get a lot more efficiency, kind of, what we're going through right now in San Francisco with protein where we built it. Now we're consolidating it and we should get the rewards over the next many years of the efficiencies of scale, okay?

And I think that besides some of the new markets that still need a little more consolidating, as we -- I mean, you've been doing this a long time. You know the business that as we drive more volume into the capacity that we build, it should eat up more and more of the overhead. A lot of the overhead is fixed and you get more of that drops to the bottom line. And that's kind of the phase we think that we're going through right now and we're going to start to get the rewards of those investments as the volume -- as we drive those volumes.

And like Jim said, we are at the mercy of the economic environment, good environment, volume continues to tick up faster, we start to get more leverage faster. A little slowdown, you get a little bit less. But I think the team has done an unbelievable job. If you really look at the numbers and you say you mentioned some of the reports coming out from other companies, the environment is more challenging.

And to put up the kind of numbers we're putting up, it's the grind and taking market share and all the investments in people to sell more products to the same customers and that's what's driving the bottom line.

[Operator]

Our next questions come from Kelly Bania of BMO Capital Markets.

[Kelly Bania, analyst]

Wanted to just talk about some of the initiatives you outlined here as you target these 2028 financial goals. And can you give us just any more color on the biggest contributors to the margin expansion? I guess I see here the route consolidation initiative that I was hoping we could drill down on a little bit more within that because it -- maybe it's always been going on behind the scenes, but maybe you can just talk about framing up the opportunity there as well as some of the other big factors that contribute to that margin goal?

[Christopher Pappas, executive]

When you say margin, though, you're talking about gross margin or just bottom line margin, Kelly?

[Kelly Bania, analyst]

Yes, the adjusted EBITDA margin goal of 6.5% to 7% by 2028.

[Christopher Pappas, executive]

Yes. I think it's Goldilocks. I think it's a little bit everywhere. Our digital teams and our pricing teams just continue to get better. So we're able to manage pricing in an environment where you do have more volatility or shortages and what climate change has been doing to a lot of our products.

When you look at what's happening in the chocolate market, where you had this massive now inflation in it, it's challenging. So I think it's part of the pricing teams, category management teams, and it's the operation team. Like you say, there's always -- we're always trying to get efficiencies in routing, but now that we've built out so many of these larger warehouses, as the volume starts to increase, you're going to get more to the bottom line.

As long as your core business is strong and you have good customers, you're not adding a ton of business just to fill up the warehouse at low margin. I mean, part of our top line softness -- well, a softness to, I guess, expectation is we continue to shed business that we think is long-term is not core Chefs' Warehouse business. Sometimes we'll take on some of that business, especially where we have the space.

But as we start to grow into our space, we start to shed that business that we don't find very profitable. And I think we're very disciplined. We've been doing that for years and we continue to give up that business. And that's why sometimes you see our top line a little softer than sometimes we anticipate because we're just finding a time and place that we're willing to raise prices on that business and it goes away to somebody that maybe can try to figure out how to make profit on that business.

So I mean, you've been following us for many years. We're a margin profit company. It's built to not sell everybody and you've got to be willing to let go some of that business. And I think that's what you're starting to see. And as the economy starts to hopefully pick up with a little bit more tailwind, more and more of that GP drops to the bottom line because we're starting to get the leverage on the overhead.

[Kelly Bania, analyst]

That's helpful. And then, Chris, you've talked in the past couple of quarters maybe just about new restaurant openings. What are you hearing from your kind of core customer base and particularly how, if at all, a lower rate environment may impact their pace of openings or their plans for new openings?

[Christopher Pappas, executive]

Yes. Well, again, our core business are the independents, right? I mean we have great, great customers who have 20, 30, 50 restaurants and we have a few that have a lot more. And they're opportunistic. And I think that coming out of COVID, I said there's going to be a lot of restaurants that close.

But as leases come up, landlords need to put restaurants that could draw traffic into their buildings, especially with what they've been facing, getting people back to the office. A lot of new developments in the suburbs and how COVID has changed the workplace, right, where people are working more remotely and going out in the neighborhoods that they live or have a local office.

So we saw strong growth in openings. And I think you're going to continue to see that. Obviously, interest rates can help, but restaurant tours build restaurants, that's what they do. So if they find a great location and -- or a landlord that's enticing them to come in and the economics make sense, they're going to open restaurants. And I think that's what we've been seeing and I really don't see an end in sight.

[Operator]

The next question comes from Todd Brooks of Benchmark Company.

[Todd Brooks, analyst]

A few quick questions, if I may. Chris, you talked about in the presentation that Chef has engaged a global consulting firm. I'm just wondering what are you hoping that outside talent can unlock either from an efficiency standpoint? Or is this a revenue-driving standpoint? Just what are you hoping that the outside viewpoints might bring to Chef?

[Christopher Pappas, executive]

Sure. So we've always ran the business almost kind of with the -- like a start-up mentality, like we developed great tools and great systems. And obviously, you can't replace the people. I mean, we are in the people business, so we make sure that we're getting the best talent and keeping them.

But technology has changed so much. AI, obviously -- everybody is talking about AI. We're using AI. And obviously, we see the future of more AI to help our people. So I think it's just a fresh pair of eyes, Todd, to help go through some of the projects and things that we're looking at to give us an outside perspective of if we can always do better.

[Todd Brooks, analyst]

Okay. Great. Secondly, I know we get to the end of October and I'm usually asking you this question, Chris, on this conference call. But early reads, what are you hearing from customers about their views on the holiday? I know the bookings tend to happen a little bit later than they did historically around that kind of peak holiday demand, but any early reads or feedback that you're hearing from your customers on holiday?

[Christopher Pappas, executive]

Yes. I think the overall tone is pretty positive. The one thing that has changed that you just hit on is that since COVID, people don't -- like they tend not to book far ahead. Yes, sure, conferences and stuff where you have to book, but so much is, I wouldn't say last minute, although there is a lot of last minute, but they get a few weeks of customers.

I was actually talking to one of our long-time customers the other day and he goes, I'm going to send you something, Chris. These are the parties that booked in the last few days for next week. Normally, they would book a month, 2, 3, 4 months ahead. And this is the new environment that we have to be ready for. You look at it and say, okay, we're -- this is the kind of staff we'll probably need. This is what it looks like. And all of a sudden, you get 30%, 40% uptick in your bookings.

So of course, we're very excited about that, but it creates a little bit more challenging environment, but they're adapting. They're getting used to that. And I think that's the business that was missing, obviously, during COVID the most. And I think that's the strongest part that we see coming back, small parties, booking for everything, for meetings, for celebrations, for planning, for just client dinners, lunches. And I think that's -- we've been very pleased with what we're hearing.

[Todd Brooks, analyst]

Okay. Great. And one final one, and I'll jump back in queue. Jim, you talked about inflation in the quarter and I think a little north of 3%. You highlight a couple of categories that saw outsized inflation and the rest of that kind of specialty basket being in that 2% to 3% range. Is that kind of the forward thinking for the fourth quarter? And any early reads on how you're thinking about inflation and any sources of really easing in pricing as we go into '25?

[James Leddy, executive]

Yes. Thanks, Todd. No, I think volume and price, you can never predict exactly the mix because product mix impacts that. And then we highlighted the chocolate and dairy products because it really had a product mix impact on volume and price. They're higher dollar boxes. And so they -- when you grow them quarter-over-quarter, you have a little bit lower volume, but you get really good gross profit dollar growth, which we definitely generated this past quarter.

But I think we guided to organic revenue growth of 6% to 7% this year, more heavily weighted to the first half of the year. And that's been kind of playing out. So as we go into the fourth quarter, I don't think we see anything on the horizon that's going to be materially different from getting to that 6% to 7% on a full year basis. And so I think it will be similar the way it plays out, at least right now.

[Operator]

Our next question comes from Peter Saleh of BTIG.

[Peter Saleh, analyst]

I was hoping you could talk a little bit more about how your customers are using you in mature markets like New York and the Northeast versus some more of the new markets, areas of Texas and Florida and California? Are you just seeing -- do customers use you differently in those markets based on maturity? And then I have a follow-up.

[Christopher Pappas, executive]

Yes. Yes. I mean, our more mature markets, Peter, obviously, we have protein divisions, we have produce divisions, besides our specialty and broadline. So we're kind of a one-stop shop in many ways in more of the mature markets. And really, that's our goal to be able to have that presence in all markets. So yes, the young growing markets, people usually focus more on buying specialty from us.

And then there's certain markets that really we entered as a protein company, and we're selling protein and then some more specialty. And as those warehouses start to go up, like we have a small facility now in Nashville and that business continues to grow from specialty and protein to more kind of like -- I always say kind of like looking like New York, which is our benchmark, our most mature market, our biggest business.

So we're really happy in all markets. They're all growing as fast as they can. As we say, you've got to have that staff that's trained, you've got to build that relationship team that becomes experts in protein and produce and specialty. And so that takes time. So I think we're in a really good place with all our markets and they're growing as fast as they can with the ability of what their warehouse allows them to and their inventory allows them to grow.

[Peter Saleh, analyst]

Great. And then just my last question. On the bridge to 2028 and the call it 20, 30 basis points of EBITDA margin expansion, are acquisitions contemplated at all in these financials? Or is this just strictly based on organic growth for the next call it 3 years?

[James Leddy, executive]

It's based on organic. Obviously, acquisitions are opportunistic, so we don't model them in.

[Operator]

Our next question comes from Ben Klieve of Lake Street Capital Markets.

[Benjamin Klieve, analyst]

Congratulations on another nice quarter here. I've got a couple around the dynamic you both have referred to around kind of rationalization of lower-margin business. I'm wondering, first of all, Jim, if you're able to help quantify that -- the impact of this either from the perspective of a headwind to revenue growth and/or the degree to which gross margins have been expanded because of that initiative?

[James Leddy, executive]

Yes. Thanks, Ben. We don't break it out exactly. But I mean, the way you think about it is some of our I think, top line across the industry has been a little bit weaker this year because demand has been a little bit weaker. And then for us, a part of that is -- I think we called it out, especially related to center-of-the-plate, attrition of some noncore business.

And so you see it in gross profit margin expansion, there's a number of things that go into that. Part of it is attrition of lower-margin business. A good portion of it is all of the work that our pricing and sales teams and operations teams have done around reducing damages and returns and waste and better inventory management as well as some of the pricing models that we've started to integrate and work with our sales teams on. So there's a lot of different components.

And as Chris mentioned, it's kind of a thing that naturally happens. As we do some of the acquisitions that we've done, you do inherit some noncore business and you will attrite out of that over time. So nothing to really call out specifically in the quarter, but it's obviously a contributor to some of the dynamics we did -- we have seen so far this year.

[Christopher Pappas, executive]

Yes. And I think I could give you a little bit more color. Looking at it, and it's coming -- so the margin improvement is coming from, I think, a little bit from everywhere. So some of the business that naturally goes away, like Jim said, does help the overall margin go up because they're really low margin. And then part of the margin expansion is coming from just salespeople maturing and learning how to sell more of the book.

And the more products you can sell, usually the margin tends to go up because you have more opportunities. So you're not just selling 2, 3 items that you're kind of locked in. You get to sell a lot of the, I call them, longer tail items that tend to have a higher margin. So it's a little bit from that natural attrition of especially the companies that we bought the last few years.

The best example is, I would say, New England. We bought a great business that had too much low-margin business and we kind of let go of maybe half of it. And as they continue to grow as a Chefs' Warehouse, their margin profile starts to look more like a Chefs' Warehouse. And that's obviously our goal and we're really so pleased with that business and how they continue to grow.

And kind of we're running the same playbook in Texas and other markets where we had to enter a market and we had to enter maybe at a little lower margin than what our model tends to give us. And as those markets start to mature, they start to look more and more like a Chefs' Warehouse.

[Benjamin Klieve, analyst]

Great. That's very helpful from both of you. And as a follow-up, I'm curious about kind of how this thought process has evolved? Are you sharpening your pencils more on these kind of lower-margin products or customers today than you did maybe pre-pandemic? Or has your philosophy on this really been unchanged and you're just calling it out more today?

[Christopher Pappas, executive]

Yes. I mean, I don't think the -- the philosophy hasn't changed, but I think the reality stresses more that you can't lie to yourself. Labor costs you more. Building facilities cost you a lot more. Everything -- you call a plumber, it costs you a lot more, okay? So the reality is that it just costs you more, okay, to do the same job as it did pre-COVID. And you just have to get paid for it.

I suffered from that 20 years ago. Again, I've been doing this long enough that we're really good psychologically saying, we're going to figure it out. We'll do the volume and eventually, we'll make some money. And it just doesn't work that way. You get tied into selling at a very low margin with high cost. We're a high-touch company. We give tremendous service. It's just not our model.

So it's kind of like going to a Four Seasons hotel and you got great linens and you got great service, and you can't do it at the price of a Motel 6. So that's why our model is not to sell everybody. We know who we are and we want to stay on our [ mat ] and continue to grow because we think our clientele continues to grow. People love great dining, good food and we just don't need to try to be everything to everybody.

[Benjamin Klieve, analyst]

Very good. Appreciate that color. Congratulations again on the nice quarter, keep up the good work.

[Christopher Pappas, executive]

Thanks, Ben.

[Operator]

It appears we've reached the end of our question-and-answer session. I will now hand over to the CEO, Chris Pappas, for closing remarks.

[Christopher Pappas, executive]

Sure. Well, we thank everybody for joining our call today. We're so proud of our team, that they put up another great quarter and we're moving all our initiatives forward and continue to strive to become a better, better as the leading specialty food supplier for the best chefs in the world. And we thank everybody and we look forward to our next call. Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, this concludes today's event. Thank you for joining us and you may now disconnect your lines.